In 2021, my financial goals are to:

1. Max out my Roth IRA.
2. Contribute $12,000 into my Roth 401(k).
3. Build a $5,000 emergency fund.

My number one goal is to retire early and to do that I need to save money. I really value being able to live financially free when I get older and even though I’m limited by how much I can save right now, this is where I’m going to start.

Better late than never.

Why a Roth IRA?

After reading and watching investment YouTube videos, I learned that a Roth IRA gives me a couple of tax advantages:

1. Once, when I put the money in.
2. A second time when I pull the money out.
3. A third time when the investments in my Roth IRA makes money tax-free.

When I contribute to my Roth IRA, I am getting taxed on the money today, but when I pull the money out, I don’t have to pay taxes on any of that. In other words, the money I have in my Roth IRA when I retire is completely mine and I don’t have to pay taxes on it.

Secondly, the money grows tax-free. What does that mean? 

That means that when I make money from investing my Roth IRA into different stocks, there is no tax on this money, so I get to keep all that money to myself. 

I bet you didn’t know that you can invest the money in your Roth IRA. Two months ago, I did not. But today, I can say that I do. But how do I go about doing that? 

I don’t know. 

That’s what I’m trying to figure out right now. 

Unlike other retirement accounts, though, if I need to withdraw money from my Roth IRA, I am free to do so without any penalty. 

The only drawback is that I cannot touch the money made from my investments until I turn 59 and half.

Oh, and the most important part: The contribution limit to a Roth IRA in 2021 is $6,000. That means I can only contribute up to $6,000 per year to this account.

It’s not a lot, but this is much easier for me to contribute to with my meager salary.

Why a 401K?

A 401(k) is a retirement account where the money I put in is not taxed, but it will be taxed when I withdraw the money in retirement. 

Like the Roth IRA, this retirement vehicle is limited to how much I can contribute to per year. In 2021, the limit is $19,500.

That’s a lot of money to put aside. As much as I want to max out my 401(k) every year, I need to be realistic with myself. 

With bills and personal things I want to buy, not being able to access $19,500 is going to be tough.

I need the money now. So, I’ve decided to save $12,000 in my 401(k) instead.

Also, my employer contributes 10.5% of my annual salary to my 401(k), which is basically free money that I don’t have to put in myself.

If your employer does the same, you have to take advantage of this!

Why an Emergency Fund?

If you’re not already aware, an emergency fund should contain at least 3-6x of your monthly rent. I am building an emergency fund now so that I have money to use if, say, I can’t afford rent one month or my car dies.

I am planning to move to an apartment soon and this emergency fund will help greatly!

What about you? What are your financial goals in 2021? I’d love to know, so comment below!