8 Investing Mistakes I Made With My Roth IRA

8 Investing Mistakes I Made With My Roth IRA

When you were younger, were you ever told investing was important but didn’t have the slightest clue how to get started?

When I was a teenager, I knew compound interest was important and wanted to get started as soon as possible.

And so I did.

But this led to many investing mistakes! Things I wish I could go back and change. But sometimes the best way to learn something is to just start doing.

So here’s 8 investing mistakes I made while getting started with my Roth IRA.

1. I Picked Bad Investments

The first investing mistake I made was I started out by putting money in a CD, buying silver coins, or letting it build up in my savings account.

Turns out, these were bad investments and I wish I could have started with something different.

This was before I even knew what a Roth IRA and I was simply interested in investing and so a Certificate of Deposit and silver coins seemed like a logical thing.

2. Waited Too Long to Get Started

When I first started earning income at the age of 12, I wish someone would have told me to start my Roth IRA. 

I didn’t realize how powerful Roth IRAs were until the age of 22.

That’s when I finally decided to start one. 

That’s 10 years during great economic conditions that I didn’t have my savings invested in the market. Even though I felt like I waited too long to get started at age 22, according to Motley Fool most people don’t start saving for retirement until age 31.

When I decided to start one, I was banking with USAA and spoke with one of their financial representatives.

I told him I would like to open a Roth IRA which required a minimum of $500 to fund and an automatic monthly contribution of at least $50.

I said ok, and in February 2016 I started my Roth IRA.

3. Took Someone Else’s Advice

I trusted whatever the guy from USAA said, not really knowing what I was doing. Once I signed the papers, I was just glad I had started one. 

This later turned out to be a big investing mistake.

The person from USAA told me what he thought would be a good investment for me and I took his word for it.

Even though I later found out why taking someone else’s advice was a bad idea, I diligently maxed out my Roth IRA of $5,500 (the contribution limit for 2020 is $6,000).

4. Didn’t Know What I Was Invested In 

Because I was young, being somewhat aggressive was important to me. I went with the most aggressive 100% equity mutual fund (so I thought), which was called the USAA Cornerstone Aggressive Retail (UCGAX).

It was made up of large-cap and blended funds and has a Morningstar rating of below average

I started tracking my returns over those few years and wanted to understand how it all worked but it somehow always ended up being quite a bit lower than benchmarks such as the S&P 500 or Russell 2000.

Looking back, I honestly had no idea what I was invested in. At least I got started and was putting money into it every month, right? 

5. Didn’t Pay Attention to Fees

Fees were not something I considered when I opened a Roth IRA. It was something we didn’t discuss on the phone, I just took the reps word for it.

However, a year or two later, I started learning about fees and the impact they can have on a portfolio over an investing lifetime.

I dug into the fine print of the USAA Cornerstone Equity Fund and figured out how much I was paying in fees (more on that later).

Turns out, companies like to make it difficult to find how much you’re paying in fees and what the long-term impact on a portfolio would be.

6. Bought Actively Managed Funds

While digging into the fine print years later, I discovered I was invested entirely in actively managed mutual funds and was being charged a 1.2% expense ratio!

Meaning, they charged 1.2% of my portfolio annually.

These are high fees! And I didn’t even have access to a financial advisor.

And the fees were even higher when you factored in trading costs, cash drag, etc. 

The person on the phone told me, “don’t worry so much about fees because what you’re paying for is someone to actively manage your investment instead of just letting it sit in some boring old index fund.” I thought, “what’s an index fund?”

Here’s what’s funny, I actually believed him. I thought, “of course, if you pay more in fees you’re going to get a higher rate of return, right?”

Over 90% of the time that’s false. Unless you’re Warren Buffett.

7. Left Too Much In Cash

When I first started transferring money from my bank account to my Roth IRA, I was making the mistake of thinking that was all I had to do.

After some time, I realized the cash I transferred was sitting in a money market account which is basically the same thing as a savings account!

Related: Where to Stash Your Cash

I didn’t realize I had to actually go in and invest the funds myself. 

When I started deploying the cash, I thought I was in a 100% equity fund.

But their most aggressive option was between 70% – 80% equities and 20% – 30% fixed income. This money was going to be invested for 40 years and I was sitting on nearly 30% bonds in my early twenties!

That didn’t make any sense.

8. Compared My Results With Benchmarks

Comparing my results was one of the investing mistakes because it caused unnecessary stress.

But in the end, it was good because I compared my return against the S&P 500 and was underperforming quite a bit ( I should say A LOT).

I didn’t get it because it was “actively managed.”

During my first year, my investment earned 5.65% gross of fees. So my net return was 4.45%. 

That same year the market as a whole earned a rate of return of 21.31%!

Only one year did the fund perform better than the S&P 500 because it lost less money (which was in 2008).

Related: I Don’t Know How to Invest & I’m Scared I’ll Make a Mistake

What Changed For Me?

For those that aren’t sure of what a Roth IRA is and why you would want to open one, I will share a few things.

If you already know the benefits of a Roth IRA, go ahead and skip to the next section. 

A Roth IRA is simply a retirement savings account that anyone with earned income can start. “Roth” is the last name of Senator William Roth, the person who came up with the idea.

