5 Financial Moves to Make This Fall

As you continue to mature you may begin to think about money in a different way. Instead of viewing money as something you can use to buy the things you want, you may start to consider the opportunities that money affords you and start thinking of ways to accumulate more. Here are 5 things you should consider doing this fall to take your finances to the next level.  

1. Start investing in the stock market. Whether you are in your early 20s and just got your first salaried job, or are about to reach your 10 year work anniversary, investing in the stock market is something everyone should consider doing at all stages of life. Many people have opportunities to invest in the stock market through their jobs via a 401K or 403b retirement plan. Some companies may even offer a retirement “match” to incentivize you to invest through these venues. You should make it a goal to invest at least 10% of your income in index funds through your 401K, 403b or IRA retirement plan. If you’re able, consider investing even more money into your Roth IRA or using some of the money you have left over each month to invest via apps Robinhood, Acorns, or Stash. Investing in the stock market by purchasing index funds through retirement plans or brokerage accounts will allow your money to make money (aka “interest”) and after awhile, that interest will begin to make even more money for you (aka “compound interest”). One of the best things you can do for your financial future is invest your money and let the magic of compound interest work in your favor.   

2. Reconsider what car you drive. Another decision that can have a huge impact on your finances is what car you choose to drive and more importantly, how you choose to pay for it. Many people love to purchase brand new cars. They love the new car smell, updated features, and the peace-of-mind in knowing they have reliable transportation for many years to come. Despite these benefits, there are downsides to buying a new car. One of the main drawbacks of buying a new car is that it loses its value fairly quickly in the first few years. This means it will continue to depreciate (or lose value with time). Thus, you end up spending a lot of money and having pretty hefty car payments for many years on a car that will lose value. If you are trying to invest money for retirement, spend money on other things, or save money for future trips and vacations, having a $500 car payment for the next 5-6 years may preclude you from doing so.

Other people choose to lease cars. They like being able to drive a different car every few years and don’t want to pay the full price of a car that will lose value over time. However, the downside of leasing a car is that you will still have a monthly payment each month of several hundred dollars for the next 3-5 years. When your lease is finally up, you will have to give back the car, and take out a new lease with a new set of monthly payments so that you can continue to have transportation. The most sound decision to make is to pay cash for a slightly used car. Cars that are 2-4 years old tend to still be aesthetically appealing, reliable, and are more reasonably priced. Paying for a slightly used car in cash can also prevent you from having a big car payment each month. Because the car is cheaper, you can get a much smaller car loan with much smaller car payments that you can pay off quicker, even if you didn’t have all the cash you need to pay for the on day 1. My point? Car payments can be a rather large monthly bill, so reconsider what you drive and think of ways you can reduce this payment or prevent yourself from having the payment in the first place.  

3. Prioritize paying off your credit card debt. Credit card debt can negatively impact your finances in numerous ways. It charges you extreme amounts of interest each month if you don’t pay back the money in a timely manner. Since many people are unable to pay back all the charges in one month, they keep accumulating interest, on top of what they already owe. By the time they finally pay off the credit card, they have paid hundreds if not thousands of extra dollars in interest payments. If you are spending money paying off credit card debt, and the interest you owe on that debt, that’s less money you have to invest. One of the best things you can do for you finances is make a plan to pay off your credit card debt as soon as possible and try to avoid accumulating more.

4. Think twice about your living situation. Buying a house is a major goal for many people, especially young families. The idea of having something of your own to build memories in is quite alluring. In contrast, living in a high-rise apartment is extremely attractive for many young professionals who live in the city, especially if they do not have children. The convenience of being able to walk to bars and restaurants and having short commutes to other forms of entertainment can be quite attractive. While there’s nothing inherently wrong with your desires about where to live, it’s important to remember that where you choose to live, and how much you decide to pay each month for housing, can have a big impact on your financial future.  Be wary of buying a house that is too large or too expensive. Be wary of renting an apartment with rent that is too high. Housing is one of our largest expenses each month. How much you choose to pay for a mortgage or rent can have a big impact on how much money you are able to save, invest, and spend on other things in your life.

5. Set up automatic savings. One of the best things you can do to ensure you meet your financial goals is to set up automatic savings. This means having a set amount of your paycheck automatically sent to a different savings account. Ideally, this savings account would be separate from the checking account that the rest of your paycheck goes into. By having it automatically deposited into a separate account you essentially “pay yourself first” and protect yourself from spending the money you were supposed to be saving. Doing this will help you build your savings each month which will increase your net worth over time and allow you to save money for an emergency fund, upcoming vacations, and other large purchases like a home, wedding, or college fund for your children. 

What do you think, which of these 5 financial moves do you plan to make this fall?

Which retirement account is best for you?

Whether you are starting a new job like me or extending the contract at your current place of employment, part of the process may involve signing up for a retirement account. Most people have heard of a 401K, but you may have other options available to you such as a 403b or Roth IRA. Understanding the pros and cons of each account will help you better determine which one is best for you.

