Question: I like to save up money so I can buy things cash and not have to worry about credit card bills. There's a lot of waiting involved in this method. So I typically save roughly $200-300 per paycheck depending on what's going on in my life at the time.
Would it make sense to use that money to invest in index funds or should I split it somehow and do both? Curious how easy it is to dip into just in case of emergency (this may be a dumb question but I know fuck all about this stuff).
Well, if you have those index funds in a retirement vehicle like an IRA or a 401k then it is hard to get that money out and you will be penalized for doing it. You should be using these vehicles to save for retirement because they will save you a lot of money on taxes.
I would first save enough money to have 3-6 months worth of expenses in the bank. That is very important because if something unexpectedly happens you do not want to be forced to sell funds to live because you could be forced to sell it at a loss. Thats not good.
After that, figure out your budget. Determine how much you spend a month, then stick to those figures in the future. Your surplus can be put towards your retirement (you might need to make cuts to your budget to get a surplus).
For retirement, I recommend sticking Index funds and sticking them in IRAs and 401ks and never taking that money out. You can find the details in the OP.
So via my company I think I have just a typical 401k through Vanguard. Reading the OP makes some sense, but is it saying to do the 401k up to the level the company will match and then do Index stuff? Also looking at the linked pages for Vanguard Index stuff I don't quite get it, do you buy it like stocks? I see one of them was at like $46, do you just buy a bunch?
I am decent at finance stuff but horrible at all the retirement stuff. Right now I contribute the bare minimum and thus after 3 years I don't even have $10k saved up yet, but it's something at least. I need to raise it, I'm just not sure what the best option is.
If your companies 401k is run by Vanguard, then you likely have index funds offered in your 401k. Basically, if you see funds like Total Stock Market, Total International Market, Total Bond Market, the SP 500, and extended market index fund then those are index funds. You can confirm it by looking at the description and looking at the expense ratio. If its below .2% expense ratio then it is an index fund.
You don't buy mutual funds like stocks. You buy however much you want. Say you want to invest 3k. You simply buy 3k of that mutual fund. The price just determines whether your mutual fund goes up or down in value. You buy ETFs like stock though. They are a bit more annoying to work with, but they do have advantages, the main one being no fund minimum besides the stock price.
If you want to keep things really simple and your 401k has good index funds, you could simply increase your contributions to your 401k and those funds. Be warned though, that your 401k probably has higher management fees than an IRA. To be sure, check it out for yourself. If you need advice on what funds are good in your 401k, post them here and I or someone else will help you out.
The other option is to open an IRA. I personally like the Roth the best because its a hedge against uncertainty, but traditional is fine. IRAs are nice because you have complete freedom to invest in whatever you want and if you go to the right place and meet some requirements, online brokers will waive account fees (i know vanguard does this). To open an IRA, just go to an online broker like Vanguard, fidelity, etc and open an account. After that, open up an IRA there and start buying index funds and sticking those into your IRA.
