02 Nov 3 Buckets of Money
When people ask me what the best way to get started investing is, my reply is always to invest in yourself. In this article, you will learn about three buckets of money everyone should have as they start moving in the direction of investing. Each one is essential, so I encourage you to implement every category into your investment strategy.
3 Essential Buckets of Money
Bucket 1: Emergency Fund
The odds are that you’ve learned the importance of having an emergency fund at some point in your life. Before you start investing your money, I believe you should have 3-6 months worth of expenses saved in your emergency fund (however, the amount of needed reserves varies from person to person.) If you lost your job this year, think about how long it took you to get a new one. If your business had months with no revenue this year, consider how long that lasted. Then, adapt that timeline to your emergency fund. If you are a business owner, I do encourage a larger emergency fund because you have more expenses such as a lease, payroll, utilities, etc..
Bucket 2: Retirement Account
I have talked about retirement accounts a lot, as well as the difference between Roth IRAs and Traditional IRAs. But, the point is that if you don’t have a retirement account, get one! The earlier you start investing in your retirement, the more money you will have and the earlier you can retire. Now, there are some restrictions and nuances, so I’ll leave retirement accounts for another blog post. Just know if you don’t have one set up then you need to get that started! Many employees offer matching contributions to your 401(k), which is a big deal. You can set that up with your HR department. If your employer doesn’t offer retirement assistance, open one yourself at an investment bank. I encourage you to set it up so that the money is taken out automatically. Then, you don’t have to think about whether or not you should invest in your retirement this month.
Bucket 3: Investments
This bucket is why you all came to the blog post, but I encourage you to set up the first two buckets first. This bucket is going to look different for everyone, so again, I’ll leave the nuances for another blog post. However, I do encourage you to set up a brokerage account with trusted investors and companies, like Charles Schwab, TD Ameritrade, etc., In this bucket, you’ll want diversify your portfolio with a) investments focused on long-term growth and viability, and b) investments focused on the short-term that pay dividends. The percentages you have of each will depend on your personal goals and circumstances. The great thing about investing in today’s day and age is that there is so much information out there! While I do encourage you to get a professional to invest your money, you can learn just about everything you need to know about the stock market from the internet.
Do you have all three buckets of money created and funded, or is there one you need to work on? Let me know in the comments below!