The first life changing concept I learned while looking for my first nursing job was tracking my expenses (see My Financial Journey – Part 1). The second revolutionary concept I learned from Personal Finance for Dummies was investing and saving. Up to this point, I had no idea how the stock market really worked except lots of people would buy stocks and then hope to sell them for more than they bought them for. I remember my parents and relatives occasionally doing business with a stockbroker when I was growing up. The impression I got was that the stock market was risky and usually an educated guessing game and that my parents did not do very well investing in it. I have a feeling my grandpa must have had a similar experience because today he is all about investing in gold and the stockbroker is no longer discussed. Personal Finance for Dummies taught me about IRAs and the power of compounding interest. I felt a little behind because I graduated nursing school at 26 years old and was starting a career later than many of my peers.
Compounding interest is significantly more powerful the earlier you start investing and taking advantage of its power. I also learned about what stocks were and learned about something called bonds. Stocks and bonds may be considered traditional investments but to me they were radical and revolutionary. I was also introduced to Vanguard and the concept of index fund investing. This also blew me away as I never learned or heard about a systematic method of investing. The stock market previously seemed like a gambling machine rather than a wise way of saving and wealth building. Now all I needed was a job which shortly followed after reading Personal Finance for Dummies.
Investing for the First Time
My first year as a nurse, I opened a Vanguard Roth IRA and invested $3,000. I struggled with whether I should try to pay off my student loans as fast as possible or if I should invest money for retirement. I ended up deciding to try to do both. I think I probably should’ve invested more money into retirement to take advantage of compounding interest nevertheless it wasn’t a bad plan. Also who knew the stock market was going to do so well for so long! Pretty much every year since I have contributed to either my Roth IRA or my traditional IRA. The hospital I worked at was part of the state retirement program, so I was also additionally saving around 7% of my paycheck in this program on top of the $5000 in my Roth IRA.
Partial Results of Investing as of Sept 2018
My first year I made around $51,000. My second year I made $55,000. After two years I had around $8000 saved in my work retirement program and $8000 in my Roth IRA. I finished my undergrad nursing program with approximately $40,000 of student loans. I made several extra payments on my student loans during those first couple of years. I have pretty consistently contributed the max amount to my IRA since 2011 except for the last 2 years (2016-2017). The total amount I’ve contributed to my Roth IRA is $19,000 and as of 9/2018 my Roth IRA is worth almost $31,000. That’s a net gain of $12,000 in 7 years! The power of compounding interest really works! In 2015, I rolled over my state retirement savings which was about $8000 into a traditional IRA with Vanguard and have since contributed about $3500 additional to my traditional IRA with the balance being $15,000 as of 9/2018 for a net gain of $3500. I also have $6000 saved in another retirement plan that I have not yet attempted to rollover yet because I’m might end up working for that system again in the future. I also have a little over $10,000 in a Fidelity 503b account that I’m actively investing in with my current per diem job.
The Story Continues
Learning the basics of investing have helped clarify my financial future and helped me to think more long-term about the money I earn. As evidenced my the investment dollar amounts above, I am really just starting out in my investment journey which I hopefully get to share with you in the coming years, but I have also had a small taste of the power of compounding returns. Just in my IRAs I’ve made over $15,000 by just investing my money in index funds. Someday soon, I’ll share more details about investing and hopefully demystify it. In the meantime, check out Personal Finance for Dummies. Also in future blog posts, I plan to share how my financial story completely changed in 2016 and also share my biggest financial mistake so far.