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How Can I Get Started in Taking Control of My Finances?

August 22, 2013
Managing Money
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My main concern right now is how to start seriously managing my money. Up until now I’ve just put my extra savings into a checking account or low-yield savings account. But now that I’ve graduated school, I want to learn financial management best practices so that I can get on track to financial stability. Where’s a good place for someone just starting out to learn best practices? 

– K

K, congratulations on taking the first steps toward financial stability. A dollar invested wisely now will deliver much greater benefits when it comes time to buy a home, have a kid or retire. Your first step is to manage what you currently have, which means putting your money to work and getting a better return than a low-yield savings account. I’d invest your money in the following order:

  • Save up a rainy-day fund that can see you through a few months of unemployment (factoring in help from outside sources, like parents). Put this money in a high-yield checking account.
  • Pay off your debts. Think of it this way: getting rid of credit card debt is a 15% guaranteed return on your investment; you can’t get that kind of risk-free yield anywhere else.
  • Contribute to your 401(k) up to the limit, if your company offers one. The current limit is $17,500 a year if you’re under 50.
  • Contribute to an IRA, also up to the limit – currently $5,000 if you’re under 50. That’s a total amount of $23,500 that you can contribute to a tax-advantaged retirement account.
  • If you still have money that you want to save, put it in a regular investment account.

As for which investment accounts are the best for your IRA and 401(k), I recommend a low-fee index fund. This article details the factors to look for in finding a good mutual fund; our 401(k) tool helps you find the best one among your company’s offerings.

Finally, I’d suggest getting a no-fee consultation with a financial advisor. You probably don’t need ongoing financial advice, but the initial consult can help you find the best investments for your situation right now.

Congratulations again, and best of luck!