Savings 101: The path to financial independence requires focus and commitment
Can saving money actually end up costing you money? If you’re not investing, are you losing on your dollar?Â
Let’s address these questions — and more — so you can get started on a lifelong savings strategy.
Saving money basics
Have you heard of the 50/30/20 rule? Itâ€™s sound advice for anyone with basic financial needs! The rule states that 50% of your income should go towards necessities, such as your mortgage and other utilities. 30% should go towards discretionary items like clothes or dining out. The last 20% should be going to savings. CNBCÂ states that in 2017, â€œthe average American between the ages of 25 to 34 years old makes $40,352 annually.â€ So, if you are following the 50/30/20 rule, this would mean that you could have set aside a little over $8,000 over the course of the year! Not too shabby, right?
Are you missing out?
For many people, saving money has been the most comfortable option. Itâ€™s just taking that money earned and setting it aside for a rainy day. How would you feel if you knew that notÂ investing meant losingÂ on your dollar? If you just read this and stressed out â€“ donâ€™t fret! There are a lot of low-stress ways to invest your money in order to start planning for your future. An excellent way to start is to see if your company offers a 401k with a matching program. If so, some companies match up to 6%, meaning if you are making the average $40,352 and you put 6% of your earnings into your 401k,(which would be $2,421 a year), the company would also put in the same amount to match. That is only $46.56 a week set aside. What else can we do? We talked about the 50/30/20 rule and based on this, $155 should be set aside per week for savings. If we have already used $46.56 of this, we would still have $108.64 left to invest.
You may have heard of whatâ€™s called a â€œRoth IRAâ€ before, but what does it mean? Simply put, a Roth IRA is a powerful way to save for retirement. NerdwalletÂ says, â€œthe Roth IRA is about delayed gratification: unlike other individual retirement accounts, with a Roth IRA you pay taxes on your contributions every year. But also unlike other individual retirement accounts, with a Roth, you pay no taxes on distributions – including your investment growth – when you reach retirement age.â€ With a Roth, you can contribute up to $5,500per year with a return of 6%. Using the Roth IRA Calculator, by the time of retirement your IRA balance could be worth $720,292.
What does this all mean?
Saving money is a good practice for everyone and always will be. No matter if you are worried about the hassle of investments, or don’t want to deal with the pressure of moving money around, there is something for everyone. Whether you use a 401k, the Roth IRA, or micro investments such as the ones talked about in our previous blog, Things thatâ€™ll make you say, â€œI saved so much cash this year!â€Â there is sure to be a method for saving that fits your lifestyle.
Where to start?
Depending on which investment you end up with, there are many ways to get your foot in the door. If you chose to start your Roth IRA, here are the top picks of 2018 according to Nerdwallet. There they have brokers for the â€œDo-it-yourselfâ€ investors, and robo-advisors for the â€œmanage it for meâ€ investors for anyone that doesn’t want to worry about managing their portfolio.
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