Even up to the tax filing deadline for the prior year, it is still possible to make contributions to individual retirement arrangement (IRAs) and health savings accounts (HSAs) for that year. For 2017, this means you have until April 17, 2018 to contribute.

On the other hand, 401(k) and 403(b) accounts must be made through employer payroll deductions, so you cannot go back and contribute for the prior year to receive the tax advantages. You can go through your employer’s HR or payroll department to start making contributions on your next paycheck, however.

If you have received a windfall (e.g., a tax refund!) or just learned about retirement accounts, you can make retirement contributions for the prior year in January–April of the next year. Typically, you would want to max our your IRA first and then your HSA.

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Lottery tickets graph

As a child, I was fascinated with lottery odds. I recall that the odds of winning the Florida lottery jackpot at that time were about 1 in 14 million, and that scratch-off tickets displayed the odds of winning a prize on the back, which was usually around 1 in 4.

The above graph (drawn by me) is actually far too optimistic. The odds of overall gains are lower than 1 in 4 because a typical scratch-off or instant-win ticket counts a prize of the same amount as the purchase price as “winning,” even though this is actually breaking even. Of course, buying a $2 ticket and “winning” $2 is the second commonest outcome, behind the most common outcome of losing $2. Further, the overall odds of making money decline precipitously as additional tickets are purchased. Although the “1 in X” odds of winning X fantastic prize increase with the purchase of additional tickets, the value of the improved odds is always far below the ticket price.

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Piggy Bank image

An emergency fund is basically a reserve of money you set aside in case of an emergency such as being unexpectedly fired from your job or your car’s transmission failing. Many people recommend analyzing your monthly income or cost of living and then aiming to have three, six, or even eight months of funds on hand. However, when you are starting out building the fund, you should first aim for one month of funds, then two, and so on. For example, if your cost of living is $3,000 per month, you would want $18,000 in your emergency fund to cover six months of expenses. Then, you would not be scrambling to pay bills or find another job. This flexibility allows you to reduce stress and make better long-term decisions about your next employer.

Why have an emergency fund? The emergency fund is the first step toward financial independence. Credit card issuers like to tout credit cards as an “emergency” lifeline, but this only encourages you to end up not being able to pay the balance back and being subjected to extraordinary interest rates that are often as high as 28% per year (annual percentage yield).

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We always hear about the importance of starting early to save for retirement. This yields several questions:

  1. Why start early? Why can’t you just focus on your bills now and “catch up” later when you are earning more money?
  2. What does “save” mean? Does this mean putting money in a savings account?
  3. What is “retirement”? Is retirement something you do at Age 65? If I love working, does that mean I don’t need to save?

The truth is that both “saving” and “retirement” are misnomers. The key is to invest for financial independence. This means having enough assets to cover your living expenses without having to work again. This might include having enough money to support your significant other and family, too. Whether you “retire” in the traditional sense or not is your choice.

Why start early? There are two big reasons:

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