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Tag retirement savings

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  • 16 Small Steps You Can Take Now to Improve Your Finances
February 4, 2021

16 Small Steps You Can Take Now to Improve Your Finances

By Renee Powell in Budgeting, Credit Card News Tag Banking, beneficiary, Budget, Budgeting, budgeting tips, Career, college, Credit, credit card, Credit Cards, Credit Score, debt, Debt Management, debt management tips, Estate Planning, Extra Money, Finance, Financial Goals, Financial Wize, FinancialWize, health, Home, improve your finances, Insurance, Interest Rates, investment, Life, life insurance, Lifestyle, Loans, money, Money Management, money moves, Mortgage, paycheck, Personal Finance, planning, resolutions, Retirement, retirement savings, Salary, Saving, saving money, savings, Savings Account, savings accounts, Security, Spending, tax, will
Pretty brunette with moneybox in hands

You have all kinds of financial goals you want to achieve, but where should you begin? There are so many different aspects of money management that it can be difficult to find a starting point when trying to achieve financial success. If you’re feeling lost and overwhelmed, take a deep breath. Progress can be made in tiny, manageable steps. Here’s are 16 small things you can do right now to improve your overall financial health. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)

1. Create a household budget

The biggest step toward effective money management is making a household budget. You first need to figure out exactly how much money comes in each month. Once you have that number, organize your budget in order of financial priorities: essential living expenses, contributions to retirement savings, repaying debt, and any entertainment or lifestyle costs. Having a clear picture of exactly how much is coming in and going out every month is key to reaching your financial goals.

2. Calculate your net worth

Simply put, your net worth is the total of your assets minus your debts and liabilities. You’re left with a positive or negative number. If the number is positive, you’re on the up and up. If the number is negative — which is especially common for young people just starting out — you’ll need to keep chipping away at debt.

Remember that certain assets, like your home, count on both sides of the ledger. While you may have mortgage debt, it is secured by the resale value of your home. (See also: 10 Ways to Increase Your Net Worth This Year)

3. Review your credit reports

Your credit history determines your creditworthiness, including the interest rates you pay on loans and credit cards. It can also affect your employment opportunities and living options. Every 12 months, you can check your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) for free at annualcreditreport.com. It may also be a good idea to request one report from one bureau every four months, so you can keep an eye on your credit throughout the year without paying for it.

Regularly checking your credit report will help you stay on top of every account in your name and can alert you to fraudulent activity.

4. Check your credit score

Your FICO score can range from 300-850. The higher the score, the better. Keep in mind that two of the most important factors that go into making up your credit score are your payment history, specifically negative information, and how much debt you’re carrying: the type of debts, and how much available credit you have at any given time. (See also: How to Boost Your Credit Score in Just 30 Days)

5. Set a monthly savings amount

Transferring a set amount of money to a savings account at the same time you pay your other monthly bills helps ensure that you’re regularly and intentionally saving money for the future. Waiting to see if you have any money left over after paying for all your other discretionary lifestyle expenses can lead to uneven amounts or no savings at all.

6. Make minimum payments on all debts

The first step to maintaining a good credit standing is to avoid making late payments. Build your minimum debt reduction payments into your budget. Then, look for any extra money you can put toward paying down debt principal. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

7. Increase your retirement saving rate by 1 percent

Your retirement savings and saving rate are the most important determinants of your overall financial success. Strive to save 15 percent of your income for most of your career for retirement, and that includes any employer match you may receive. If you’re not saving that amount yet, plan ahead for ways you can reach that goal. For example, increase your saving rate every time you get a bonus or raise.

8. Open an IRA

An IRA is an easy and accessible retirement savings vehicle that anyone with earned income can access (although you can’t contribute to a traditional IRA past age 70½). Unlike an employer-sponsored account, like a 401(k), an IRA gives you access to unlimited investment choices and is not attached to any particular employer. (See also: Stop Believing These 5 Myths About IRAs)

9. Update your account beneficiaries

Certain assets, like retirement accounts and insurance policies, have their own beneficiary designations and will be distributed based on who you have listed on those documents — not necessarily according to your estate planning documents. Review these every year and whenever you have a major life event, like a marriage.

10. Review your employer benefits

The monetary value of your employment includes your salary in addition to any other employer-provided benefits. Consider these extras part of your wealth-building tools and review them on a yearly basis. For example, a Flexible Spending Arrangement (FSA) can help pay for current health care expenses through your employer and a Health Savings Account (HSA) can help you pay for medical expenses now and in retirement. (See also: 8 Myths About Health Savings Accounts — Debunked!)

