Financial Wellness: Creating Healthy Money Habits
Written by Michelle Manis
*Disclaimer: I am not a financial advisor. This article is not intended to be used as personal financial advice. So take what resonates with you!
If I had this article in my sophomore year of college, my life would be infinitely more abundant. When I graduated from college just a few months ago, I had a rude awakening. Yes, I took all my accounting, economics, and statistics classes at NYU Stern school of business but I left with high grades and very little knowledge of the basics such as budgeting, saving for retirement, essentially the “life skills” one needs to make good choices when it comes to their personal finances. There was such a disconnect that I felt that managing personal finances was something for the finance bros- you know the ones that have trust funds, 6’5” with blue eyes? I had many questions such as, “what’s the best credit card I should be using to get the most cash back?” “What’s a high yield savings account and which one should I choose? “What APY is optimal?” “How much should I have in my emergency fund?” “What the hell is a Roth IRA?” “Uhhhh… Taxes?” Yea, I’m still working on demystifying that last one.
So what does one do with all these questions and no current academic affiliation? Enroll in “YouTube University,” “Podcast University,” and supplement your learning with all the finance books you can find. I’m excited to report that throughout my 2 months of research, (*cough cough* hyper-fixation on finances), I’ve accumulated extensive finance knowledge that has completely turned my life around and set me up for a financially abundant future.
I’ve come to realize that the problem was that I was lacking knowledge of practical economics- life skills & healthy finance habits I should’ve learned in my upbringing. Most of the finance knowledge you accumulate in your early life comes from your parents, (allowances & basic budget knowledge), and if your parents have poor financial hygiene themselves, you’re starting way further from the finish line. Take my mom for example. She’s one of the smartest people I know- attended multiple colleges, has her masters and multiple degrees in interior design and teaching. Yet, we were on food stamps around the crash in 2008. Yes, the economy plays a huge part here, however, when I found out a few weeks ago that she doesn’t have a high yield savings account, I strongly believe that if she had access to financial education earlier in life, our life would look drastically different today. Now, I’m teaching her about Roth IRAs and HYSAs and helping her money make even more money for retirement. Yay for breaking cycles and healing generational blocks!
It definitely doesn’t help that history is not on women’s side financially: sexism kept women from learning finances for generations. Guess when it became legal for women to own a credit card? Go on, take a guess! 1974. 1974! It took 28 years after the credit card was invented for some Chad to basically say “ok yea I guess women should be able to use this too cause there’s something called gëñdęr ēqûältÿ now.”
The good news is that you have the power to flip the narrative and teach Chad all about the stock market too! You’re fully capable of “learning your way” towards a financially better future! Let’s share the WELLth!
Bank Accounts
Most financial advisors will say you should always have…
No fee checking account
High yield savings account (HYSA)
Make sure it’s FDIC insured and has a 4-5% annual percent yield (APY)
Retirement accounts such as a Roth IRA (you’re eligible if you make less than 161K if you’re single and 240K combined with your spouse)
A 401K that your employer ideally matches (free money)
A brokerage account
A business account (good to have in case you want to start a business one day)
Health Savings Account (HSA)
If I had to simplify this even more, here's exactly how I would go about utilizing each one.
Checking Account
Open a checking account with a reliable bank that doesn’t charge a monthly service fee. I personally use Chase bank for this, but you can’t go wrong with any other reliable bank like Capital One, TD Bank, etc... A checking account is where your paycheck will be directly deposited into. Think of this as the HQ or starting point of your finances and from there you can allocate portions of your paycheck to your savings & investing accounts as you see fit. It’s the trunk of the tree and you can allocate funds to each of your other accounts or branches.
High Yield Savings Account
This is where most people like to keep an emergency fund. An emergency fund will typically consist of 3-6 months of living expenses and will differ based on an individual’s needs and lifestyle. This is essentially a safety net/ cushion if you were to be laid off, or if you need quick cash in a emergency. The best part about these specific savings accounts, and how they differ from regular savings accounts is that they earn a high amount of interest. In a regular savings account, which offers a 0.01–0.08% annual percentage yield, you’re earning pennies each year for having your money in that account. With a HYSA you can earn up to 4-5% a year and sometimes higher. That’s free money for just having your money sitting in that account! Some people prefer to keep their emergency fund in a HYSA rather than in an investment account because depending on the account, it can be hard to pull out that money without fees if you need it immediately. HYSAs are great for emergency funds and short term savings goals because they keep your money accessible while still compounding.
