Steps Towards Investing

Awhile back I wrote about the Heirarchy of Wealth in response to some questions around where you should be putting your money.  If you recall, it consisted of a pyramid where you worry about making money and paying off debt all the way up to maximizing your return through private stocks.  I wanted to revisit this topic and make it a little more simplified while only focusing on the investment portion.  I think many people tend to jump right in to owning personal securities (stock) before they've efficiently maximized there other options.  Allow me to elaborate.

Say you have some extra money lying around and you currently don't invest any of it.  If your business/corporation/company offers a matching 401k plan, then you need to take advantage of it immediately and at least contribute enough funds to meet the maximimum corporate contribution.  This is free money and will already get you on a good footing. 

After reaching your minimum 401k match, you now have a little more freedom and it is time to set up an IRA.  I'll get into the topic of an IRA or Roth IRA in the future, but my experience tends to favor a traditional IRA over a Roth.  The nice thing about an IRA is that you can basically invest in anything and receive tax benefits.  For 2013, you can contribute up to $5,500 to your own personal IRA tax free.  You'll have to pay taxes when you withdraw at retirement, but this is a great opportunity to lower your taxable income while you are still early in your career. 

Only when you have contributed the maximum $5,500 to your IRA can you go back to your 401k and maximize your contribution there.  In 2013, you can contribute up to $17,500.  When all is said and done, you will have contributed at least $23,000 towards retirement before you even start playing around with your own personal taxable brokerage account.  At this point, you will be on a better track than most people in the world and can afford to take a little risk.

I'll devulge more strategies in the future, but at least this will get you on a good footing.

Wonderful Moment of the Day: Cold day, but no wind...the wind here can be brutal.