I’ve had dozens of friends, acquaintances, and strangers ask me: how should I invest my money?

So, I’ve decided to write a few article sharing how I would invest my money in certain scenarios. Today, let’s look at how I would invest on an income of up to $122,000/year as a single person, or $193,000/year married — while under the age of 45.

The basics of investing are easy — and the purpose of this article is to provide a simple strategy for getting started. No complicated terminology or math, just a basic step-by-step guide on where to put your money.

This is my opinion on how to invest — and it is how I would encourage my close friends and family members to invest. However, I am not a financial advisor. Consider my suggestions below, but remember that it is ultimately your responsibility to decide how best to invest your money.

This guide is LONG — but it includes everything you need to be a savvy investor without spending years studying finance or risking your hard-earned cash on a bad investment.

If you follow the steps outlined in this article, you will be a better investor than the vast majority of Americans.

So don’t let this article intimidate you! Read it, implement what you learn, and watch your wealth grow on autopilot.

How to invest if you make up to $122,000 as a 20 or 30-something (maybe a 45-year-old)

This article is relevant for the large majority of millennials and Gen Z who earn under $122,000/year as a single person, or $193,000/year married.

Because my wife and I fall into this category, I’m essentially sharing how I invest.

This investment strategy is based on a few assumptions:

  1. You earn under $122,000 as a single person or $193,000 as a married couple (in 2019).
  2. You are employed with benefits, and able to pay all of your monthly bills.
  3. You want a simple way to invest wisely to build wealth, without wasting your time studying financial charts and tables. In other words, this article is not for money you plan to actively invest by day-trading, etc..

Below is my recommendation on what to do with your money. Start by maxing out the first step, and then move on to the next.

If you only make it through the first steps or two before running out of money, that’s okay. Continue to focus on earning more and spending less, and you’ll slowly work your way further down the list.

Ready? Great. Let’s start building your wealth.

1. Invest enough in your 401(k) to receive the company match

Most companies offer their employees a tax-free investing account called a 401(k). You can contribute up to $19,000 into this account in 2019.

Additionally, most companies will match how much you put in this account, up to 2-6%. For example, if I put 4% into my 401(k), my employer will add an extra 4.6% into my retirement account. This is essentially an annual bonus! For someone earning $50k, this is an extra $2,300/year. For someone earning $100k, this is an extra $4,600/year.

If your company provides a 401(k) employer match, this is the first place you should invest. Invest the amount required to receive the full bonus contribution from your employer.

Because you can’t withdraw these funds until your turn 59 1/2 (without paying high fees), I don’t recommend maxing this account out right away. However, invest enough to earn your employer match, as this is free money!

How should you invest your 401(k) funds?

I recommend using the Target Date fund closest to the year you would like to retire. For example, if you want to retire at 65 and are currently 30, place your funds in the 2055 Target Date fund.

Once you become more comfortable with investing, you can experiment with other funds and ETFs available to you. But the Target Date fund is a quick and easy way to start, ensuring your money continues to grow while you focus on other aspects of life.

2. Save a 3-month emergency fund

After you contribute enough to earn your 401(k) match, the next step is to save enough to cover your monthly bills for 3 months. This includes your mortgage, car payments, student loans, credit card bills, groceries, and all other expenses.

For example, if you spend $3,000 a month, then work toward saving $9,000. If you aren’t sure how much you spend every month, use a free app like Personal Capital to track your expenses and net worth.

“But Rob,” you say, “this is saving, not investing!”

True. But this is one of the most crucial financial moves you can make. I’ve met too many people in debt because they lost their job and don’t have an emergency fund.

By setting money aside to solve immediate financial needs, you can sleep soundly at night — knowing you have enough money to take care of yourself and your family if something happens to your job.

Where should you place your emergency fund?

For simplicity, keep this money in a savings account with your current bank.

Personally, I like to maximize my returns — and divide my emergency fund as follows:

  1. I keep about 1.5 months worth of expenses in my checking account to cover my monthly expenses as they become due.
  2. I keep about 1 month worth of expenses in a high interest savings account. Right now I like Varo Money’s 2.12% APY interest rate. With no fees and an easy-to-use app, I can quickly transfer funds into my checking account if needed.
  3. I keep about 1 month worth of expenses in Worthy Bonds where I earn a 5% return, and can withdraw at any time. Placing this money in bonds is a little riskier than keeping it in the bank, but I enjoy the higher returns and would likely withdraw these funds if I lost my job and needed the money to be more secure (I just have a hard time letting my money sit around without making me more money).