And “IRA” stands for “Individual Retirement Account.” 

The money you deposit has already been taxed. So when you go to withdraw the funds at age 59½ or for qualifying reasons before age 59½, you don’t have to pay taxes on what you withdraw. 

Roth IRA vs. Traditional IRA | Simplifinances

How Are Roth IRAs Taxed?

Imagine you’re a wheat farmer. You plant seeds and harvest the wheat.

Would you rather pay taxes on the seed or the harvest?

Your decision is solely based on whether you think taxes will be more in the future.

You’ll pay tax on the seed now if you think taxes will be higher in the future or pay taxes on the harvest if you think taxes will be lower in the future.

I’m a big fan of the Roth IRA, especially if you’re young, even if your employer offers a 401(k) (which you should be contributing to also).

However, if you also open a Roth IRA, instead of contributing more to your 401(k) above and beyond the employer match, you could put that extra money in a Roth IRA.

Why would you want to do that?

Can You Access Money In a Roth IRA?

You can take your contributions out of a Roth IRA anytime you want.

You may withdraw your contributions penalty-free at any time for any reason, but you’ll be penalized for withdrawing any investment earnings before age 59 ½ unless it’s for a qualifying reason such as purchasing a house, education, or the Coronavirus pandemic.

Age 60 may sound like an eternity and who knows what’s going to happen between now and then. Wouldn’t it be nice to be able to access your funds if you really needed them?

I recommend not taking the money out but isn’t it nice to have options?

If you have all of your money tied up in a Traditional IRA or 401(k), the only way you can access any funds before age 59 ½ is paying a 10% penalty or taking out a loan against it. Or if something like the CARES Act comes along.

I Jumped On The Vanguard Bandwagon

After learning about fees, asset allocation, and risk tolerance, I sought out the best investment for myself. I stuck with USAA for about a year and decided to start looking at Exchange Traded Funds (ETFs).

The fees are lower, I could have my target asset allocation, and they’re more tax efficient.

But even the funds I was finding had an expense ratio of ~0.30%.

So after exhausting my options, I decided to jump ship and transferred my Roth IRA to Vanguard

Vanguard was started by a man named John Bogle in 1975 with the goal of bringing to the individual investor the option to invest in broad-based low-cost index funds.

And as the name implies the company has been a vanguard in the financial services industry. Their average net expense ratio is 0.10% (U.S. asset-weighted fund expenses as a percentage of 2018 average net assets).

Why a Vanguard Roth IRA?

Their core purpose is, “To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.”

I’m a big fan of Vanguard and when you combine it with the benefits of a Roth IRA, the chances of investment success start to look really nice. 

I invested the majority of my funds in the US stock market with a little exposure to the rest of the world.

Now I wake up every morning knowing every person in America goes to work to make me rich. By owning the entire stock market, I own a small share of every publicly traded company in the U.S.

So I ended up investing in ETFs such as the Vanguard Total Stock Market Index Fund ETF (VTI) which had an expense ratio of 0.04% and is now 0.03% and the Vanguard Total World Fund ETF (VT) which has an expense ratio of 0.09% (Average expense ratio of similar funds is 1.11%).

Here’s What Would’ve Happened Had I Not Fixed My Investing Mistakes. 

If I maxed out my Roth IRA every year for 40 years while it was invested in UCGAX, my expected return would be about 4.8% after fees.

This would hypothetically leave me with $632,850 when I retire. Not Bad.

But, because I no longer hold bonds, my expected return currently is 9.97% (10% expected VTI return  – 0.03% expense ratio).

I would expect to have $2,414,490 by the time I retire! 

The same amount of money was invested in both cases but the returns, asset allocation and fees are way different!

That’s a BIG deal.

I can’t say this will be 100% accurate but this is no small number guys! It’s worth it to learn about investing and make sure you don’t make the same investing mistakes I did.

Summary

I made a lot of investing mistakes: 

  • I picked bad investments
  • Waited too long to get started
  • Took someone else’s word for it
  • Didn’t know what I was invested in 
  • Didn’t pay attention to fees
  • Left too much in cash
  • Bought actively managed funds
  • Constantly measured my results

You don’t have to make the same investing mistakes that I did.

Take the investing mistakes I’ve made and learn vicariously through me so you can get started the right way.

It’s never too late to get started. And it’s never too late to change things. 

If you’d like to get a better grip on your finances and avoid making investing mistakes, sign up for my Free 7-Day Transform Your Finances email course here.

And if you’d like to read the book that opened my eyes to investing and helped me realize all of the investing mistakes I’ve made, it’s called the Simple Path to Wealth.

Disclaimer:

This information has been presented as general education purposes. I am no longer an investment advisor and have not taken your specific situation into account so please don’t take any of the information presented today as investment advice. Consult with an investment professional if you’d like to learn more about investing for your future. 

Investing Mistakes | Simplifinances

Personal Capital Review: 5 Powerful Free Features

Personal Capital Review: 5 Powerful Free Features

We may receive a commission for referring new users. If you decide to sign up after reading my Personal Capital review, you’re helping support our free content at no cost to you, so thanks! You should sign up because it could change your future.

