To those who braved the difficult travels and set sail to the New World – How is life people!

I know it can be daunting to go to a completely new country and start a life there.

‘How would you know this? You sit in Bangalore and type up all this, you don’t know my struggle.’

My sister did it. My cousin did it. My family IS the history of going to the US for higher studies. So I know a teeny bit, because I have lived vicariously through them.

Ok so obviously I don’t know your day-to-day issues. But I do know that you might have a slightly enormous student loan debt on you, plus you’re sitting there converting dollars to rupees for every transaction and sweating as you await your visa status. All in all, a sexy-ass situation for sure.

I know that earning in the US comes with a lot strings attached. You might be sending money to your home, or you might have a huge student loan that you need to attack, or you might be living in an expensive city paying an exorbitant rent, or all of the above right? Before your money hits your account, there are already designated places for it to go.

I have spoken to many folks about this and mostly what I’ve heard is, they are just excellent at saving their money. But they have little to no clue where they need to invest it. Or they are very very resistant to investing their money. I understand, it’s not your home country, you don’t know what to invest in, and you don’t know what the tax implications are, you don’t know when you’ll need the money, or when you’ll leave the country. So many insane possibilities to consider.

Couple of basic things I really hope you are doing –

• I know you’re saving for sure and have created a little nest egg for yourself. If you haven’t, please create an emergency fund that will keep you afloat for the next three months at least. This should basically be your salary times three. Start saving up for this, it doesn’t have to be in big chunks of cash, save how much ever you think you can. Read below about HYSA to maximize your emergency fund benefits!
  
  Okay so you have saved enough and more, and now your money is just sitting there. Compounding at .1% per annum. Compare this to inflation, folks you are losing money.
  
• ‘I know what a 401K is, but I don’t know how long I’ll be here, so I haven’t invested in it.’ Yes, but do you realise that you are passing up free money? Do not give this up. Find out your company’s 401K policy and see if you have can max it out of your salary. Usually companies will match the amount you put in.

We are going to get into a bit more detail below. I advice you to take a break from the screen, go pet a cute dog nearby and come back to read more! 🙂

• There’s also a Roth IRA. Whats the difference between a Roth and a 401k? and when should you select what? Ideally, if you can you should do a mixture of both.
  
  401k – (its a match!) The money is deducted at source, and invested based on your age and risk appetite. So this isn’t a part of your taxable income. Ooooh. Is my 401K tax free? No it isn’t. When you withdraw from the 401k, it will be treated as a taxable income. So if you are withdrawing it post your retirement, then that will be considered your income and you will be taxed accordingly. (So basically very low tax post retirement). If you withdraw it before that, and say you’re earning in the tax bracket there is, then you will have to pay your then current tax on the 401k. There’s also this amazingly horrible thing called the RMD (Required Minimum Distribution), so this basically means that you’ll have to withdraw a certain amount from your 401k (post retirement) every month/year. This is to avoid the 401k to become some sort of tax haven.
  
  Roth IRA – This is the retirement amount that is deducted after your salary has been taxed. So since it’s already been taxed, you wouldn’t have to pay tax when on withdrawal. Plus this is something that is managed on your own, so you have more flexibility in terms of how you want to invest it. There is no RMD for Roth IRA. You are not penalized if you don’t withdraw from it.
  
  So whats the difference between regular investing and Roth IRA? You don’t have to pay short-term or long-term capital gains tax on Roth IRA if and when you withdraw it. This is why there is a cap on how much you can invest in Roth. Plus if you start early, then you also probably belong to a lower tax bracket, so you’re saving there too.

Okay I’m sure most of you have figured out the above, if not, get on it!!

What about investing? So I think there are various ways to do this.

1. There’s an app called acorns that lets you invest spare change! You can save a dollar here and a dollar there and get started with investing.
2. There are different robo advisors, one of them is WealthFront. You can use this to kind of enter in your goals and your risk appetite, and it will pick the stocks for you. Oooooh, gimme more details!
   Basically instead of hiring an actual human to manage your money, you hand it over to an algorithm. The cost of this is much lower (.5% or so) when compared to portfolio managers. The reason a lot of retail investors prefer roboadvisors is mainly because of how accessible a wealth management system is to the common woman (or man). They also have a low barrier of entry, some of them even have zero minimums. Consider them to be good tools to get into the habit of investing, you can always move out of them if you find that you have developed your own investment strategy over a period of time.
3. Just investing in Index funds. To be honest, I would just buy a bunch of Vanguard S&P 500 ETFs every month and chill.
   Holllld on. What is an index fund! Fair enough. These are funds that are passively managed, meaning no research really goes into creating these funds. They simply follow the market. For example, an S&P 500 index fund, will contain the same composition of funds as the S&P 500 index itself. So the top 500 companies in the same proportion. Again the barrier for entry here is low, and the key word here is ‘diversification’. You get to invest in 500 top companies, whatever they are at one go.
4. A friend told me about using a High Yields Savings Account (also passionately abbreviated as HYSA). This provides a higher interest rate (20X to 25X) than most savings account for your emergency funds. The withdrawal process from these accounts are also simpler compared to your usual bank accounts, so go ahead and open this up if you haven’t already 🙂

That was a LOT. Good job getting through this whole thing.

Write to me if you have questions! I might not be able to answer all your questions, but I’m interested enough to do a lot of research on them and get back to you!