Paid Non-Client Promotion: Any affiliate links to products on this page are from partners who pay us compensation (please see our advertiser disclosure in our partner listings for more information), however our opinions are our own. Learn how we rate investment products and write unbiased product reviews.
- The best financial advice is usually boring and unsexy, which is why no one wants to hear it.
- But certified public accountant Rachel Wooten says these tips can help you save more for retirement and other goals.
- She recommends making the most of your HSA, avoiding lifestyle changes and starting to save for retirement as early as possible.
The best money advice is decidedly unsexy.
With a quick Google search, you'll find dozens of books, financial advisors, and self-made millionaires all preaching the same thing: invest for the long term, don't try to time the market, and let your investments grow with compound interest over many years. Most of us would rather just plug our ears and hope for a get rich quick win.
When I spoke with Rachel Wooten, then-Flint Group's financial director and CPA, she admitted that there's a lot of money advice out there that no one wants to hear but that everyone should follow. Here are four things she wants readers to know:
1. Invest as much as possible into your health savings account.
When it comes to planning for retirement, most people have heard that they should max out their IRA or 401(k), but a helpful retirement tool that should be maximized as well is the Health Savings Account.
HSAs are tax-advantaged savings accounts created in 2003 to help people with high-deductible health plans pay for out-of-pocket medical expenses. While the purpose of an HSA is to save money for unavoidable medical expenses, it's just as easy to use an HSA as an investment tool.
“HSAs are the only accounts where contributions, growth, and withdrawals are never taxed,” says Wooten. “Investing your HSA funds to avoid having to pay out-of-pocket for expensive orthodontic or doctor's visits will benefit you in the long run.” Plus, as long as you leave your HSA funds in the account until you're 65, you can withdraw them at any time for non-medical expenses.
2. Put your investments on autopilot
After juggling work, family, and hobbies, actively trading your portfolio is the last thing most people want to think about. That's why one of the best ways to prepare for the future is through an employer-sponsored retirement plan. It's an attractive, passive option available to most employees. Simply choose how much to contribute from your paycheck each pay period.
The best strategy is to put your money into a total market index fund or exchange-traded fund and then forget about it. “Sure, stock trading is fun and a lot more interesting than this boring strategy, but in the long run, actively trading is more likely to result in losses than it is to beat market gains,” Wooten says.
3. Avoiding lifestyle changes
It's not the money you make that counts, it's the money you keep. Unfortunately, most people forget this thought after they get a raise. “When people get a raise, they often think straight away about upgrading their home or car. But research shows that this boost in happiness is short-lived because we quickly get used to these things,” says Wootton.
If you can avoid lifestyle changes and increase your savings and investments when you receive a raise or bonus, you can reduce a lot of financial stress.
Of course, there are exceptions to this rule — maybe you're putting off a home repair or emergency medical procedure for financial reasons — but to be financially stable, think carefully about making upgrades before aiming for a higher standard of living.
4. Start saving for retirement as early as possible
For most people just starting out in their careers, it's hard to save money for something as far away as retirement. “It's hard to get people in their 20s to think about retirement, but the money they save early in their careers allows compound interest to do the heavy lifting for them,” Wooten says.
To understand the importance of investing early, let's look at this example (you can also calculate it yourself using our free retirement calculator): Two people are saving $100 each month for retirement, each with a 5% compound annual rate of return, but one starts at age 25 and the other at age 35. The person who started at age 25 will have saved almost twice as much by age 65.
A person who started investing at age 25 has an account balance of roughly $162,000, while a person who started at age 35 has an account balance of just $89,000. That's the power of compound interest: the 25-year-old investor only invested $12,000 more of his or her own money, but ends up investing over $70,000 more than the person who started at age 35.
This article was originally published in July 2021.