The first time I heard of Personal Capital, I was working as a Financial Counselor at the University of Utah. This was back in 2016 and we were working on revamping our website.

We got a call from someone in Denver, Colorado and they asked if we would be willing to place a financial calculator on our website that was created by Personal Capital. I politely declined because I had never heard of the company before and didn’t want a bunch of noise on our website. 

After the call, I looked into it and decided to create an account. I connected a few accounts and then completely forgot about it for about 6 months. It felt very overwhelming at first and I didn’t want to take the time to learn it.

After 6 months, I was reading a post from Millennial Money and saw that he was a big fan of Personal Capital. A lot of bloggers were big fans!

Because of the online positivity, I spent a little more time setting it up and I’ve been hooked ever since.

Here’s my Personal Capital review and why I think it’s the best free financial planning software of 2020.

What is Personal Capital?

Personal Capital is an online wealth management company that believes the power of technology can make the financial services industry more affordable, accessible, and honest. 

You can think of the company as two main divisions:

  • Free financial planning software
  • Online wealth management

I have never used their paid online financial planning and wealth management services and so I’m not going to be reviewing that today, only their free tools. 

They also offer their free Personal Capital app that I’m guilty of logging into nearly everyday.

After the initial set up, and once I became comfortable with Personal Capital, I discovered some powerful features.

Here are 5 powerful features that I love about Personal Capital.

1. Accurate & Visual Graphs

One of my favorite features is seeing my complete financial picture in one simple dashboard.

By connecting all of your financial accounts, it’s able to create a nice-looking picture of your where you are with your finances. And it updates on a daily basis to give you accurate information and visuals.

Seeing how my assets are going up and my liabilities are going down is super motivating to me.

If you set up a Personal Capital account today, in ten years you’ll be able to look back and remember how broke you were and just how far you’ve come. 

I’ve got four years of data under my belt now and it’s amazing to see how thing have changed based on the markets, my jobs, when I borrowed money, etc.

It also integrates with Zillow for property values and over 10,000 other financial institutions.

I’m a very visual person and seeing all of their graphs is very satisfying.

2. Account Aggregation

I love being able to see all of my accounts in one place.

Personal Capital Budget | Personal Capital Review | Simplifinances

As many of my readers know, I’m a HUGE fan of the JARS Money Management System. And this system requires six bank accounts.

It’s nice to see each bank account along with my credit cards, mortgage, and investments.

If I wasn’t able to see all of my accounts in one place I would probably forget that some of them existed.

Seriously. 

It also shows you all of your spendings and compares that with the previous month to see how you’re doing. 

As you can see, it automatically categorizes transactions and shows you what percentage of your spending that category represents. It will compare what you’re spending this month to what you spent last month.

To be honest, I think Personal Capital is lagging when it comes to robust budgeting tools. For that, I use my favorite free budgeting software.

Read: Top Rated Free Budget Software That Will Simplify Your Finances

3. Investment Performance

When I first created an account, I was also in business school learning about investments.

I was becoming very familiar with terms like index, benchmark, blended, S&P 500, DOW, foreign markets, and so on.

Weekly Updates | Personal Capital Review | Simplifinances

At the time, none of these terms meant anything to me personally.

After connecting my investments to Personal Capital, I started understanding these terms better. I was able to see how my portfolio was doing compared to the S&P 500, foreign markets, and so on.

Before that, when I would hear how the markets did today on the radio, it didn’t make sense to me. But because of the Portfolio and the Holding & Allocations section of the app, these things began to make sense.

I could see the percentage change of my investments for the day and see the dollar amount change as well.

Certain days when the markets did well, and I saw how it impacted my net worth, I was a happy camper.

On days when markets are volatile and down, I try not to let it bother me.

Each week, I continue to get a summary email like this. 

4. Net Worth Tracker

When you track your net worth, you’re more motivated to make better financial decisions.

Personal Capital has literally forced me to make better financial decisions because I want to see that graph going up.

I will mention that checking your net worth too frequently can cause undue stress and I do try and limit how much I log into the app.

Anyone else know what I’m talking about?

I also find ways to have a balance between saving and spending. Because of the way I manage my money, I force myself to spend money on fun things as well.

You shouldn’t bee 100% extreme all the time with your savings. You have to have balance.

5. Fee Analyzer

I never really knew how much I was paying in fees until I was able to see the expense ratio for each individual security within the Personal Capital fee analyzer.

Investment companies make it difficult to see what exactly your expense ratio is. The fee analyzer made it really easy to see how much money I was paying for each investment and get rid of the ones that were too expensive.

It was one of the main motivating factors that pushed me to invest in an ETF at Vanguard (VTI) with an expense ratio of 0.03%.

Related: I Don’t Know How to Invest & I’m Scared I’ll Make a Mistake 

You can see that there is a lot to like about Personal Capital. These are only 5 of the many powerful features that Personal Capital has to offer.

Mint vs. Personal Capital

Toward the beginning of the article, I mentioned my favorite free budget software. Which happens to be Mint.

Personal Capital and Mint’s features are quite complementary.

I’ve been using Mint since 2014 and found it to be great for tracking expenses and staying on top of my finances, but it lacked big time when it came to investments.

I now use both because they each serve a different purpose.

