Once I entered my 20’s, two new terms crept into my vocabulary: 401k and Roth IRA. With every paycheck that enters my hands, I face a constant battle of whether i’ll spend any spare change that i’m left with after I pay my bills or deposit it into a savings account. That’s why I reached out to Gretchen – the founder of the website “Retired by 40!” to answer some of my 20-something financial advice!

Jen: What advice would you give to someone who graduated a few years ago and has been working a “big girl” job for a couple of years now – but doesn’t have much of a savings account or a savings plan (AKA me!)

Gretchen: When you’re in this very position, the first thing to do is talk to your employer and see if they have a 401k plan. Most do and a 401k lets you put a part of your paycheck into a retirement account. What makes it even better, is that some employers will match what you put in.

Jen: What happens if your employer doesn’t have a 401k plan that matches?

Gretchen: Then you should do a ROTH IRA. When you’re right out of college and not making a whole lot of money, you meet the requirements for a ROTH IRA. For this, you have to pay taxes on the income first – but then you’ll receive all the money and the interest that your money grosses for the years that it’s in.

Jen: Is this the battle between 401k and ROTH IRA – or should you do both?

Gretchen: I’d recommend both. I know it sounds like a lot – but it’s better to maximize savings now. That way you’ll get accustomed to saving money and you can always “back off” the amount you but into your savings later on.  What tends to happen after you graduate is that you say, “Wooho! I have all this money now and I want to spend it.” But if you just give yourself a little extra money to spend more – not twice as much as you had when you were in college – you’ll be happier with your life and with your savings account.

Jen: Happier! I feel as though whenever money comes out of my paycheck for taxes or to sit idly in a savings account – I’m not truly that happy! 

Gretchen: You’ll be happier with life because you gave yourself a raise when you got out of college by getting a job. You’re going to experience a “lifestyle infatuation”. I’m not saying you should live like you’re in college still – absoultely not! Just split the difference with yourself: so if you made $1,000 a month from a college job, when you get a big girl job and make $2,000 a month, spend the $1,000 and split the extra. Save $500 and spend the $500.

Jen: What about adventure? Can you pull money out of these savings account to take a trip around Costa Rica or buy a fancy new top from Zara to wear on a first date?

Gretchen: Try not to touch your 401k or ROTH IRA – unless it’s an emergency. Instead, start other savings account. You can open up 26 if you want and label each account for a different goal you want to accomplish. For example a: Costa Rica trip + a room renovation fund + a kitchen appliance shopping spree.

Jen: What are the top 3 things people waste the most money on?

Gretchen: Here’s what I think:

1. Food: We all have to eat – I understand that. It’s important to be mindful about how much you spend at the grocery store.

2. Eating out: I love eating out! It’s an experience – plus we don’t like cleaning up from cooking. When you consider how much it costs to eat out – you could make that same meal at home for much cheaper. We eat out for special occasions and not only do we save money – but we look forward to it more. We scope out restaurants and we read reviews and we get dressed up and make a night out of it.

3. The college they choose: People should get a college degree but they should go to the cheapest school possible. People pay for overpriced degrees and then get overwhelmed with student loans and debts and can’t get a job.

Jen: Why did you decide to start you blog “Retired by 40” and put your financial situation out there for the world to see? [Kudos on being brave enough to do that!]

Gretchen: I started the blog for accountability. I knew that if I had even just a couple of people reading my advice and my debt progress, I wouldn’t want to give them a bad update – so i’d work harder to be accountable. As my following has grown and the site has developed, I’ve come to realize that I make mistakes and that if i’m making mistakes and learning from them – chances are that other people are making mistakes too and I can help them. My generation seems lost at times and I want to help them and not make the mistakes that I made.

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