Financial Tips for the Young

I saw my Dad work so hard at a career he didn't always enjoy when I was growing up. He'd be forced to work six to seven days a week with long hours. When he came home he'd often be so tired he'd fall asleep on the couch while watching television. I saw many of my friends fathers in the same position as mine though not always as extreme.  While there is a lot of respect in what these men do, seeing all this instilled a motivation in me to be able to become financially free at an early age to be able to do what I really want to do without anything holding me back. I know this is something a lot of people can relate to so I'd like to share the steps I've researched.

1.  Employee 401k
First, take advantage of a matching employee 401k plan. This is essentially like an annual bonus so should be taken advantage of.  It also has the benefit of not being taxed until you remove the money from the account.

2.  Roth IRA
This is great for the young investor. In 2013, the IRS allows for an annual contribution of $5,500. The benefit of a Roth IRA is though you have already paid taxes on the money placed in the IRA, it grows tax-free!  This is huge considering how much $5,500 can turn into after 40 years.  I use a Scottrade account for this as it has always had great customer service, extremely low fees, and an account minimum of $500 to get started.

3.  8 month savings
This is a common theme among financial advisors. They all want you to have eight months worth of savings stored up in case you lose your job. I am pretty conservative with my money so I'm a big fan of this. What I like to do for my savings is have a separate bank account where I won't touch this money. I use an ING account for this as there are no fees involved and a respectable interest rate.

4.  Max out the 401k
After the previous three steps are completed and there is still money left that you are able to save, I'd advise that the 401k should be maxed out. The IRS allows for an annual contribution of $17,500 in 2013 (this does not include the employer's contribution).  This allows you to continue to continue to save for retirement in a tax efficient manner.

5.  Individual investment account
For the cases in which there is still money left after maxing out both the IRA and the 401k and you have 8 months worth of savings, you should then open up an individual investment account. This money can be withdrawn at anytime without any penalties after selling your investment. Therefore, it is similar to a savings account but has more risk yet more potential yield too. I'll write another article soon in how to manage a personal investment account.

These steps will set us on the right path to not be forced to work at a job we don't enjoy when we're old and tired. I have a current job that I really do enjoy but don't want to be forced to do it when I'm older if I'd like to try something new. I plan to have the freedom to do anything I'd like and travel around the world and I want to share this knowledge with you.