When it comes to budgeting:

Mint > Personal Capital

When it comes to investing:

Personal Capital > Mint

Here’s a comparison that Personal Capital put together comparing themselves to Mint. 

Is It Safe to Use Personal Capital?

Personal Capital is safe to use. They use many layers of security to keep your money and your information safe and private.

Like Mint, the don’t actually have access to any funds. You’re simply aggregating the information and then they’re able to analyze it.

Of course, nothing is un-hackable but they definitely take extra safety precautions. So much so that I would have to update my USAA connection every day by logging into my bank with 2FA if I wanted to see accurate bank information.

Because Personal Capital is a free financial planning software, you would think that they sell your information like many of the free personal finance apps out there. But in fact, according to their privacy policy, it states; “Personal Capital’s core business is wealth management. This means that our objective is to win you over as a Personal Capital Advisory Client. We do not rent, sell or trade your Personal Information.

How Much Does Personal Capital Cost?

After everything I’ve mentioned, you may be thinking, “is Personal Capital really free?”

And the answer is, yes! It really is free. But if it was completely free they wouldn’t be in business. So that brings up the next question.

How Does Personal Capital Make Money?

Personal Capital uses it’s amazing software to draw people in. They’ve been able to amass quite a large amount of users who use their tools frequently. But if it’s all free, how. do they make money.

Once a user has over $100,000 in investable assets, that person then becomes a lead for their wealth management department. You don’t ever have to invest any of your money with them if you don’t want to.

But if you decided to invest with them, they charge an asset management fee of 0.89% for portfolios between $100,000 and $1 million. Which is actually quite high for a robo-advisor. Once you have over $10 million, the fee becomes 0.49%.

Personal Capital is different than Betterment or Wealthfront in a sense because it is more expensive but they promote their Certified Financial Planners being willing and able to meet more frequently.

What Are The Downsides of Personal Capital?

There are two major downsides to Personal Capital:

  • As soon as you have $100,000 in investable assets, their financial planners will start reaching out to you. You don’t have to work with them though unless you want to. You can politely decline and they won’t reach out to you again. 
  • Their budgeting software is not as user-friendly and easy to use as many of the free budgeting apps out there. I recommend using Mint or even Qube Money.

In Conclusion

I’m a big fan of Personal Capital’s free tools and I think it’s the best personal finance software to help you reach your retirement goals.

If you haven’t signed up for an account before, I encourage you to get started by clicking the link below!

Create a Personal Capital account for free!

If you’ve heard of Personal Capital before but have never given it a try, I encourage you to try it out.

Don’t get overwhelmed at first as I did and give up.

Take the time to accurately set it up and I promise it will help you make better financial decisions because you’ll be well on your way to financial independence. 

Let me know your thoughts about Personal Capital in the comments below!

Personal Capital Review | Simplifinances

Top Rated Free Budget Software That Will Simplify Your Money

Top Rated Free Budget Software That Will Simplify Your Money

With bills, rent/mortgage, student loans, credit cards, savings, and much more, how do you keep track of all of it? And is there a free budget software that makes it easy?

Someone recently told me, “I know exactly how much I spend each month. I keep track of it in my head.”

Keeping track of your finances in your head, may not be the most effective. Especially if you’re not a budgeter!

The good news is, you don’t need to keep a running tab stored in your brain. We all know what happens when you miss a payment.

Many years ago, I met with a financial planner who wanted to help me set up my first investment.

He said, “We take care of all the confusing stuff for you. You don’t need Mint or other budget software.”

I thought, “what’s Mint?”

After the appointment, I went home, set up an online account, and never spoke with him again.

Since then, Mint has become a huge part of my life and has done more for me than the gold based annuity he was trying to sell me.

I want to share with you why I’ve used Mint so much and the benefits it’s brought to me.

What is Mint and Why Should You Use It?

Mint is a free money management software that was acquired by Intuit in 2009, the same company that owns Quickbooks and Turbotax.

It’s super easy to use with a clean user interface. It gives you a clear overview of your finances.

It connects to all of your existing accounts to help you stay on top of managing your money in one place.

“Every time you visit their site, your financial data gets updated automatically. It presents your financial information in a slick easy-to-use web interface, with pretty graphs and all.”

– Investor Junkie

Mint has helped over 10 million Americans reduce their debt, pay their bills on time, and increase their overall net worth.

You’ll find boatloads of other great software to use for your money, but none of them really come close to Mint.

So, what are the features?

It’s Free

It’s incredible that Mint offers this budget software for free!

They receive their funding through companies that offer deals such as credit cards, investments, and recently, loans, and many other offers.

You can ignore the advertising links, but if you really are in the market for different products, it’s a great place to shop around.

Bank-Level Security

With the amount of online fraud, it’s common to worry about your personal information being stolen.

It’s usually a concern for people to connect a third-party to their bank account. However, Mint uses bank-level security.

They cannot transfer funds or access your account. They can only view it as read-only. Kind of like taking a picture of your bank account balances and putting it all in one place and giving you a quantitative analysis.  

Mint is also analyzed and certified by prominent third-party providers like TrustArc, VeriSign and other trusted professionals in online security.