What is a 403b? A 403b is a type of employer-sponsored retirement plan offered to people who work at nonprofit organizations. It functions very similarly to a 401K, which is a type of employer-sponsored retirement plan offered to people who work at for-profit organizations.

Pros of a 403b (or 401K)?

1.     You can lower your taxes. As of 2024, you can contribute up to $23,000 a year in this account, pre-tax. That means that you don’t have to pay yearly income taxes on the portion of your paycheck you allocate to retirement. For high-income earners with tax rate near 30%, contributing to this 403b plan can save them over $6,000 a year in taxes.

2.     You may get a “match” from your employer. This is when the company places an equal amount of their money into your account to “match” the contribution you made. If you contribute $6,000, they will “match” your contribution with an additional $6,000, so at the end of the year you will have a total of $12,000 in the account.

3.     You may lower your monthly student loan payment. The income-driven federal student loan repayment plans are based on a percentage of your discretionary income. Your discretionary income is your “taxable” income minus 150% to 225% of the poverty line (the minimum amount of money you need to cover living expenses). When you contribute to employer-sponsored plans, like a 403b or 401K, you lower your taxable income. Lowering your taxable income, lowers your discretionary income, which then lowers your monthly student loan payment. Although interest will still accrue on your loans, lowering your monthly payment is beneficial if you are enrolled in a student loan forgiveness program like public service loan forgiveness.

Cons of a 403b (or 401K)?

1.     You are limited in the type of investments you can make. When you contribute to a 403b (or 401K), you are simply putting money into an account. In order for the money to grow over time, you must actually invest the money in that account. Employer-sponsored plans can be limited in the types of investment options they allow you to make. Most employer-sponsored plans allow you to invest in index mutual funds, which purchase a variety of stocks or bonds in different industries. However, they usually do not allow you to make other types of investments in things like real estate.

2.     You will have to pay taxes on the money you withdraw in retirement. Since you contribute to this account with “pre-tax” dollars, you did not pay taxes on the money before it went into the account. Because you didn’t pay taxes at that time, you will have to pay taxes when you take the money out of the account in retirement. Since the money in these accounts will have been invested, you will ideally have profits/earnings in the account as well. The profit you made will also be taxed.

What is a Roth IRA? A Roth IRA is a type of individual retirement account (IRA). Unlike a 403b or 401K, this account does not go through your employer. You can contribute to a Roth IRA (or a traditional IRA) with any type of earned income you get from your main job or any side job.

Pros of a Roth IRA?

1.     You don’t have to pay taxes on the profit in retirement. You contribute to a Roth IRA account with post-tax dollars. Since you’ve already paid income taxes on the money before you contributed to the account, you will not have to pay taxes on the money (or any profits you made) when you take it out in retirement.

2.     You have more investment options. Unlike employer-sponsored plans, you can make a variety of different investments through a Roth IRA. You can invest in index mutual funds, buy individual stocks, or even invest in real estate.

3.     You can withdraw money from the account easier. Although the goal is to leave money in the account until you retire, if you need to take the money out earlier (to cover the down payment on your home or pay off your student loans), it is easier to do that from a Roth IRA without incurring as many penalties or being charged extra fees.

Cons of a Roth IRA?

1.     You can’t put as much money into the account each year. Unlike a 403b or 401k that allow you to contribute up to $23,000 a year, you can only put $7,000 a year into a Roth IRA. Since the contribution limit is so low, there’s a good chance you’ll max out this account and need to use other types of retirement accounts after you hit the contribution limit.

2.     You won’t save as much money in taxes in the short-term. Since you put money into a Roth IRA with post-tax dollars, you will pay income taxes on this money before you contribute to the account. This raises your tax bill in the short-term and could decrease the amount of cash in your pocket after each paycheck.

Which account am I contributing to?

Both, eventually. For me, saving for retirement is about investing in different accounts during different phases of my life to maximize the benefits of each account. My goal is to have a substantial amount of money in both Roth and non-Roth retirement accounts. Contributing to my employer sponsored account will allow me to save more money for retirement since I can contribute more money in those accounts each year. Contributing to a Roth IRA will allow me to make some real estate investments and also give me the flexibility to take money out of the account, tax-free.

Since I’m a first-year resident physician, I plan to start off putting about 10% of my income into the 403b. Even though I don’t get a “match” through my job, the tax savings and lower student loan payments that come with this account will leave more cash in my pocket each month. Any additional earned income I make from passion projects, blogging, or working extra hospital shifts, I’ll put into a Roth IRA. Once, I finish residency training, I’ll convert some of the money I saved in my 403b to a Roth IRA so I can have a decent chuck of money in both accounts that will collect interest and make me a profit over time.

Tell me, what is your plan for retirement? Which account do you plan to use?