3. Pay off all debt with an interest rate over 5% — and lower your interest rates if possible

Once you have an emergency fund saved, it’s time to tackle debt. I know, this, again, isn’t investing — but your financial returns can be far better by paying off high interest loans.

Here’s how to tackle your debt.

First, do everything you can to lower your interest rates

Lowering interest rates on the money you owe can save thousands of dollars — and it’s incredibly easy to ask for a better rate. Here’s how:

  • Refinance your mortgage: Check out this refinance mortgage calculator to see if you can lower your monthly payments by refinancing your mortgage. By lowering the interest rate on a $200,000 mortgage by 1%, you can save over $100/month on your payments.
  • Refinance student loans: If you have student loans, see if you can consolidate/refinance these loans to save money. There’s a good chance you are paying a higher interest rate than you should. An easy way to see if you can save is to check your rate with SoFi. Not only do they often have one of the best rates available, but as a reader of A Richer You, if you refinance you will receive an extra $100.
  • Refinance credit card debt with a personal loan: Hopefully you don’t have credit card debt (you should ALWAYS pay off your credit card in full every month). However, if you do have debt sitting on your cards, check your rate for a personal loan. Credit cards have one of the highest interest rates and you could save yourself $1,000/year if you owe $5,000+ on credit cards.

I recommend trying to negotiate or refinance any debt that you won’t be able to pay off within the next 3 months. It’s fast and easy to ask — and the payoff can be substantial.

Then, pay off your debt as fast as possible

Before you start investing, you should pay off any debt with an interest rate of 5% or higher.

Investment returns can vary, but your debt obligation interest rates are a “guaranteed” return. If, for example, you earn a 4% return on your stock investments, but pay 8% for student loans, your return on investment (ROI) is actually -4%. Not cool!

Sure, you may be able to earn 12% returns from the stock market one year — but you could also lose money. Therefore, start by paying off your high interest debt.

Hopefully your mortgage, auto loans, and student loans are below 5%. If this is the case, and you can easily meet your monthly payments, then it’s okay to start investing before paying off these debts in full.

Once you have your high-interest debt paid, it’s time to start investing!

4. Invest in a Roth IRA — $6,000 if single, $12,000 if married

If you earn under $122k/year single, or $193k/year married, you qualify for a Roth IRA account.

A Roth IRA is a retirement investment account. The money goes into the account after you pay taxes on it, but the withdrawals during retirement are tax-free. This could save you a LOT of money in the future.

Plus, you can withdraw the funds you’ve deposited at anytime without paying additional taxes (because you already paid taxes on this portion before depositing the funds into your account).

For example, if you put $6,000 in the account this year, and then need $6,000 next year to help buy a house, you can withdraw this money without paying any taxes or fees.

Note: You can only take out the money you put in. For example, if your $6,000 investment has grown to $8,000, you can only take out $6,000 before retirement. The other $2k must stay in the account to avoid taxes and fees.

Why do I LOVE Roth IRA accounts?

The reason I live Roth IRA accounts is because you can use them to invest in your future, while still having the funds available for an emergency or large purchase. Additionally, you usually have more investment options than with your 401(k), allowing you to safely increase your returns.

The Roth IRA allows you to save for retirement without feeling like you’re locking your money up until your 60 — which is what often happens with other retirement accounts.

Roth IRAs are only available if you earn under a specific income (as stated above). Additionally, you can invest a maximum of $6,000 (if you’re married, your spouse can also open up an account).

If you qualify for a Roth IRA, I highly recommend that you set one up, and make maxing it out a priority.

How do you invest in a Roth IRA?

You can invest in pretty much anything with a Roth IRA. From the stock market to real estate.