Free Budget Software | Simplifinances

Financial Dashboard

We love having everything in one easy-to-see dashboard. Mint gives you a complete overview of your finances and having it in one place brings peace of mind.

Imagine the days before Walmart when you went to multiple stores to buy what you needed.

Now you get everything at one store.

Mint does the same. No need to go to each bank, loan, or credit card website separately to view your balances.

Free Credit Score

Mint gives you a free credit score!

But you’ve probably heard of free credit scores and how they are not really accurate.

Let’s be honest, what credit score is actually accurate?

Once you sign up for the free credit score, it may be off, but the biggest benefit is the summary of your overall credit situation.

From payment history, credit limit and usage, inquiries, and more information that explains why your credit score sucks or is really good.

Although it may not be your exact credit score, it’s smart to have a rough ballpark estimate of where you are.

Alerts

How easy is it to forget when your bills are due?

It’s a good idea to set up automatic payments, but for those bills that are variable, set up an alert to be sent to your phone or email a number of days in advance so you’ll never miss a payment.

Mint has more than 20 types of alerts to notify you of fees, warn you if you’re going over budget, or let you know if something seems suspicious.

I get an alert every time a purchase of $200 or more is made with one of my credit cards, in case it get’s stolen.

Trends

One of my favorite things about Mint is the Trends section.

Have you ever had these questions?

  • How much did I actually spend last month?
  • What categories do I spend the most on?
  • Or how has my net worth changed over the past year?

You can answer all of these questions and many more in the Trends section.

 “You can’t manage something you don’t measure”

A few years ago, I was asked to write down all of my expenses for the month. I wrestled with myself to think of everything I spent my money on. It seemed like things changed every month.

When I finished with my expense sheet, I knew in my mind that it was not accurate.

With trends, you can take the average amount spent each month throughout the entire year, or multiple years. This gives you an idea of the actual amount of money that is spent on different categories each month.

This is a great way to get started with a budget and setting goals to spend less and save more. Which brings me to my last point.

Mint Budgets and Trends | Simplifinances

Goals

Each of us has goals:

  • Going on a vacation
  • Saving for a home
  • Paying off student loans
  • Saving money for Christmas gifts
  • Etc.

Mint helps you reach those goals by assessing the amount the goal requires. It then gives you a specific date in the future and tells you how much money each month needs to be allocated to that goal.

It will let you know each month where you put enough or not enough money towards your goals and whether or not you are on track to achieve it.

Conclusion

With all the services this free budget software offers at no cost, why wouldn’t you use it?

I’m not affiliated with Mint, I’m simply a raving fan. Whenever they release an update, I get excited. And I love it when other people tell me they started using Mint and that I was the one that introduced them to it.

The only downside with Mint I’ve found is the investments section.

I haven’t understood how my investment accounts are aggregated and how I did compared to the market.

Mint is great for basic money management and budgeting but if you’re looking for something a little more in-depth that gives you a clear idea of how your investments are performing, I use Personal Capital. You can read more about my review of Personal Capital.

If you haven’t opened a Mint account yet, I urge you to do so.

Stick with it for a few months or years and I hope to hear from you on how your experience has been.

It’s safe, free, accurate, easy to use, and convenient. This free budget software has many more capabilities and features that I didn’t mention, but that you’ll soon discover.

It’s time to be good with your money.

Where to Stash Your Cash

Where to Stash Your Cash

Every dollar of yours is like an employee.

If you let them sit around and do nothing, it will hurt your business.

If you “employ” them, which means to put to work or make use of, it will benefit your company.

Is every dollar of yours benefiting your personal finances or are there lazy dollars sitting around doing nothing for you?

Where Should You Stash Cash?

Here are 5 places to stash your cash for goals that are 1 to 5 years away to get the maximum value from each of your little green employees. 

Depending on your financial goals, where you stash your cash will determine if you reach those goals.

If you plan to spend the money within 1 year, be safe! If you plan to spend it in 1 to 5 years, go for a higher rate of return.

Where I save my money depends on the goal.

I’m willing to invest my savings for something like a vacation fund because the cost of a vacation varies and when we go is flexible. On the other hand, if I’m going to put money down on a house soon I don’t want to lose any of that money.

Read: I Don’t Know How To Invest & I’m Scared I’ll Make a Mistake

Short-Term vs. Long-Term Goals

Let’s use three examples of goals:

  1. Saving for a vacation
  2. A down payment on a house
  3. And building an emergency fund

Using these three examples, where is the best place to stash your cash if your goal is 1 to 5 years out for each of these?

When it comes to long-term goals, like saving for retirement, we need to take a look at other options. 

Here are 5 places you can stash your cash. Some are better than others.

1. Under Your Mattress

Some people suggest you keep cash somewhere in your house. Other than the internet disappearing or banks seizing to exist, it doesn’t do you good to have cash under your mattress because those are lazy dollars that need to wake up!

Some people like cash because it’s tangible. If you’re new to budgeting or teaching your kids to manage money, using cash is powerful! 

Cash is good for teaching. It’s a powerful tool because you can hold it and feel it. And let’s be honest who doesn’t love holding a wad of cash!? 

But cash is becoming obsolete. We live in a world where money is more of an abstract idea than a physical object. 

