So, you have a job and you have a budget and you have a good idea of where you’re spending (or not spending) all your money. We will assume you have minimized or cut out frivolous expenses. What do you do with the money you have left over at the end of every week or month? That’s where “investing” comes in. First, let’s talk about “retirement” and why you need to save money over your lifetime if you ever hope to spend some time “not working” or doing the job you always wanted to do!

Can’t I Just Depend on Social Security?

Every time you earn money, you pay some of that money as taxes into the Social Security system. The idea is that once you reach 67 years old, the Federal government will pay you an income every month. How much that income is depends on your pre-retirement salary as well as the age at which you start collecting the benefit. In California, the average payment is $1500 a month, or about $18,000 a year. In other words NOT enough to live on! Separately, most estimates indicate that the Social Security system will be bankrupt in about 2035, long before any of you turn 67. So, you should assume that there will be either no social security benefit when you retire, or that it will be so small as to require you to have your own retirement plans.

What is “Investing”?

Fundamentally, investing is when you take money and use it to buy an asset (house, stocks, bonds, gold, etc.) that you hope will increase in value over time at a rate faster than inflation. At some point in the future you sell that asset to create cash that you then use for your living expenses.

How To Invest

There are many ways to invest your money. Consulting a financial adviser or taking an online course is the best way to figure out what works best for you. Below are some of the basic vehicles you can use to invest your money.

• Company 401k
  • This is a vehicle you company may offer that allows tax-deferred investing – meaning you don’t pay taxes on it until you take the money out after you are 60. Note that taking it out before that age will result in penalties.
  • You put money into it (up to $19,500 a year) from your paycheck every pay period, automatically. Set and forget.
  • Some companies do a “match”, for example they will add 50c for every dollar up to a limit. Free Money!
  • Read: https://www.investopedia.com/terms/1/401kplan.asp
• IRA
  • Similar to a 401K, but not managed by your company, and has much lower ($6000) annual investment limits
  • Read: https://www.fidelity.com/building-savings/learn-about-iras/what-is-an-ira
• Stock Market
  • How to invest in the stock market is a whole semester course! Suffice it to say that you need to do a lot of reading.
  • Most financial advisers will tell the average person to buy, and invest in, one or more Mutual Funds or ETF funds as a long term strategy toward investing for retirement. And to move more of their investments into lower risk vehicles such as cash and bonds and dividend stocks as they get closer to retirement age
  • Read: https://www.nerdwallet.com/l/investing-how-to-buy-stocks
  • Read: https://www.fool.com/how-to-invest/stocks.aspx