- March 30, 2024
- Posted by: legaleseblogger
- Category: Related News
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# Seeking Recommendations on Setting Up Savings
I am a 22-year-old recent graduate making $77k annually and currently living with my parents rent-free. My expenses are minimal as I only have to pay for insurances, gas, and food. I am focused on saving as much as possible to put a downpayment on a house and secure my financial future. However, I am uncertain about the best way to allocate my savings.
# Situation with Savings and Current Investments
At the moment, my employer offers a 4% match on 5% contribution into my 401(k) plan, and I plan to maximize this match. Additionally, I have a 5% High-Yield Savings Account (HYSA). I am in need of guidance on how to divide and optimize my savings.
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Max out Roth IRA
This is a great opportunity for you to save money and get off to a good financial start. Good on you for recognizing the opportunity and taking advantage of it.
The general guidance for retirement savings is that you should be putting about 15% of your income into retirement throughout your working life. Starting that now will give you a boost because the money will have a lot of time to grow. Plus, now that you are making more money than you ever have, if you save 15% off the top from the beginning, you’ll never miss that money because you never had it to spend. It’s like your retirement will happen for free.
With a $77K salary, you’ll want to put $11-12K into retirement each year. To get the full employer match, you should contribute 5% of your salary to the 401K ($3850). That leaves about $8000 left to put somewhere. I’d max out a RothIRA ($7000), then bump up the 401K contribution to include that remaining $1000.
Whatever you have left that you can save, which should be a fair amount since you don’t have much living expenses – put into a High Yield Savings Account (HYSA) so that it can earn some decent interest. You’ll want some money as an emergency fund and then some money for a house purchase in the future. If the house purchase is more than 5 years away, once you have enough in savings for a decent emergency fund, I would start putting money in a brokerage account and invest in a broad index fund like VTI – that’s the Vanguard total market ETF. If you anticipate buying a house sooner than 5 years, I’d leave the money in a HYSA or perhaps do a CD or Treasury ladder. A ladder is just a group of CDs or Treasuries that mature at different times and then you reinvest the money – it helps smooth out the ups and downs of interest rates.
Sounds like you know how you want to split it (max your 401k benefits, pay necessary expenses, and save for a property, put everything into a HYSA). If you’re asking what’s the best place to put your savings, either putting the money into a HYSA or S&P 500 are your safest bets.
If your company offers it, go with high deductible insurance when your young to build up your hsa account
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