Although it doesn't seem like a lot, $1,000 in the bank is a huge accomplishment!
According to the Federal Reserve's 2018 report on the economic well being of USA households, almost 40% of Americans wouldn't be able to cover a $400 emergency with cash, savings or a credit card charge.
In addition to this, a large racial wealth gap still exists, as Business Insider's Marguerite Ward Reports, the median white family in 2016 had $51,400 in savings, while the median black family in 2016 had $8,600.
So regardless of how small, applaud yourself for having more than the national average balance in your account.
Now let's establish 6 key things that you need to do right now, with $1,000 in the bank. Of course after paying all of your expenses for this month!
1. Establish and Contribute to a Tax Deferred Retirement Contribution
Sounds like gibberish? Let me explain. A 401K, 403B or an IRA account, are all considered tax deferred retirement plans. These are ways in which people can save for their future.
A 401K is set up by an employer that is for profit.
A 403B is set up by an employer that is typically a non-profit
An IRA can be set up by an individual.
The bottom-line is that saving with either one or all three of these accounts, is not only saving money for your future but also allowing you to skip out on paying upfront taxes to the IRS. You can typically deduct your contribution to your IRA or 401K from your taxable income and your money will most likely double with one of these. Contributing to this is an investment!
2. Establish a 529 Plan
Similar to saving with an IRA plan, a 529 is typically a savings account for kids. If you are a parent, open this account now with $5. It's that simple! You can contribute a max of $5,000 per year by an individual, and up to $10,000 per year by a married couple filing jointly, and this amount can be deducted form your taxable income. You also get certain tax cuts by paying into this, again you not only saving money but you are saving your tax dollars. Billionaires skip out on paying certain taxes, you can too!
3. Create a Budget
Establishing a monthly budget that you reset every month is essential to your financial health. It is a tool that allows you to see and predict every dollar that is spent. If you have a take-home pay of, say, $3,000 a month, knowing how you can pay for housing, food, insurance, health care, debt repayment and fun without running out of money is important. Making sure that $1,000 grows to $2,000 is essential for black communities. Remember the statistic above! Beat it!
4. Invest!
If you feel like you don’t have enough money to start investing, you’re not alone. But guess what? You really don’t need that much.
Whether you’ve got $10, $500 or $1,000 to spare, you can start investing with Robinhood.
They don't charge commission fees, and you can buy and sell stocks for free, absolutely no limits. Plus, it’s super easy to use.
What’s best? When you download the app and fund your account , Robinhood drops a share of free stock into your account.
There are so many ways to invest, this is just one way to start.
5. Evaluate Your Checking Account
Digging deeper into the small stuff matters more than you think. Once you get into the mindset of not wasting money at all regardless of how much you make, you'll want to switch to a low cost checking account so that your small change can go elsewhere.
Your checking account has a number of fees associated with it. You can invest $5 of those fees into Robinhood instead of paying them. So KNOW all of them. What is the monthly maintenance fee? What are the overdraft fees? What are the minimum balance amounts? And what are the fees if you go under the minimum balances each month? For years I had a free student TD Checking and Savings account, after I turned 24 they switched me an adult checking account with a minimum balance of $100 in checking and $300 in savings. I went under once without knowing and was charged $6 a month. Completely unnecessary when Capital One and a number of other banks are free. New Yorkers love Chase, but Chase charges you $12 a month for a checking account, it is only free if you have direct deposit. And my job unfortunately and weirdly does not have direct deposit, so I use Capital One!
6. Pay Off Your High Interest Debt
I was asked by a close friend if she should catch up with rent using her savings or if she should pay off her credit cards. My advice, pay off your credit cards. Knowing that I'll be a landlord soon, I feel terrible for saying this, but the bottom line is that rent does not have interest but credit card balances carried over month to month do. You can always get help with rent from non profits. I worked at CAMBA Homebase for a year and secured over $200k in grants for families owing back rent. You don't find this kind of help for high interests debt. SO you want to make a smart money move? Pay off your credit cards first, stop carrying balances. You are costing yourself more money and the bottom-line is that we want that $1,000 to turn into $10,000 and you won't get there with poor money management habits.
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