Have you thought of investing in the stock market, but don’t know where to start because of the lack of information? Or has investing in a single stock a little too intimidating for you? I’m here to help you understand pooled fund investing and getting you rid of your fears.

What is a Index Mutual Fund

An Index Mutual Fund is a type of mutual fund that follows a set index, usually the S&P 500 (majorly in the U.S.) and the securities bought and sold are based on this algorithm. For example, an index mutual fund that is led by this index will invest in the same companies in the index unless the composition for the S&P 500 is changed.  This is similar to a mutual fund, only that the mutual fund has an appointed fund manager that makes the best financial decision, including and excluding companies for optimized returns. An index fund allows you to purchase a pool of securities, as opposed to investing in a single company. This can help reduce trading fees and other expenses. Index Mutual funds are easily accessible, as a brokerage account isn’t required. Index Mutual funds can only be bought or sold once a day, after the market closes, and at the net asset value.

What are EFTs?

EFT stands for Exchange-traded funds, and acts like a  stock. With ETFs, your money is being spread among different stocks, bonds or other assets held within those ETFs, lowering your risk and exposure to an extent, while helping diversify your investment portfolio. With these funds, you are able to buy and sell throughout the day, and the trading fees are usually lower than the Index Mutual funds. An EFT can track not only a broad market index, but also an individual commodity. Furthermore, it is possible to invest in them with a brokerage account.

Key Differences between ETFs and Index Mutual Funds?

One of the major differences between these two passive investing strategies is that Index Mutual Funds require an investment minimum while ETFs do not. ETFs are taxed relatively less than Mutual Index funds. This is mainly due to the fact that the latter is constantly rebalanced because it follows a certain index fund, and this can lead to capital gains for shareholders that need to be taxed. ETFs don’t have a redemption fee that index mutual funds have, that is paid by the shareholder whenever a share is sold. Both funds have a low expense ratio and the key difference between both is that Index funds can only be bought or sold once a day, while a ETFs can be bought and sold multiple times a day at different prices.

Hey, there. Getting old? Or you’re actually in your twenties, or thirties but you feel old? That’s a question best answered in a mental health blog post. Nonetheless, right now would be a good time to start thinking about financial security in the future and retirement. We all need a source of income or money we can rely on in our old age, and we can start early by making a well-informed investment in an IRA or a 401k account, or both. There are many routes to investing and saving, but it depends on you to decide what best fits your way of living, mindset and employment, so that you may get the most value.

What is a 401(k)?

A 401(k) is a retirement plan that is sponsored by an employer. Any contributions to it are taken directly from your paycheck and are tax-deferred until withdrawal. This means that your money will be able to comfortably grow, with no taxes paid until you choose to withdraw. There is a limit to how much you can contribute to a 401(k). The annual contribution caps down to 23,000 in 2024, and those who are 50 or above can invest an additional 7500.  Another advantage to this account is that companies match your investments to a certain amount, usually varying from 3 to 6 %. Through a 401(k), an employer also provides an investment portfolio that includes a range of investment options. The higher the risk, the greater the growth potential. In most cases, mutual funds, which include stocks, bonds or target date funds are the typical go-to.

What is an IRA?

An IRA stands for individual Retirement Account, and is available to anyone that earns an income, without having to go through an employer. At times, even a spouse who doesn’t earn an income can contribute to the savings. Similar to a 401(k), this account also has a tax advantage as you don’t need to pay taxes until the funds are withdrawn. The annual limit is 7000, and 8000 for people 50 and above. This retirement account can be opened at many different financial institutions, like banks and brokers. This account has a great range of investing options, like stocks, bonds, mutual funds and ETFs. After the age of 59, you’ll be able to withdraw your funds without penalty.

Which one is better? A 401(k)or an IRA?

In both a 401(k) and an IRA, taxes are deferred so, you don’t have to pay taxes until you withdraw your funds. In the best case scenario, it is encouraged to have both of these, so you could take advantage of the benefits provided by both, but as most people wouldn’t be able to afford to contribute to both, it makes sense to find the account best suited to your lifestyle.

