When I first started working full time, I had a few big purchases in my future (i.e. engagement ring, saving up for a wedding, etc). Now that I was receiving a steady paycheck I decided it would be important to start budgeting. I tried using Mint for a while, but I found that I wasn’t truly monitoring my spending. I ended up switching to YNAB (You Need a Budget). This application allows you to set budgets for each of your spending categories. Furthermore, it forces you to actively track your spending because you have to enter and categorize your transaction. This makes you more aware of where you are spending your money. YNAB has some great introductory videos that teach you the concepts and basics behind budgeting. The main concept that I learned is giving every dollar that you earn a purpose. For instance, if I earn $10 I would put $4 to rent, $1 for groceries, $2 to investments, $1 to restaurants, $2 to an emergency fund. This principal is important and helpful when you are first starting to budget. YNAB now has a new online platform that I haven’t converted to yet, but I may in the future. I would highly suggest this application to anyone looking to more actively manage their personal finances.
Once I had a hold of my personal finances I started realizing I had extra money that was not being categorized. What was I supposed to do with the extra money? At first, it made sense to just use the extra money to pay a little more towards my student loan debt. This wasn’t a bad decision by any means. After all, a couple of my loans had fairly high interest rates. I also decided I needed to setup an emergency fund. This would be money I would tap into if I lost my job or for unplanned medical bills. Finally with the extra $100-200 depending on fluctuating expenses I decided to invest the money. The big question became… where do I invest?
From a young age, I was taught the importance of saving money. This financial education came not only from my parents, but from my extended family as well. I remember my uncle buying me savings bonds for my birthday and my aunt buying me “How to Invest” books. I specifically remember one book that had a profound impact on the way I viewed money. It was called “Rich Dad, Poor Dad for Teens”. The book talked about saving and impact it could have on your future. As a teenage, I remember it being easy to read and provided concrete examples of how to save and invest. I think the book is still sitting on my bedroom shelf at my childhood home right now. All this to say, my family wanted to make sure I was financially competent before I graduated high school. My grandpa even gave me $600 to invest in the stock market. I opened an account with Scottrade and invested in company’s that I recognized or liked at the time. One of those company’s was Circuit City. You may not have heard of Circuit City that’s because the company went bankrupt about 9 months after I bought their stock. They were basically a cheaper version of Best Buy. However, they eventually went bankrupt and therefore my stock was pretty much worthless. I lost around $150, which at the time felt like a fortune. Luckily I had other stocks that picked up the slack and my net loss was around $50. This was one of my first lessons that I learned in investing. Diversify! It is important to not put all your eggs in one basket so to speak.
Back to present day, I had no idea where to put my investing money. I could stick it in a Savings account through Capital One 360, which would guarantee me 0.75% back. It wasn’t much of a return, but it was low risk because I knew my money wouldn’t lose value. This seemed like a good place to put my emergency funds/safety net. I wanted to get more of a return on the rest of my money though. I figured I’d take another stab at stock market investing. I already had an investment account with Sharebuilder (linked to my Capital One 360 account). Trades cost about $7 so I started doing research. I bought shares in four different companies. Since trades cost $7, I saw these stocks as more long term investments so I invested in companies that had a history of long-term growth.
Then I found an investment app called Robinhood. This app allowed me to trade stocks with no trading fees. The catch is that your money is not available immediately to buy another stock. This application made me feel like a stock broker. For the 3 months that I actively used it, I was buying and selling stock every day. I would capitalize on short term gains. This worked for a while, but then I realized how much time I was spending researching and watching my stocks rise and fall. It was like a game and I was hooked. It got to the point that it was taking away from my actual job. This was obviously not acceptable so I stopped monitoring the application as closely. I also realized that these small gains were not worth it. Sure I was making $10 by buying a stock the day before and selling it once it increased in value, but it wasn’t worth it. I also forgot to realize the tax implications of all this trading. Long term gains > Short term gains for tax purposes. Currently, I hold 8-10 different stocks in Robinhood, but I only own a few shares of each since there are no trading fees. Robinhood allows you to diversify your stock portfolio. Here is my referral link for Robinhood (Matt’s Referral Link) if you decide to use it. However, I found that it took a lot of time to research and stay up to date on the stock market.
Which brings me to my final and current investment platform, Betterment. I stumbled across Betterment due to a newsletter done by YNAB. Betterment has no trade fees or no transaction/withdrawal fees. Instead, Betterment charges an annual fee of $3 or 0.25%/0.35% (depending on the balances in your account). You’ll get six months free if you use my referral link: betterment.com/invite/matthewgarcia2. So what makes Betterment different? Betterment invests your money in Exchange Traded Funds. ETFs follow a certain index, commodity, or bond. As a shareholder of an ETF, you’re entitled to a portion of the dividends and interest that is earned. Betterment has some great articles that further explain ETFs: ETF vs. Stock Picking and 5 Ways ETFs are Better. Betterment allows you to chose a certain ratio of bonds and stocks for each of your goals. For example, I can choose a ratio of 82% stock ETFs and 18% bond ETFs. Bonds generally have lower risk than stocks. These funds allow me to diversify my investments at a low cost. Another thing that I love about Betterment is their tax-harvesting loss software. This means if my ETFs start to lose money, Betterment will sell that ETF to harvest the tax loss and then buy a similar ETF. In case you didn’t know, you can deduct $3,000 of capital losses per year. From a tax perspective, this is helpful. The beauty of Betterment is that it manages everything for you. It automatically reinvests dividends. You can setup monthly deposits, which it will automatically invest. The user interface is pretty intuitive and they provide you with great advice/resources. I would highly recommend Betterment for anyone looking to start investing.
In conclusion, if you’re looking to get your feet wet, Betterment is a great starting spot. If you want to get more involved in stock investing and your funds are limited, Robinhood is a great place to start. For investors with more capital, I would suggest Sharebuilder or Scottrade just because their software is more advanced than Robinhood. Picking which stocks to invest in feels like a guessing game to me sometimes. For me, I’ll stick with Betterment because I do not have time to constantly manage a stock portfolio.