Starting to invest may sound like an impossible task, but it doesn’t have to be. With a solid plan and a bit of financial mindfulness, you’ll find it’s easier to get your finances together than you’d expect. Just follow these simple suggestions, and you’ll be ready to invest in no time.
If carefully budgeting your finances sounds like a drag, I understand. But it’s actually the first crucial step toward improving your fiscal future and getting to a place where you can invest with confidence. The basic idea of budgeting is really simple: You track the money that’s coming in and all your expenses going out. But remaining diligent is where it gets more complicated. Don’t just input your paycheck and subtract your rent/mortgage, food, and utilities — track all your other expenses as well. If you spend a little every week on new clothes, put that in. If you go out with coworkers every Friday, put that in, too. Once you understand all the money you earn and spend, it’ll be clear where you can skim and save to stabilize your finances.
Remember, this isn’t about not spending money on the things you want. It’s just about factoring in everything you spend to get a holistic idea of your finances. Whether you use a spreadsheet system or download one of several amazing budgeting apps, establishing a set budget is the first crucial step on the road to financial security.
Not all debt is created equal, and you can definitely pay off some debt — like a low-interest student loan, for example — at a steady pace, monthly and on time, as long as you’re paying more than just the interest. But other debts are more predatory, including high interest and variable interest private student loans and credit card debts, and you’ll soon find your outstanding balance ticking up higher and higher as extreme interest rates accrue. Once you’ve got your budget sorted, it’s time to start attacking any of these dangerously high interest debts you may have accrued. Be sure to prioritize the ones with highest interest, then pay them off quickly, all at once (if you’re blessed), or at least pay enough over the interest to make a sizeable dent in your account balance. Prioritize this as soon as you can afford to, and you’ll save a ton of money in the long run.
If your employer offers a 401(k), take advantage of it immediately. This is, for most people, their first real step toward investing. By investing a portion of your salary (pre-tax) in a 401(k), you’re taking the first steps toward smart investing and saving money when you file your taxes (since your employer doesn’t include those contributions into your yearly taxable income).
Plus, your employer might match some of your contribution, which means you could find yourself with a tidy little sum when it comes time to retire. To ensure you’re getting the most out of your contributions, find out how much your company matches and at what levels they match your contributions, and then do some math to figure out how much you can afford to put into your 401(k) each month. If you need help understanding how to allocate your contributions (high vs. low risk, short vs. long term gains), many employers offer free consultations with 401(k) investment specialists. They can help you understand the entire process, and you’ll be able to invest with confidence.
Now that you’ve got a budget, you’re working on paying down high interest debts, and you’ve invested in your 401(k), it’s time to consider supplementing your 401(k) with an additional investment. An IRA, or Individual Retirement Account, is a tax-advantaged retirement savings account. Contributions made to your IRA can be invested in all sorts of ways, like mutual funds, stocks, bonds, and annuities.
There are two types of IRA’s — Traditional and Roth. A Traditional IRA is made up of contributions that are finally taxed when you begin to withdraw when you retire. A Roth IRA is made up of money you invest after taxes, which means that when it’s time to withdraw, you don’t have to pay taxes on it if it’s properly qualified and you’ve reached the minimum age requirement of 59 ½ years. If you think you’ll be in a higher tax bracket by the time you retire, you could reap huge savings. Your future self will seriously thank you.
Plus, Roth IRAs are inherently flexible, with allowances to take out the contributions you previously made early and penalty-free.
If you need more than what you’ve contributed (i.e. your earnings), earnings may be withdrawn federally tax-free under certain conditions. For example, first-time home buyers can withdraw up to $10,000 (lifetime limit per person) tax-free to cover expenses, such as down payments, if the account is at least 5 years old. For qualifying higher education expenses or unexpected, eligible medical costs, earnings may be withdrawn penalty-free before age 59 ½.
When opening up a Roth IRA account, you may want guidance. With Thrivent Mutual Funds, you can explore their Roth IRA offering, and ease into investing with smaller, more manageable monthly investments.
Now you’re really rolling. You’ve got a budget and multiple investments, so what’s next? It’s time to grow these investments. I recommend the “you’ll barely miss it” method. The next time you get a raise, think about bumping up your 401(k) and Roth IRA contributions in equal measure. Get a sweet bonus or other unexpected funds? Consider putting a chunk of it into your investment accounts. By amping up your investments every time you get a bit more money, you’ll amp up your contributions without breaking a sweat.
All in all, investing isn’t an impossible task. It’s an actionable process that’s easy to tackle in small steps. Be patient and diligent, and you’ll have your retirement savings on the right track faster than you thought possible. And when it comes time to invest in a Roth IRA, you can work with Thrivent Mutual Funds for all your investing needs.
Investing in a mutual fund involves risks, including the possible loss of principal. The prospectus and summary prospectus contain more complete information on the investment objectives, risks, charges and expenses of the fund, and other information, which investors should read and consider carefully before investing. Prospectuses are available at ThriventFunds.com or by calling 1-800-847-4836.
The principal underwriter for the Thrivent Mutual Funds is Thrivent Distributors, LLC, a registered broker/dealer and member of FINRA. This article is not intended as a source for legal, accounting or tax advice or services. Work with your attorney and/or tax professional for additional information.
Giaco Furino is a Senior Writer for Studio@Gizmodo.