Again, to keep it easy, I recommend the following (which is what my wife and I both do for our Roth IRAs):

  1. Open a Roth IRA with M1 Finance: Not only does M1 Finance have a fantastic app to track your investments, but it charges $0 in commissions or fees. There are a growing number of fee-free investment advisors, but M1 Finance is the best one I’ve found for retirement accounts.
  2. Choose the appropriate Target Date fund: The safest way to invest is to diversify your money across multiple stocks and bonds. With M1 Finance you can do this automatically through their “Expert Pies > Retirement Planning”. Simply select the target date fund closest to when you want to retire, and select the “Moderate” risk level (assuming you want to use this money as a backup emergency fund, otherwise you can select “Aggressive”).
  3. Fund your account: If you can afford to put $6,000 into this account all at once, go for it. If not, then invest what you can now, and consider setting up an automatic deposit to add more money every month. Just remember, you can’t deposit more than $6,000 in a calendar year.

That’s it! You can now sit back. Your money will continue to grow over time — and you can always withdraw the initial investment for an emergency or large purchase.

And remember, this is an investment you can make EVERY year you earn under $122k/single or $193k/married — so keep putting money into this account.

5. Invest in an HSA — $3,500 if single, $7,000 if married

A Health Savings Account (HSA) in one of the most amazing investment tools available — but not everyone qualifies.

You qualify for an HSA if you have a High Deductible Health Plan (HDHP). Your health insurance deductible must be over $1,350/year as an individual, or $2,700/year as a family, to qualify for an HSA. If you bought the cheapest health insurance your company has, you probably qualify. Speak with your HR department if you are unsure of whether or not you qualify.

If you do qualify, you may contribute up to $3,500/year if you’re single, and $7,000/year if you have a family. The combine contributions by both you and your spouse cannot be more than $7,000.

Why are HSAs so great?

Health Savings Accounts have what’s referred to as a “triple tax advantage”:

  1. You don’t pay taxes on the money you contribute.
  2. If you invest the money, it grows tax-free.
  3. You may withdraw the funds to pay for qualified medical expenses at any time, and withdraw the money after you turn 65 for any reason.

This makes the HSA an incredible investment.

Additionally, you can use the HSA as another emergency fund.

Let’s say you go to the dentist and spend $200 to get a filling. You can submit this bill, while leaving the funds in your HSA account — only to withdraw the funds later if you have an emergency.

Why would you do this? Because you are then able to keep the HSA money invested tax-free. And you can then withdraw the $200 you paid at any point in the future — whether that’s 3 months, 3 years, or 30 years later. This gives you access to additional emergency funds while still investing.

Why should you contribute to a Roth IRA before contributing to an HSA?

This is entirely up to you. The reason I recommend the Roth IRA first is because you can withdraw those funds for any reason — making it a stable addition to your emergency fund.

If you’re comfortable with how much money you have saved, then go ahead and max out your HSA contribution before your Roth IRA. Just remember, you can only withdraw these funds for qualified medical expenses (including dental, vision, prescriptions, etc.).

I actually recommend depositing some money into your HSA every month even if you don’t max it out. Then, you can use these funds to pay for medical expenses, tax free.

If you can max out both your HSA and your Roth IRA, you’ll have the best of both worlds.

How do you start and maximize your HSA?

Many employers have a Health Savings Account provider.

However, not all providers are created equal. The one my employer offered had huge fees — and even when the stock market shot up 15%, my HSA investments increased about 5%.

So, I started doing research. You don’t have to open an HSA through your employer. You can open one on your own.

Personally, I’m a huge fan of the Lively HSA (who I have recently made my HSA custodian).

Lively was built from the ground up to be transparent and easy to use. They have a great app and charge $0 fees! While my previous HSA provider charged me a plethora of fees, Lively doesn’t charge a penny to manage my HSA.

Additionally, you can invest your HSA money through a partnership with TD Ameritrade. You can invest in pretty much any stock, along with Target Date Funds (which I recommend for ease of use).

Check with your current HSA provider to see what kind of fees they charge, but from the companies I’ve researched, Lively is the best HSA provider when it comes to fees, investment options, and ease of use.

Because you can only invest in an HSA while you have a high deductible health plan, I recommend doing this as much as possible while you’re young. Once you have kids (including the year you get pregnant), you may be better off with a traditional medical plan. A traditional plan will make your medical expenses more affordable, but will prevent you from making further contributions to your HSA.

6. Invest in your 401(k) — $19,000 if single, $38,000 if married

Now let’s take another look at your 401(k).

We started this article with you adding the very minimum to receive the matching funds from your employer. It’s now time to max out this account.

