Hi Money Minder,
Hey there,
My husband and I come from families who were never great with money, and we’ve followed suit. But, we’re ready to turn things around! We’ve managed to save up $1000 for emergencies, and come January, our credit card debt will be history – woohoo!
I keep hearing terms like HSA, HYSA, and Roth IRA thrown around, especially Roth IRA. I’m lost! What’s the deal with Roth IRA? How do I get one and use it? How much should I contribute, and why should I even bother? And what’s the difference between all these options?
I’d really appreciate any help you can give. Money talk just goes over my head, and we’re really trying to get to a place where we’re not pinching every penny.
Our total income is $36k.
Thanks a bunch,
[Financially Clueless]
Farewell,
[Financially Clueless]
Response from THE MONEY MINDER:
Hello There,
Congratulations on taking the first steps towards financial stability by having $1000 in emergency savings and being on track to be credit card debt-free by January. It’s a significant achievement, and you should be proud of yourselves.
It’s understandable that terms like HSA, HYSA, and Roth IRA may seem overwhelming at first, but they can be valuable tools in securing your financial future. Let’s focus on Roth IRA for now. A Roth IRA is a retirement account where you contribute after-tax dollars that grow tax-free, and when you withdraw the money in retirement, you won’t owe any taxes on it. You can open a Roth IRA through most financial institutions, such as banks or brokerages. They will help you set it up and choose investments.
When it comes to how much to put in, a general rule of thumb is to aim for contributing 15% of your income towards retirement. Since your combined income is $36k, contributing around $5,400 a year or $450 a month would be a good target. However, start with what you can afford and gradually increase it as your income grows.
The main difference between HSA, HYSA, and Roth IRA is their purpose. An HSA (Health Savings Account) is for medical expenses, while a HYSA (High-Yield Savings Account) is a place to earn more interest on your savings. A Roth IRA is specifically for retirement savings and offers tax benefits.
In your case, focus on getting rid of credit card debt first, then gradually start contributing to a Roth IRA. Educate yourselves more on these financial tools, perhaps by seeking advice from a financial advisor, or reading up on reputable financial education sources. Slowly but surely, you’ll build financial knowledge and be in a better place financially. All the best from THE MONEY MINDER.
