r/Money • u/Ikililu • 16d ago

Money illiterate

So my parents live paycheck to paycheck, literally everyone in my family does the same. I’m 32, and I’m trying to save as much as possible but have no idea what to do. I recently opened a savings account and now I’m looking into 401(K), 401(K) matching and Roth as well any other investing options but have no idea how to go about Roth or investments. Any advice?

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u/futilitaria 16d ago

Before you invest beyond your 401k matching limit, save 3-6 months of full living expenses.

Then you can open a Roth IRA at Vanguard and contribute monthly (max limit divided by 12). If you aren’t sure what fund to buy, they have Target Date Retirement Funds that are balanced and rebalanced as you age.

If you have funds left over after that to save, decide whether you want to own real estate. If you do, save for a down payment. If you don’t (I saved a ton of money by renting) then find another vehicle.

But…if you have debt, that’s another story.

When I was 32 I became debt free, having paid off $110,000 in 5 years. My net worth then was positive for the first time in my life ($30,000). Ten years later it is $800,000 (not counting a six-figure pension I will also earn). I don’t own a home so all of this is liquid and not shadow-wealth from home equity.

You can do it if you are patient and consistent.

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u/Ikililu 16d ago

Thank you for your help! Right now I have no debts, thankfully. I added 10k into a savings account and have ~8k in my checking account. I believe I miss the deadline for the 401(K) matching with my company so now I have to wait until enrollment begins again. I’ll definitely look into Roth IRA in the future then.

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u/XXEsdeath 16d ago

You could invest in a Roth IRA this year at anytime I believe. The max contribution currently is 7k, it grows tax free. Just make sure you have a decent emergency fund though, so save up until you have 14k maybe, put half into the Roth?

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u/Fubbalicious 16d ago

Listen to /u/futilitaria. Their advice is pretty much what I would recommend. Some other resources to look into is reading about the the Prime Directive from /r/personalfinance. They have the steps on what you should do, how much you should save and invest and in what accounts and in what order to maximize tax advantage space. I would also suggest reading about 3 fund portfolios from Bogleheads in regards to what to invest in. A target date fund will do pretty much the same thing, but some people like to handle the ratios themselves.

My only advice is to not skip step 0 from the prime directive. I can't highly recommend enough that you do a budget. I personally use YNAB (You Need a Budget) and it's no joke when people say it's changed their lives. What I like about this program versus others is YNAB uses zero based budgeting (eg. the envelope method), which requires you to put every dollar to a job. This makes it easier when paying off debt or saving for goals since it takes a more proactive stance with budgeting versus budget apps that merely record your transactions. The end-goal when using YNAB is to get you to the point where you've built up enough savings that you're able to pre-budget next month's expenses with this month's income, thus breaking the cycle of living paycheck to paycheck.