Don’t know where to start? Here’s some FDIC insured banks that offer great HYSAs:
CIT Bank
Marcus By Goldman Sachs
SoFi Bank
Even Discover & Capital One offer a great APY!
Retirement Accounts
My personal recommendation for getting into investing for beginners is with a Roth IRA. The best investing advice I can give is don’t overcomplicate it! You don’t need to be day trading and being risky with your money… that's how you hear about investing horror stories. I started by opening a Roth IRA and investing in index like the S&P 500 (a list of the top 500 companies in the US). The difference between 401K’s and Roth IRAs is that with a 401K, the money contributed is pre-tax: it’s being taken directly from your paycheck and invested. Often your employer will match a portion of your contribution so your money will compound even more. Because this is pre-tax money that’s compounding & making earnings in the stock market, you’re going to pay a lot of taxes on those gains when you take the money out to use in your retirement. Because you’re contributing post-tax money (the money you receive from your paycheck after taxes were taken out) to a Roth IRA, you don’t have to pay taxes (long term capital gains taxes) on your gains when it’s time to retire and you want to take the money out. The government lets you contribute up to $7,000 a year to this account (amount goes up to offset inflation overtime), and you have the potential to become a millionaire if you invest every month by the time you’re ready to retire.
Cheat sheet:
401K- pre-tax money in, taxed on the way out
(amount taxed depends on your income bracket and “long term capital gains tax”) In simpler terms, your investing earnings will be taxed as general income.
Roth IRA- post-tax money in (up to 7K a year), no taxes deducted if you take money out after 59 ½ years old. At any time, you can take out the money you’ve put in at no penalty, however, your gains will be taxed if you take out what you made in the stock market if you’re younger than 59 1/2 .So just don’t touch your capital gains until you’re 59 ½ if you can!
Brokerage Accounts
This is what people think of when someone’s investing. In this type of account you’re contributing post-tax money and you’re getting taxed again on the way out. Unlike a Roth IRA, there’s no contribution limits. There’s no withdrawal limits and you can withdraw at any time which is great for short term money goals (saving for a wedding, a new car, or house), but you are subject to taxes on your gains on the way out. You can open your brokerage account at a brokerage firm (popular ones include Fidelity, Vanguard, or Charles Schwab).
Business Accounts
They can give you a tax advantage by keeping all your expenses in one place. If you don’t have a business you can start a brokerage account aimed to grow your finances which could give you the flexibility to have the funds you need to start a business one day! You never know when you’ll get a million dollar idea!
Health Savings Account (HSA)
I’m a strong believer in making your money work for you in all aspects of life. HSAs help money that will be put towards healthcare compound & grow. The money contributed to an HSA is tax deductible. Money withdrawn for medical spending is never taxed. This includes your capital gains! More info with a helpful graphic comparing 401k’s, Roth IRAs, and HSAs here!
Investing
Time is money. The earlier you put money into an investing account the longer it has to compound & grow. If you’re just starting out my biggest tip would be to invest in your Roth IRA ASAP!- even if it’s $10 a week. Over time that $10 can grow to $100! A great step to financial wellness is realizing that every dollar you make, that dollar has the potential to make you even more money. You can start investing with a brokerage account or IRA at Fidelity, Vanguard, or Charles Schwab. Mutual or index funds are essentially blankets of stock so your money is being diversified and invested in multiple companies, not just a single one (less risky).
Be wary of financial advisors that take a 1% fee- it may seem small, but they’ll be entitled to 1% of all the wealth you own!! Instead, I’d recommend doing your own research and using robo advisors, but if you seek professional finance help, make sure they are paid hourly and will not own a percentage of all your wealth. Leave a comment if you’d like me to write another article all about investing because this is just scratching the surface & I’d love to share what helped me invest, and save tons of money by not buying scam courses. Investing is really more accessible and simple than you might think!
All of the questions I asked in the beginning I categorize as “low effort, high return” questions. What I mean by this is that once you know the answer to them and it clicks, you’ll say “I can’t believe it was THAT easy” and be compelled to make the money moves that will automatically put yourself on track. You’ll make the decision that you always wanted to make but were scared that you didn’t do enough research, or maybe you were scared you’d make the wrong decision and lose money. You’ll jumpstart your journey towards financial wellness and set up healthy money habits when you have the answers. Financial wellness not only becomes demystified, it becomes your right.
Creating healthy money habits start with not gatekeeping knowledge from yourself. Put in the effort to learn how to save & invest and you’ll be well on your way to sustainable abundance.
For more beginner-friendly finance resources check out:
Morgan Housel on The Skinny Confidential Podcast
As always…
Be well,
Michelle