11. Review your W-4

The W-4 form you filled out when you first started your job dictates how much your employer withholds for taxes — and you can make changes to it. If you get a refund at tax time, adjusting your tax withholdings can be an easy way to increase your take-home pay. Also, remember to review this form when you have a major life event, like a marriage or after the birth of a child. (See also: Are You Withholding the Right Amount of Taxes from Your Paycheck?)

12. Ponder your need for life insurance

In general, if someone is dependent upon your income, then you may need a life insurance policy. When determining how much insurance you need, consider protecting assets and paying off all outstanding debts, as well as retirement and college costs. (See also: 15 Surprising Insurance Policies You Might Need)

13. Check your FDIC insurance coverage

First, make sure that the banking institutions you use are FDIC insured. For credit unions, you’ll want to confirm it’s a National Credit Union Administration (NCUA) federally-covered institution. Federal deposit insurance protects up to $250,000 of your deposits for each type of bank account you have. To determine your account coverage at a single bank or various banks, visit FDIC.gov.

14. Check your Social Security statements

Set up an online account at SSA.gov to confirm your work and income history and to get an idea of what types of benefits, if any, you’re entitled to — including retirement and disability.

15. Set one financial goal to achieve it by the end of the year

An important part of financial success is recognizing where you need to focus your energy in terms of certain financial goals, like having a fully funded emergency account, for example.

If you’re overwhelmed by trying to simultaneously work on reaching all of your goals, pick one that you can focus on and achieve it by the end of the year. Examples include paying off a credit card, contributing to an IRA, or saving $500.

16. Take a one-month spending break

Unfortunately, you can never take a break from paying your bills, but you do have complete control over how you spend your discretionary income. And that may be the only way to make some progress toward some of your savings goals. Try trimming some of your lifestyle expenses for just one month to cushion your checking or savings account. You could start by bringing your own lunch to work every day or meal-planning for the week to keep your grocery bill lower and forgo eating out. (See also: How a Simple "Do Not Buy" List Keeps Money in Your Pocket)

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With the new year here, it’s time to take control of your financial goals. From creating a household budget, to calculating your net worth, or setting a monthly savings amount, we’ve got 16 small steps you can take to improve your finances. | #personalfinance #moneymatters #budgeting

This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:
  • 5 Money Moves to Make Before You Turn 40
  • 7 Important Money Moves to Make in the New Year, According to Financial Advisors
  • The Pros and Cons of Paying Off Your Debt Early
  • 5 Things Keeping You From a Life of Financial Independence
  • What to Do With a Windfall


Source: feeds.killeraces.com

February 4, 2021

IRA: #RealMoneyTalk, What Is That?

By Renee Powell in Credit 101, Financial Planning, Retirement Tag bonds, Buy, Career, Checking Account, earnings, experience, Fees, Financial Planning, Financial Wize, FinancialWize, Grow, historical, invest, Investing, investment, money, paycheck, planning, Retirement, retirement savings, Saving, savings, Savings Account, tax, thankful, Vs., will

https://turbo-blog.ctgop-prod.a.intuit.com/wp-content/uploads/2020/01/y2mate.com-ira_realmoneytalk_what_is_that_powered_by_turbo_blog_nlGCarJHslc_1080p.mp4

 

Some of us know it as I.R.A while others pronounce it “eye-ruh.” No matter if you’re team “I-R-A” or team “eye-ruh”, you should definitely know what it means! 

These letters stand for Individual Retirement Account. 

Don’t roll your eyes! I know “retirement” sounds like something you should only worry about when you’re much older, but I promise, you’ll be thankful you learned all about this. It’ll help you learn a couple tips on smart tax moves and ultimately help out your future self! 

You probably have a bank account where you put your money, right? So this is still relevant to you! Now, the question is: how much is the money sitting in your account growing each year? If you’re lucky, the answer is somewhere around 2% in the year 2020 (for a high yield savings account). But most people don’t have that. Most people have a checking account that doesn’t pay them any interest at all or a traditional savings account that offers an average of 0.09% in interest per year. That may not sound like a big difference – 2% versus .09% – but trust me: IT IS! 

The Breakdown 

After 10 years of saving $100 every month (or $50 from each biweekly paycheck), a bank account with .09% interest rate or annual percentage rate (also called APR) will have a total of $12,059.56, while a high yield savings account growing at a 2% APR will have a total of $13,402.46. That’s a difference of over $1,000 of FREE MONEY! And, what’s even more eye-opening is that the longer you invest and the more the interest compounds, the bigger the effect. So over a 40 year period of time, which is a typical American working career, the difference is more than $25,000!

What does any of this have to do with that Individual Retirement Account I mentioned earlier? Patience, we’re getting there!

