I was chatting with a friend of mine who works blue-collar and realized he hasn’t started saving or investing yet. I told him I’d help him out. My plan is to have him open a high-yield savings account for emergencies, a Roth IRA for retirement, and maybe a personal investment account for ETFs. Does this sound like enough? I’m no expert, but I really want to set him on the right path. Any advice?
That’s a solid plan to start with.
You should walk him through this forum’s personal finance checklist first. Here’s a helpful flowchart: Personal Income Spending Flowchart - United States - Imgur.
Also, if he has access to a 401k through work, he should focus on that first, especially if there’s any matching, before opening a personal investment account.
@Neely
He’s an independent contractor, so no 401k from work. Thanks for the link though—I’ll check it out.
Axel said:
@Neely
He’s an independent contractor, so no 401k from work. Thanks for the link though—I’ll check it out.
He could look into a SEP IRA.
Axel said:
@Neely
He’s an independent contractor, so no 401k from work. Thanks for the link though—I’ll check it out.
He could look into a SEP IRA.
Exactly. Any tax-advantaged retirement plan would be a good option.
Axel said:
@Neely
He’s an independent contractor, so no 401k from work. Thanks for the link though—I’ll check it out.
Here’s another link that explains retirement options for independent contractors: Independent Contractor: Definition, How Taxes Work, and Example.
You might be overwhelming him a bit with too much at once. I’d start with just the high-yield savings account.
Vanguard’s VMFXX is currently offering 4.35%. Fidelity’s SPAXX has 4.09%. If you find a better rate, go for it. Just let him see that he’s not losing money, so he can build trust in the process.
Once he’s ready, suggest a Roth IRA, especially if he’s in the 12% or lower tax bracket. If he’s earning a lot, maybe a SEP IRA or solo 401k would work better.
I recommend Fidelity’s Zero Expense Ratio Funds, like FNILX. Fidelity is reliable, and their zero-expense funds are hard to beat. There’s no minimum investment, and the expense ratio is 0%.
This is a great start! Just remind him regularly that saving and investing is all about being consistent over a long time. The key is to keep adding to it and stay disciplined with spending.
Does he have a workplace 401k? If so, he should definitely look into it.
Be careful—you’re technically giving financial advice, and depending on your location, that could get tricky. It’s best if everything is in his name and you’re just guiding him on how to set things up.
That said, your plan sounds solid: high-yield savings, Roth IRA, and S&P 500 index funds. Can’t go wrong with those!
@Day
Don’t worry, everything’s in his name. I’m just showing him what I do and explaining how it works.
Axel said:
@Day
Don’t worry, everything’s in his name. I’m just showing him what I do and explaining how it works.
Good to hear! You’re being a great friend by doing this. Give yourself some credit.
Sounds like you’re on the right track. Ask him if his work offers any matching contributions for a retirement account. If not, the Roth IRA is definitely the way to go.