Can someone explain finances like I'm 5? How do I start investing?

Investing Forum
1

I feel totally clueless when it comes to money. School never taught me anything about finances, and I grew up in a family that lived paycheck to paycheck.

I’m 27, a nurse, and I make five figures. My current job takes 8% of my paycheck for a retirement plan with a small employer match. I also have a Roth IRA with Fidelity from my last job, but I haven’t touched it or invested anything yet.

On top of that, I have a decent credit score but a lot of student loan debt that I’m trying to pay off as fast as possible.

I just want to learn how to be smarter with my money and set myself up for retirement. Where should I start? Please explain in the simplest way possible because finance terms make my brain shut down.

2

You’re already doing most things right.

  • Keep paying off your student loans.
  • Try to increase your retirement contributions when you can.
  • Spend less than you earn and invest the rest.

For your Roth IRA, make sure the money is actually invested in something, not just sitting there in cash. Look for a low-fee index fund like FXAIX (Fidelity’s S&P 500 fund). That way, your money grows over time instead of just sitting there.

3

If you want a solid beginner guide, check out this:

https://bogleheads.org/wiki/Suggested_reading

You can probably find most of these books at the library if you don’t want to spend money.

4

The Money Guy Show podcast has a great episode on the ‘Financial Order of Operations’ that explains things step by step. Might be a good place to start if you’re feeling overwhelmed!

5

You mentioned your job has a retirement plan—do you know if it’s a pension or a 401k?

Also, your Roth IRA needs to actually be invested in something, otherwise it’s just sitting there doing nothing. Since you’re new to investing, a simple choice would be a target-date fund (like Fidelity Freedom 2060 Fund FDKVX) or an S&P 500 index fund like FXAIX.

6

@Lyra
My job has a pension with a cash-out option at retirement, but I can’t contribute more to it (I already checked with HR). I looked at Fidelity’s investment options but got overwhelmed by all the numbers and didn’t know what to pick.

7

@Hailey
Got it. Since your pension is fixed, focus on your Roth IRA. If you want something simple, go with FXAIX (Fidelity’s S&P 500 fund). It’s a good long-term choice that follows the stock market.

If you prefer something that automatically adjusts over time, go with a target-date fund like FDKVX (Fidelity Freedom 2060 Fund). It starts more aggressive and slowly shifts toward safer investments as you get closer to retirement.

The main thing is that you want your money working for you instead of sitting in cash.

8

Think of investing like planting a tree. The earlier you plant it, the bigger it grows.

If you put $10,000 into the stock market and it grows at 7% per year, in 40 years it will be worth $147,945.

Now imagine you add $10,000 every year. After 40 years, you’d have almost $2 million.

The key is to start early and let compound interest do the work for you.

9

You’re on the right track. Here’s a simple breakdown of what to do:

  1. Build an emergency fund – Aim for at least 3-6 months of expenses in a high-yield savings account.
  2. Pay off high-interest debt – If you have credit card debt, get rid of it as fast as possible. Student loans can be tackled next, but make sure you’re also saving at the same time.
  3. Invest in retirement – Max out your Roth IRA each year ($7,000 limit for 2024). Pick a simple index fund like FXAIX or a target-date fund.
  4. Avoid lifestyle creep – Just because you make more money doesn’t mean you need to spend more. The more you save now, the more freedom you’ll have later.

If you can follow these steps, you’ll be in great shape for the future.