My first year out of college, I earned a salary that was only okay at the time. But within a couple of years, I had managed to work my way up at a financial company. That resulted in a huge salary bump, not to mention generous year-end bonuses.
For the first time ever, I had money to play around with. I could save for various goals and still have enough left over to travel and do other things that made me happy in the near term.
In this Reddit post, we have a couple in a similar situation. They’re making around $150,000 a year and since they don’t have kids, they’re able to save pretty easily.
They’ve already done the smart thing and saved up a six-month emergency fund. But they want to know where to go from here.
It’s an important question to be asking. And I would suggest that this couple tackle it strategically.
Identify near- and long-term goals
The couple above is doing a very wise thing — living on just one paycheck while they bank the other. From here, it’s essential that they identify their financial goals and start working toward them.
I would suggest breaking their goals into two categories — near-term and long-term. Near-term goals might include buying a home, purchasing a new car, or even traveling to a part of the world they’ve never seen before (something that’s easier to do before having kids).
Then, they should focus on long-term goals. Those might include building a retirement nest egg and growing their family.
From there, the couple can take the money they’re saving each month and split it between near- and long-term goals. If they’re eager to buy a home, they can open a dedicated high-yield savings account to stash their down payment while it’s being accumulated.
For retirement, the couple can contribute to 401(k) plans offered through their employers. And if they’re not happy with those plans, they could fund IRAs instead.
Based on the couple’s joint income, they should actually be eligible to contribute to a Roth IRA. These accounts offer a lot of benefits, like tax-free gains, tax-free withdrawals, and no required minimum distributions.
It’s also a good idea to keep some retirement savings in a taxable brokerage account. That could make it easier to pursue an early retirement, which this couple may eventually end up wanting.
It pays to get help managing a larger paycheck
Earning more money than you have in the past is a good thing. But if your goal is to maximize your paycheck and use it to fuel different goals, then it’s a smart idea to sit down with a financial advisor and see how they can help you.
A financial advisor can help identify the right accounts to save in and the right assets to invest in based on your situation. They can also help you navigate other life changes that may arise, such as having kids or gearing up for retirement.
A good bet is to find an advisor you can trust and work well with, and then maintain that relationship for years so they can see you through various life events. Even if you’re a good saver by nature, which applies to the couple above, it’s a wise bet to have a professional in your corner to help ensure that your goals are being met.
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