The 5 Account Types You Need in Your 20's ✨
Your twenties are the perfect time to establish a great footing for your retirement!
Time! You have time for your money to compound, time to make a few financial flubs, and time to recoup any losses. Time is your best friend when it comes to money. So, without further adieu, let's discuss the 5 account types you need in your 20's:
1. Checking Account
This account was probably established when you were in your teens during your first job. A checking account is the base of any financial life. However, you may have your parents’ name still attached or have a regional bank that may no longer work for your needs. Here are a few things to look for in your "adult" checking account:
national/global access especially if you travel
great customer service
tech forward to check your balance at all times
*ideally at the same bank as your savings account
2. Savings Account
Once you start making money, you better start saving it. It can be overwhelmingly difficult to do with student loans, high rent, and car payments but it is important to try even if it is simply $20 a month. If you are struggling, try to make your first savings goal equal to one month of living expenses. For more information about a savings account, check out our emergency fund article.
direct access to your checking account to move money over
auto-transfer from your checking to savings so you can automate your savings goals
*ideally at the same bank as your checking account
3. Employer-Sponsored Account
Most employees have access to an employer-sponsored retirement account such as a 401k, Simple IRA, or SEP IRA. These accounts work by taking a portion of your pre-tax pay and sends it to your retirement account before you receive your paycheck. Normally, there is a matching program provided by your company. Taking advantage of this is a great way to build your net worth at a young age.
try to meet the match (ranges from 2% - 10% of pre-tax pay)
find an investment appropriate for your age and risk appetite
seek advice if you are unsure how to invest
4. Roth IRA
A Roth IRA is something that you establish on your own without the help of your employer. This is the first real step where 20-somethings feel stressed about their own investing. This is usually because it is the first step that has not been guided by parents, an employer, or your school. However, starting your investment account that is tax-deferred can mean millions more in your retirement. It can be funded with as little as $25 per month and has many investment options.
do not open a Roth IRA at a bank (too expensive and few investment options)
open an account at companies like Fidelity, T.D. Ameritrade, and Vanguard
you can invest up to $5,500 a year
funded by after-tax income
5. Dream Account
Having a "Dream Account" is another way of saying a hassle-free or no-fee account where you can save towards your goals. Due to the change in the way we work, freelancers and solopreneurs need to be diligent in saving because they don’t have a large company to fall back on. Is this you? Do you have a dream of starting your own business? Start saving for it! This is the best time to put money away before life expenses add up.
attach a goal number to your dream account
have financial milestones that you want to meet (even if it is just $50!)
take any bonuses and/or extra cash and apply it to the dream account
perfect for stashing away "side hustle" income