How I Maxed Out my Roth IRA On a $28K Salary


Hello! Today I have a post written from a blog friend of mine. I was able to meet her at FinCon and talk to her quite a bit. She has a great blog and I definitely recommend that you check it out. This post goes along well with my recent post Why You Should Invest and Save For Retirement – Plus a Personal Finance Confession Fail. Also, if you are new here, check out my latest online income report – $14,136 in October Income.

There’s a myth out there that you need to be rich to get started investing for retirement.

You may think that first you have to pay off all of your student loans. Then you need to squirrel away $25,000 in savings. Maybe buy a house. Start earning an income of $100,000 each year. Only THEN would you consider yourself “qualified” enough to become a Capital-I Investor.

The problem is: waiting too long can threaten your ability to retire at all.

Because here’s the deal—the math is in your favor to start as early as possible. Even if that means starting with a measly $100 or so. (Seriously!)

If you need a refresher, here’s why, in math terms.

Meet Ambitious Amy who starts investing $5,000 per year starting at age 25. When she turns 35, she stops investing.

Now meet Slightly Later Sally starts investing $5,000 per year starting at age 35. Like Amy, she stops investing exactly 10 years later when she’s 45 years old.

By running some easy math, you’ll see that both women invested exactly $50,000 over the course of 10 years.

By running some fancier math (compounding 8% returns), you’ll see that as they reach age 65, Amy—who started investing at age 25—has over $400,000 MORE than Sally.

The only difference? Time.

Being someone who definitely wants the extra $400,000, I decided (at age 22) to max out my Roth IRA ($5,000 at the time) when I was earning just $28,000 per year.

Here are 5 key things I did to reach my goal, and maybe a few of them can help you if you’re looking to invest early and on a small income:

Behavior #1: I didn’t let my debt stop me from investing.

When I graduated college, I had a small $4,000 student loan and a $12,000 car loan.

Like everyone, I had heard how bad debt was, and of course I wanted to pay it off. But I really wanted to invest, too.

My debt only carried interest for as long as I had the loan (just 5 years for each), but invested money grows darn-near forever. When I look at $400,000 at the end of the 45-year road, I definitely believed I could find a way to both save and pay down debt!

I paid the minimums on my debt that year (although I did add more when I earned more), and sucked up the couple hundred dollars in interest payments. I was in it for the hope of big money later on!

Behavior #2: I prioritized my savings and automated it.

Setting an aggressive savings goal is only half of the battle. In order for me to make my goal a reality, I had to prioritize saving $400 every month to make it happen.

Of my $1,800 monthly paycheck, I set up an automated transfer to my Roth IRA every month.

(I opened a Roth IRA because I didn’t have a 401(k) at work. If, however, you have a 401(k) available to you—and especially one with a match—you’re likely better off to start there!)

If you need help determining if you should invest in a Roth IRA or 401(k), keep reading.

Behavior #3: I became a slave to my budget.

As soon as I realized I’d be living on $1,400 per month, I started becoming obsessed with my Mint budget. I checked that thing every day, gained a big sense of control of my money, and closely monitored that I’d have enough for living expenses.

Things were tight, but I decided to keep living sort of like a college kid for a while. I envied some of my friends who made more and spent more, but I sort of saw it as a game—how long could I go without X? How could I use what I had to avoid spending?

It was tough, but I had a mission much bigger than myself!

Behavior #4: I built a plan, even if I couldn’t do it perfectly right away.

Using some online calculators, I learned that I’d need to save over $2M to live my preferred lifestyle in retirement. (Gulp!)

In order to get there, I had to start investing around $8,000 per year.

I couldn’t save that much right away, but I got started doing the best I could (I mean, $5,000 is no chump change!)

Remember: it’ll take a lot for you to retire someday. So much so that it seems like it’s not even worth getting started. I could’ve gotten very self-defeating at that point, but instead, I put one foot in front of the other and kept on trucking.

Behavior #5: I became obsessed with learning how to invest.

I read nearly a dozen books on investing, set my homepage to the Wall Street Journal, and pored over investment choices for hours to get a feel for what I was getting in to.

I loved learning so much, that a few years later I started studying investing as part of my Certified Financial Planner designation.

That’s how I developed the 6-step investing process that I use myself and share with my clients.

And now I’d like to share the same process with you! Join me for the FREE webinar “Invest? Yes! 6 Steps to Fearless Investing.”

Like anyone would, I had questions about whether I should pay off debt or invest. I also had moments of dissatisfaction with being so frugal, and difficulty understanding which investment strategies were right for me.

At the end of the day, however, I focused in on one really powerful idea: If you’re willing to live like no one else will today, you can live like no one else can tomorrow. And that’s what I’m really after.

Leah Manderson is a financial planner for women and young couples. Join her on Tuesday, November 18 at 5:00PM PT / 8:00PM ET for her free webinar “Invest? Yes! 6 Steps to Fearless Investing.” Get the details and sign up here.

What financial goals are you working towards right now? Is investing one of them?

#Budget #Investing #Retirement

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