A 401(k) is more secure from creditors, in the case of bankruptcy, or a lawsuit. Additionally, it has a higher contribution limit compared to a traditional IRA, and the funds are automatically taken out of your paycheck, so you don’t have to concern your time with this, and focus it on investing. The employer matches your contributions to the account which is basically free money, and a great advantage. Although, there are penalties for using the funds in a 401(k) account, you have the option of taking out a loan. On the flip side, an IRA doesn’t provide this, but it does give an array of investing options that a 401(k) doesn’t include. With an IRA, anyone can open this account, even if you don’t have an employer. As there is a Roth version for both a 401(k) and an IRA, it is easier to set up a Roth with an IRA.

In conclusion, it seems that a 401(k) is by far more profitable and will be able to give you more retirement savings, but as said before, it is best to have both a 401(k) and IRA to get the most flexibility in how much taxes you’ll have to pay in the future.

Not planning your week financially

Have you ever started the week excited to maintain budgeting only to run out of money half way through? If that’s you, you need to start planning your week, and sticking with all the numbers you’ve sectioned off for each expense. Having a financial diet is crucial. It creates control over our finances, and changes our beliefs about what we can and can not be. Throughout the week, we get carried off by so many extra expenses, but we have to stay centered and only spend the money that we have told ourselves that we will; this is how you save money, and in the longer run, have money.

Overspending on food

Your week needs to be balanced. If you buy that five dollar latte, you need to make sure that lunch comes from home, a meal that you prepared, meaning you didn’t spend 10 dollars on it. Eating out all the time will burn a whole in your wallet, and may be one of the likely reasons you always end up with not enough money. Buying 40 dollars worth of grocery every week, that you can meal prep in the beginning of the week, will save you not only money, but also time, which you can spend working on another project that generates a better financial status. Repeating the same meal is key, not only for saving money, but also for maintaining weight. This will prevent binge eating, as you know exactly what you’re going to eat and when you’re going to eat it. The brain loves a set routine.

Impulse buying

Now a days, we find ourselves scrolling tiktok, instagram or watching youtube videos during our lunch breaks, or whenever we need to stimulate our minds. The pressure of trends lead us to the shops, for instant gratification, to feel better about ourselves and and to keep up appearances . At these moments, you have to remember the saying: Live like no one else will now, so you could live like no one else can later. Financial success takes sacrifice and discipline, and splurging all our money on overpriced products, without paying mind to our budget is a elementary action that can be prevented.

You use your credit card more than you should

If you spend more than you earn, that is a sure way to stay broke. You can’t live above your means and save money at the same time. This is why you need to plan your week financially, and not stray from it. You can tell yourself that you’ll pay it off once you get your next paycheck, but there are always new bills to pay and eventually they pile up. The best way to get out of debt is to get out of debt. This means that you stop using credit for purchase and instead use mostly the money that you have already, and not something that you don’t have.

No financial goals

Financial goals fuel our desire to have money. If we know exactly how much we need, and for what we need, we can easily treat saving/ budgeting money as a project. We can fantasize living in that new house, or not having debt anymore, or the feeling of pride because we were able to save ten thousand dollars for our emergency fund. Having direction with your money allows you to have a better perspective on your priorities, and life in general. Being directionless with anything leads to stagnancy and nowhere. Having a plan is key.

Not investing

Yes, you need to invest. I understand, you might think, hey, I don’t know how to invest, or investing is for those tech people, who know how to invest, or rich people.  Let me change your mind, and tell you, it’s for you too. Money is for everyone, and increasing how much one has is for everyone too. There are so many ways that you can invest. Consider buying stocks, or opening a IRA. You can buy stocks using the money you put in the IRA and when the stock goes up, all the profits remain in that account. If you want to be able to live a great life even after retirement, you need to start building now. Great wealth requires a steady build. Years of saving and investing will eventually lead you to the life that you’ve always dreamt of.

Fear

If you come from a modest background, it can be hard to get out of that cycle of not having enough, and living paycheck to paycheck. The thought of being financially well-off can feel unsafe, because it isn’t familiar and normal. It is your duty to free yourself from the fear of failing. It’s your job to know that without taking risks, riches wont show up. You have to do the research, you have to develop yourself, and learn, unlearn and then re-learn until your money beliefs benefit you. Good money management isn’t something that needs to be ultra-time consuming. It is normal, and it can fit into your life, like the meals that you eat. Good money management, where you save, invest and budget is normal for so many and it can be normal for you as well.