A penny saved is a penny earned. But in this day and age , it matters how you set aside that saved penny too.
Being an avid frequenter of reddit/r/personalfinance and r/frugal and r/churning, here's what I have gathered till now from my kaam ko productive timepass.
Ideally, this guideline is what is thrown around in personalfinance a lot. I say ideally because life happens, but adhering to the guidelines the best we can is all we can do.
As people have mentioned on this thread 401k/IRAs are a must from day 1 , if you are set on retiring here in the US, for people thinking of retiring in Nepal, ROTH Ira would work out better, although you would still pay penalty on distribution , but just on the gains, which would not be that bad. If you are not able to contribute more at least get the full employer match because that in itself is free money. Who says no to free money?
Maxing out the limits on a traditional 401k would be really hard until you get to the peak of your carrier, but in the mean time going with a mixed investment ( ROTH IRA as well as a 401K makes sense to me). Maxing out the ROTH would be ideal. I guess it all depends upon how much income you want at retirement. You can google retirement calculators which take into account inflation and growth rate for IRA/401k (5%-7% annual) and plan accordingly.
For picking funds, track a funds performance , its history, its dividend payouts,turnovers and the most important -the EXPENSE RATIO. The only thing that remains constant with index funds are the expense ratios, <0.50 % is considered ideal. (most of the Vanguard funds). some might argue paying higher expense ratios based on performance but to each their own.
If you are confident about trading/investing then you could very well do it out of your ROTH IRA, but having a separate taxable brokerage account would be ideal for those purposes as opposed to tax deferred and thats a whole another topic for discussion.
As someone already mentioned, multiply your monthly expenses by 3 or 6 and save it. That would be your emergency fund which would come into scenarios of a job loss, pregnancy etc.
Emergency funds are not for putting a down payment on a house or buying a new car, plan for those expenses separately. Always account for misc expenses in your monthly expenses, because life happens. Park that in a savings/checkings account with a good APY. The best would be close to 1%, but the main thing here is easy accesibility of the funds without any penalties and fees.
Also, track your expenses to the dollar, be it on a spreadsheet or sites like mint.com.
Some other tips I picked up on ,
play around with your exemptions in your paycheck, It is always better to pay taxes at the end of the year than getting a refund. Getting a refund is like having a forced savings account and getting the money back every year after loaning it to the IRS for 0% interest. If you parked the extra money somewhere else , the worst case would be a checking/saving account with 1% APY , you would still be making money off of that money. For this to work, financial discipline is a must .
Maximize use of credit cards, rewards signup bonuses are everywhere.
Recommended credit cards for rewards on monthly expenses
Citi Double Cash back : 2% cash back (online bills)
Chase Freedom/Discover : 5 % rotating categories - gas, amazon, restaurants
Sallie mae mastercard : 5 % gas groceries up to 250 a month spend, all year round
Do not keep a balance on credit cards. Pay in full every month. This wont work if you are paying interest on the credit cards.
For the really bold ones who want to take the extra mile, needs 720+ credit score, who is highly responsible with finances - Churning Credit cards for sign up bonuses.
Ideally should be done if you are not planning to buy a house within a couple of years or you have already bought a house.
Apply for credit cards with good signup bonuses (usually 200-600+ depends on which card and how you redeem it miles/cash). Hit the spend limit for getting the bonus.After you get the bonus, cancel the card. Wait 6 months - 2 yrs months and repeat for another bonus.
This pays for the vacations, and what makes the vacation even more enjoyable is because you are vacationing for free. Imagine all the pictures you can post on facebook all around the world, no judgement here lol.
Churnable cards would be
Chase sapphire preffered
Barclays us arrival
or just visit reddit/r/churning for more info. I would be just repeating the same thing.
Look for chase checking coupons on ebay, usually costs 8-10 dollars for 300 bonus checking. Between you and your SO thats 600 dollars . It just needs direct deposit which you should be able to split your paycheck in most places. Cancel it after 6 months . Rinse repeat, unless theres some new literature saying you cant open it again or the deal closes. I just opened my first one as well as my SO.
I think I just wrote an essay. Anyways, these are just guidelines I picked up on, hope it helps.