Cash is good for changing behavior. I used cash for years as a teenager to manage my money. Now, I don’t have more than $5 – $10 of cash on me unless I am traveling (thieves wouldn’t be happy to rob me). 

If you struggle with spending, cash is harder to spend than swiping a card. According to a study, people spend 17% more money when using a credit card than if they were to use cash. 

Other than for behavior change or teaching purposes, I think you’re better off doing something else with your dollars then leaving them in cold hard cash.

2. Your Savings Account

My bank is my central hub for my money and everything else flows from it. This allows me to transfer money easily to savings, investments, or paying bills.

The best part is I can track exactly where I spend my money unlike using cash using a free budgeting app.

Some people don’t like having their money sit in a savings account because most banks pay an interest rate of 0.000Nothing%.

I don’t blame them with the average interest rate on savings being 0.06%. But, having money in your savings accounts could be good for a few reasons: 

  • Liquidity – It’s easy to get to when you need it
  • Security – Your money is FDIC insured up to $250,000
  • Safety – Essentially no risk (except for one major risk below)

Although the peace of mind of having your money in a savings account is nice, you run a risk leaving it there.

That risk is called purchasing power risk.

$100 today will buy you less in 10 years because of inflation. Inflation can fall between 2-4% per year.

So if you’re not earning at least enough interest to keep up with inflation, the value of your dollar decreases over time.

It’s not a good idea to leave too much money in a savings account for a long period of time.

Where to stash your cash | Simplifinances

3. A High-Yield Online Savings Account

Many online banks now are willing to pay a higher interest rate to keep up with inflation.

Online banks have lower overhead costs because they don’t have to pay for physical branches. That means they can pass the savings to the consumer by offering higher rates.

The interest rate is important when you’re looking for a place to keep your money, but it’s not the most important thing.

Other things to consider are:

  • Your savings rate
  • The credibility of the bank
  • Terms and conditions

One of the downsides of a high-yield savings account is not having all of your money in one place.

If you need to transfer money into your primary bank quickly it could take a couple of days.

Don’t put your everyday spending money in one of these accounts.

High-yield online savings accounts are actually one of my favorite places to stash cash. I’ve looked into savings accounts that offer up to 3% APY (Annual Percentage Yield) which is changing all the time.

As of May 2020, the high-yield online savings bank that I use is offering up to 2.80% on cash deposits. The bank I’ve used for high-yield savings is Varo Money.

Banks vs. Credit Unions

When deciding where to stash your cash, should you use a bank or a credit union? There are pros and cons to both.

Banks are for-profit enterprises, while credit unions are nonprofits. Credit unions also offer higher interest rates on deposits, lower rates on loans and lower fees.

Why Choose a Bank?

  • More branches in the region or across the country
  • Typically quicker to roll out new apps and new tech

Why Choose a Credit Union?

  • Typically has lower fees and higher interest rates on deposits
  • Emphasis on customer service

I go for the best of both worlds and use USAA for my personal banking and Wells Fargo for my business banking. I’m happy with USAA and would recommend them to anyone (you must be a service member or be related to one to access their banking).

Think of it as an online credit union with low fees, great customer service, and always at the front of technology. They were the first bank to introduce biometric sign in. I was using my face to log in to my account back in 2014.

Although I’m happy with USAA as my primary bank, I’m always looking for an online bank that’s going to offer a higher APY for savings.

4. A Money Market Account (MMA)

Money market accounts are federally insured short-term interest-bearing instruments that generate a variable yield while preserving principal.

They tend to have interest rates that are higher than savings accounts, but they often require a higher minimum deposit.

The difference between a savings account and an MMA is what the bank can do with your money.

The bank is restricted in how they can loan your money. With an MMA the bank may put your money in a CD, low-risk mutual fund, or government securities.

It’s easy to confuse an online bank that offers a high-yield savings and a bank/investment company offering money market accounts because sometimes they are used interchangeably.

Many people have an MMA already and don’t realize it. That’s because in your investment account there is typically cash waiting to be invested that is stored in an MMA. For example, I have cash sitting in my Vanguard account when I don’t have enough money to purchase an entire share of VTI in my Roth IRA.

I wouldn’t be too concerned about these accounts for your goals. 

5. A Certificate of Deposit (CD)

A certificate of deposit (CD) acts as a savings account and has a fixed interest rate.

It also has a fixed date of withdrawal, known as the maturity date.

I call these Certificates of Depression. 😁

Why would I do that? Because, if you want to invest your money for the long run, the interest rate is measly.

Although it’s higher than a typical savings account or money market account, your money is going to be locked up for a period of time. For example, at my local credit union the terms of a CD are:

  • 2.00% 1-year CD 
  • 2.50% 4-year CD
  • 3.15% 5-year CD

That means you can’t touch your money for 1,4, or 5 years to earn that percentage rate.

I don’t use CDs anymore because I had a bad experience in the past.

Here’s what happened.

I deposited $5,000 into a 2.5 year CD when I was 19. After 2 years, I’d made $50!

But unfortunately, my car broke down and I needed to access the money early.

I had to pay a $25 fee. Eating 50% of my profit. Then, I had to pay taxes on that $50 which was $7.50.

So my $50 return went to $17.50 which is a 0.0035% return.