You can contribute a maximum of $19,000 to your 401(k) every year. And, if your spouse works, they can contribute up to $19,000 of their earned income as well.

Remember, you cannot withdraw the money placed in these accounts until you turn 59 1/2 — but that shouldn’t keep you from investing! These accounts reduce your tax rate and, if you invest early on, will position you to easily retire a multi-millionaire.

As I stated before, to keep your investments simple and stable, I recommend investing in a Target Date fund based on the date you plan to retire. If you decide to research investing further in the future, you can reallocate your money to different funds at a later date.

What if you want to invest money you may need before turning 59 1/2?

For most Americans, saving for retirement is the most important investing you can do. Especially if you’re in your 20s or 30s and earning less than $200k.

If you can’t afford to maximize the retirement accounts listed above, you probably shouldn’t be planning for any other large purchases (such as a bigger house or newer car). I know many people are going to ignore this advice, but I hope you aren’t one of them! As Dave Ramsey says:

Live like no one else, so later you can Live Like No One Else.

Dave Ramsey

Of course, there are times when large purchases are necessary — such as a first home or assisting a child with college. If this is the case, then either save the money in a high-interest savings account (again, Varo is a great choice), or invest it via the options below.

7. Invest in real estate and stocks

If you’ve made it to this step, congratulations! By now you are saving and investing enough to live a very comfortable life in retirement. And maybe even escape your 9-5 early…

So how should you invest once you’ve maximized all of your retirement accounts? At this point, the sky’s the limit!

Here’s where I place extra money (and money I want to have access to before retirement age):

  • Fundrise: Fundrise allows you to invest as little as $500 in real estate and earn 7-10%+ in annual returns. I’ve invested with Fundrise for the last couple of years and have been very happy with their returns. Plus, because the investments are backed by property, it’s pretty secure. I place about 10% of my investable cash in Fundrise.
  • WeBull: WeBull is a great tool to invest in individual stocks are funds — although I never recommend investing more than 10% (or even 5%) of your cash in a single company. It’s always better to diversify. WeBull will give you a free share of stock if you sign up and fund your account with a minimum of $100 within 30 days of joining.
  • Roofstock: I currently own several rental properties. Although I haven’t used Roofstock yet, I will seriously consider it the next time I buy a property. Roofstock sells single-family rental properties that come fully prepared with a property manager and estimated returns. If you want to buy an investment property without having to worry about managing it, check out Roofstock.

Ultimately, you can invest as much as you want in stocks and real estate. Just remember, the more you diversify across different types of investments, the more stability you’ll have if one investment struggles.

8. Invest in alternative investments

Finally, here are a few risky, yet fun, ways to invest your money.

Personally, I see the money I place in these investments as gambling — and only invest money I’m okay losing. However, I’ve had some great returns from these investments in the past.

  • Coinbase: Bitcoin and other cryptocurrencies are not at all a smart investment. However, a lot of people have made a lot of money by investing in these digital currencies. Personally, I’ve made a few grand, but nothing substantial. If you have money you’re okay gambling with, the returns from investing in crypto are still better than your odds of winning the lottery. If you’re interested in trying it out, Coinbase offers a $10 Bitcoin sign up bonus after you buy $100 worth of Bitcoin.
  • WeFunder: What if you had invested in Facebook, Uber, or Airbnb when they first started out? Even a small investment could have made you a millionaire. Well, WeFunder is one of several crowdfunding platforms where you can invest as little as $100 in startups you believe in. From local restaurants, to innovative apps, to travel and health companies, there are many options available. Again, many of these companies will probably fail, but a few dollars here and there could result in a decent payout if you finance the next great tech startup!

Wrapping it up

Creating a wealthy future is a marathon, not a sprint.

Whether you’re still paying off debt or maxing out all of your investing accounts, remember: slow-and-steady investing wins. Every time.

I wrote this article as a step-by-step beginner’s guide to investing. If dealing with money scares (or bores) you, then this article is all you need! Your work is done.

If you’re interested in becoming a professional investor, finding a way to retire early, or wanting to start a business, then this article is a great starting point, but be sure to continue learning.

Here’s to building a richer you!

Did you find this article helpful? Do you have any additional questions or suggestions? I’d love to hear from you in the comments below.