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 and 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:
- no minimums
- national/global access if you travel
- great customer service
- high tech 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. 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
- *ideally at the same bank as your checking account
3. Employer Sponsored Account
Most employees have access to an employer sponsored retirement account. This might be a 401k, Simple IRA, or SEP IRA. These are provided by your employer and there is a portion of your pre-tax pay that comes out of your account before you receive your paycheck. Normally, there is some type of matching that the company provides. Taking advantage of this is a great way to build your net worth at a young age.
- try to meet the match
- 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 will need to establish on your own. 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 or an employer. However, starting your own investment account that is tax-deferred can mean millions more in your retirement.
- 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 seeing as they may not have large companies 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 really starts getting in the way.
- attach a 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