Basically the same as if I would have left it in the bank. 😢

I could have planned better. I could have found a better CD and accessing the money early wasn’t smart. But, either way, I’m not a fan of CDs.

I want control over my money and I’m willing to take more risk if I’m going to be saving that money for a few years. 

However, CDs seem to fit some people very well and there are many reasons why they may make sense for you. Something that seems to be effective with CDs is called a CD ladder.

How it works is, you open multiple CDs to have access to your money at different times in the future without locking all of your money into one long-term account. Then you’re able to access certain amounts at different times because your CDs are maturing.

I still think there are better places to stash your cash.

The Bottom Line

To be honest, I stash my cash in two places. I use traditional savings accounts at USAA and one online high-yield savings account at Varo Money.

Then, if I’m putting money away for retirement or for goals more than 3-5 years away, I contribute to my Roth IRA at Vanguard or purchase individual stocks or cryptocurrency with Robinhood. Very carefully.

I’ve made my fair share of investing mistakes.

Read: Investing Mistakes I’ve Made With a Roth IRA

These are simply a few ways you can employ your dollars and stash your cash. But, more important than getting the highest interest on your savings is how much money you save. 

If you’re having trouble saving money I recommend you set it up automatically.

You can set this up with your bank or you could use a tool like Qapital or Digit to do it automatically for you. They don’t have a high APY but they can help you consistently save.

I love personal finance technology that helps change behavior!

Where do you stash your cash!?

Top 40 Personal Finance Resources

Top 40 Personal Finance Resources

For about 10 years, I’ve consumed A LOT of personal finance content. I have always been on the lookout for the top personal finance resources. My goal has been to learn as much as possible so I can one day reach financial independence.

But on Dec 13th, 2017, the day that I graduated from college, I decided to make a change. Instead of being a consumer of content, I was now going to become a producer of it.

I don’t consume nearly as much personal finance content or read books anymore. I put that time into creating my own content and increasing my skills with building an online business.

The only content I consume now is podcasts because of the passive nature of it. And I love podcasts! You can be productive and have a deeper connection with the podcast hosts. I get so much out of listening to podcasts.

Who knows, maybe one day I have my own podcast.

Today, I’m going to share my top 40 personal finance resources that I have gained the most value from.

This list includes blogs, podcasts, educational websites, speakers, and books. All of which I have learned a great deal from. I encourage you to check out as many as you can. Especially those that relate to your financial situation.

Personal Blogs

Mr. Money Mustache – Even though he doesn’t consider himself a “personal finance blogger”, Pete is a thirtysomething early retiree that writes about frugality and financial freedom. If you haven’t taken the time to read any of his content, you should. This is targeted to the ultra optimizers.

Millennial Money – An online community to learn how to make more money and accelerate your financial freedom. Targeted to millennials.

Budgets Are Sexy – J Money created a money blog trying to spice things up a bit! They rock out budget planning, retirement, credit cards, 401k, templates & becoming a millionaire. 

Millennial Money Man – Bobby Hoyt has created quite the community of millennials. His site is a resource for young people that covers debt-freedom, making more money, and building an online business.

Get Rich Slowly – One of the first blogs ever about money created by JD Roth back in the 2000s. This talks about common sense advice and money-saving tips on a wide range of topics.

Stefanie O’Connell – Focused on helping women, Stephanie writes about millennial money, making more, love and money and lifestyle. I’ve seen her in a number of news videos helping the younger generation master their finances. 

Educational Blogs

Investor Junkie – Larry Ludwig and his blog compare tools to help you make the best financial decisions. Targeted to investors with a ton of great resources.

The Penny Hoarder – Kyle Taylor started one of the largest personal finance websites in America. I receives millions of visitors each month looking to make and save extra money. I really enjoy their content! 

The College Investor – Robert’s website helps millennials get out of student loan debt to start investing, building passive income, and wealth. He’s been blogging for many years and has a ton of great content.

Student Loan Hero – Student Loan Hero is an unbiased solution to organize, manage, and repay your student loans. They also discuss a ton of other things like how to make more money.

Making Sense of Cents –  Michelle Schroeder talks about personal finance, paying off student loans, and how to reach financial independence. She also has a ton of information on how to create a successful blog and online business.

The Simple Dollar – An awesome resource for all things finance and a big inspiration for my blog. Learn about budgeting, investing, credit, and more to take control of your financial destiny. Also, I was featured on the Simple Dollar talking about Marie Kondo.

Modest Money – Provides insightful investment analysis from a diverse array of investment and financial minds. They also keep an updated list of top personal finance blogs.

Good Financial Cents – Jeff creates a lot of amazing content through his blog and YouTube videos. His whole purpose is to help you make cents of your money and create a life of financial freedom.

Young Adult Money – David Carlson created this young adult personal finance blog that I have learned a ton from!

Podcasts

ChooseFI – Join a global community of people that are pursuing Financial Independence through Investing, Real Estate, and Business creation. One of my favorite podcasts to listen to!

Radical Personal Finance – This podcast helps you understand a wide range of financial topics including insurance, budgeting, investing, entrepreneurship, and more. Joshua Sheats has the heart of a true teacher.

