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How should I structure my savings in my lower 20s?

I am a 22-year-old living in New York City and I am in my first career year at a large investment bank. I am trying to decide how to structure my savings and portfolios. I make about $7,000 a month before taxes. My primary expenses are rent (about $1,000 a month), car payment ($500 a month), and finishing off my student debt ($8,000 remaining).

My company matches 5 percent on 401(k) contributions and everyone in my family has suggested that I max out my 401(k). Should I do that, or open an IRA instead? Alternatively, should I just build up my savings as much as possible? Currently, I have about $10,000 split between stocks and crypto, and a few thousand in savings as I frequently move money from my savings account to pay off student debt quickly. How should I be utilizing the extra money I make each month?

Banking, Career / Compensation, Debt, 401(k), IRAs
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June 2018

Great question, we often help young professionals with their cash flow allocation in similar situations to yours. First, build an emergency fund. A specific account (typically high yield savings account such as Ally bank or Marcus by Goldman Sachs) for a buffer against unexpected expenses or potential loss of income in the future. Typically, 3 months worth of living expenses is a good place to start. You want to hold the emergency fund in cash for safety and liquidity purposes. Set up automatic contributions from your checking account to the high yield savings account the day after you get paid. If you can establish 3 months worth of living expenses in cash in this account over the next 6 months or so that'd be great. 

Second, contribute at a minimum 5% to your 401(k) to lock in the match. You may find maxing out your IRA or Roth IRA as a better strategy then contributing more to your 401(k) since you can control cost and have a wider selection of investment options. Any cash flow above that amount could either be allocated towards the 401(k) or invested in a taxable account that would allow you to access sooner than age 591/2 when the retirement accounts no longer have the withdrawal penalty. 

Hope that helps.

Best,

June 2018
November 2018
June 2018
June 2018