When it comes to money, growth is key. How much can you grow your money in a year? In 10 years? In your working career? With a bank, your money is safe and protected, but it doesn’t really grow that much. That’s where the stock market comes in! It’s a good idea to put the money you may need for an emergency into a bank account for easy and guaranteed access, but also consider putting at least 5% of your earnings into an investment account for long term goals such as retirement. 

For example, a 401k through your job allows you to invest your money in the stock market. If you don’t have access to a 401k through your job, then you can open up an Individual Retirement Account (IRA) that also allows you to invest your money in the stock market. Similarly, a pension plan (if you can even get one of those in the 21st century!) also invests your money in the stock market. 

So why do all of these fancy accounts put our hard-earned money in the stock market? The answer is: over the long term, (not just one year, but over many, many years) the stock market has a history of providing higher rates of return, thereby growing people’s money much faster than any bank! 

When your job doesn’t offer any workplace retirement benefits, then you can open an Individual Retirement Account on your own. Let me break down the basics for you:

Who: You! 

What: Opening an IRA

Where: At a brokerage firm of your choice

When: Anytime you want

Why: Because your money can grow more in an IRA than it would in the bank over the long run

Now, let’s talk about the “how.” First, choose whether you want to pay taxes on the money you’ll be investing when you file your taxes next or if you’d rather pay them in the future when you file taxes for the year you took the money out. That will determine whether you open a Roth IRA or a traditional IRA.

Roth IRA vs. Traditional IRA

Roth IRA: Investment account that lets you put money away for your retirement. Money invested here is after taxes have been paid, so you don’t have to worry about paying taxes ever again. Also, any profits you earn over time will never be taxed, and that’s a BIG deal! Available only if you earn under a certain income level. 

Traditional IRA: Investment account that lets you put money away for retirement, but claim a tax break on the amount invested when you file your taxes. Since you get a tax break now, when you take the money out in the future you’ll have to pay taxes on your invested dollars and the profits earned. Available no matter what income level you fall under.  

People who earn too much money for a Roth IRA tend to choose a traditional IRA (the limits for how much you can earn to have a Roth IRA changes every year.) Also, people who predict that they will earn less money in the future (at retirement) also like to choose a Traditional IRA because they like the idea of paying less in taxes as a result of being in a lower tax bracket. 

Once you’ve chosen the IRA type that you prefer, you’re ready to choose a brokerage firm. Choosing a brokerage firm is similar to choosing a bank. Make sure that you know what the fees are, what the customer service experience is like, what account types they offer, and what in-person versus web-based services or platforms they have. You can call them up or go online and create your account. Heads up: You’ll have to link the investment account (the IRA) to your bank account so that you can transfer money and begin to invest in the account you created. 

What Do I Put Into My IRA?

Now, the toughest question of them all: What investments do I invest the dollars within my IRA into? The short answer is that it really depends on what your goals are. If you’re not trying to retire anytime soon, then you can afford to be risky. You can have mostly stocks and little to no bonds in the IRA. If you plan on retiring very soon, you’ll want to make sure you have most of your money in more secure investments that don’t change unpredictably in the market, such as bonds. The general rule of thumb when it comes to deciding how much to put in stocks versus bonds looks like this: 

120 – your age = percentage of investment that should be stocks

So for example, A 30-year-old in 2020 should have 90% stocks in their IRA and 10% in bonds because 120 – 30 = 90. 

Keep in mind that this can vary if you’re comfortable being more aggressive (more stocks) or more conservative (more bonds) with your investments. It’s simply a good rule of thumb to get you started. 

One final analogy to help you remember how this works, and then you’re on your way! The brokerage firm is kind of like your bank. It’s where you open the account and do business. Your IRA is like the type of account you open at that bank. It has rules you need to follow and the rules change each year, so do your research. (When can you touch the money? How much money are you allowed to invest per year? Are there income limits on this account?) If you break the rules, then you may pay fees or maybe even penalty taxes. So make sure you understand the rules! 

Stocks, bonds, mutual funds and ETF’s are what your dollars can buy and are held within the account. Finally, the annual rate of return is like your APR. While at the bank, the rate of growth or APR is offered to you upfront, that’s not really possible with an IRA or any other investment account because the stock market is highly unpredictable. But remember, historical data shows that it averages much more growth than bank accounts do over the long run, so don’t be afraid to put money aside for the long term if you can afford to.

Now, off you go! You’re ready to open that IRA if you don’t already have one! 

The post IRA: #RealMoneyTalk, What Is That? appeared first on MintLife Blog.

Source: mint.intuit.com

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