Mad Fientist – Advanced strategies for pursuing financial independence and early retirement.

Build A Bigger Life – The Build A Bigger Life podcast with Adam Carroll is a show about entrepreneurs, innovation, pursuing freedom, and creating a life of abundance and meaning.

Side Hustle Show – Nick Loper with The Side Hustle Show is a top-rated podcast about how to make money on the side.

The Minimalists – I first came across these guys watching the Minimalism documentary on Netflix. Joshua and Ryan are fun and easy to listen to. If you’re into minimalism like I am, here’s a great post talking about how money and minimalism are related.

Money For the Rest of Us – A personal finance show on money, how it works, how to invest it, and how to live without worrying about it. David Stein has been teaching individuals and institutions on how to invest and handle their finances in ways that are simple to understand.

Top 40 Personal Finance Resources | Simplifinances

Education Websites

Mint Life – The blog related to Mint.com that produces new and fresh content everyday to help you get more out of your money.

Acorns Grow – The educational website connected with the investing app Acorns. They produce high quality and millennial focused content on a daily basis. 

Dave Ramsey – You may or may not have heard of Dave Ramsey. He’s probably one of the biggest names in personal finance. I would encourage you to check out his website and his radio show if you’re trying to get out of debt. ​​

The Motley Fool – The Motley Fool provides leading insight and analysis about stocks, helping investors stay informed.​​

Yahoo Finance – At Yahoo Finance, you get free stock quotes, up-to-date news, portfolio management resources, international market data, social interaction and mortgage rates.​​

Kiplinger – Leader in personal finance news and business forecasting. Get trusted advice on investing, retirement, taxes, saving, real estate, cars, college, insurance.​​

Investopedia – Investopedia is the world’s leading source of financial content on the web, ranging from market news to retirement strategies, and investing education.​​

Bankrate – Use Bankrate.com’s free tools, expert analysis, and award-winning content to make smarter financial decisions.​​

Nerd Wallet – Millions of people turn to the Nerds to find the best credit cards, up their credit score, land the perfect mortgage and so much more.​​

GOBankingRates – Personal finance resource designed to share articles and advice on saving, managing, and making money.

Speakers

David Bach – David Bach is one of America’s most trusted financial experts and has written nine consecutive New York Times best sellers with 7 million + books in print. I had the opportunity to meet David Bach when he came and spoke at my university and his book Automatic Millionaire was awesome! 

Adam Carroll – Helping Students and Young Professionals Succeed Faster. When I met Adam Carroll he gave an awesome speech on Winning the Money Game. He also has a book called Winning the Money Game. Definitely check it out! 

Anthony O’Neal – Anthony is encouraging students across the nation to take their decisions with life and money more seriously. I met Anthony this year and his presentation and his book “The Graduate Survival Guide: 5 Mistakes You Can’t Afford To Make In College,” were awesome! 

Phil Town – Phil Town, one of the top investors in the world, teaches you how to invest and achieve financial independence. I also met Phil Town who is the author of one of the best books on investing, Rule #1 Investing.

Rachel Cruze – Best-selling author and speaker with a heart to help others win with money. I didn’t get a chance to snag a picture with Rachel Cruze at FinCon but, her presentation was excellent! ​​

Classic Books

Secrets of the Millionaire Mind – This was one of the first financial books I’ve read. And quite honestly, it set the foundation for the rest of my life. The money management system that I have been teaching people for years comes from this book. If there is one book that you have to read to analyze your money blueprint and find out what it is you need to do or change to become a millionaire, this is the book!

The Simple Path to Wealth – Your road map to financial independence and a rich, free life. JL Collins compiled this book after writing a number of letters to his daughter about money and investing. This book is very one-sided. Meaning JL Collins was tired of all of the crappy financial advice out there and decided to share what really works. I LOVE this book. The investing strategies I learned in this book have set a foundation for how I will invest for the rest of my life.

Total Money Makeover – This was also one of the first books that I read in high school. I literally remember learning the difference between an asset and a liability in this book because, at the time, I didn’t know what they meant. I told my mom the difference between an asset and a liability and she was so proud of me. Anyone looking to change their finances needs to read this book.

Rich Dad Poor Dad – In this book, I learned that I never wanted to work for someone else. I wanted to become a business owner. I learned the power of investing in yourself and in real estate to eventually reach financial freedom. This is one of the most popular personal finance books in the world. This book is a classic!

Newer Books

Your Money or Your Life – For more than twenty-five years, Your Money or Your Life has been considered the go-to book for taking back your life by changing your relationship with money. Hundreds of thousands of people have followed this nine-step program, learning to live more deliberately and meaningfully with Vicki Robin’s guidance.

Money – Master the Game – In his first book in two decades, Anthony Robbins turns to the topic that vexes us all: How to secure financial freedom for ourselves and for our families. “If there were a Pulitzer Prize for investment books, this one would win, hands down” (Forbes.com).

A Random Walk Down Wall Street – The Time-Tested Strategy for Successful Investing. Updated with a new chapter that draws on behavioral finance, the field that studies the psychology of investment decisions, here is the best-selling, authoritative, and gimmick-free guide to investing. This book is very advanced and if you’re not a big investments geek like I am, I wouldn’t recommend it.

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