Saving money is a difficult commitment to make, but it provides benefits in the long run. Life throws unpredictable events at us, and preparing our budgets to account for accidents or emergencies grants peace of mind. Saving is also one way to hold off on wanton spending that drains accounts rapidly. The following tips to save money can inspire balance in your daily financial habits.
Stick to a 30 Percent or Less Rule
It’s hard to save money without setting up a cap on your spending. When payday rolls around and there are new products or items grabbing our attention, it’s incredibly difficult. We recommend setting a limit of 30 percent of your paycheck to spend on entertainment and leisure. This reserves 70 percent use for essentials. Use 30 percent as a starting point and decrease the limit to save even more money as you become more confident in your saving strategy.
Establish Financial Goals
Nothing helps curtail personal spending and establish a direction more than creating a strategy. By writing down financial goals, such as paying off your car by a certain date, you lay a foundation for future success. Knowing where your money flows is liberating and strengthens resolve in saying no to frivolous purchases.
Manage Personal Cash Flow
Daily Dedicating one minute a day to looking over your bank account makes you aware of where you spend the most. This also promotes comfortability in managing one’s finances. Get cash out daily or weekly to keep to a specific spending amount, which is a research-proven technique that keeps your cash account stable. When swiping cards is the go-to, the convenience causes individuals to spend much more.
When new products appear on the market, whether a new gadget or guilty pleasure, it important to hold back the impulse to buy it. Impulsive shopping tends to influence purchasing habits and tricks us into buying items we don’t need.
Pay off Larger Debts First
When paying off credit card debt or loans, it’s beneficial to chip away at a loan with a higher interest rate. If you wait to pay, amounts owed increases exponentially. Although paying off smaller amounts of debt with smaller interest rates seems more manageable, they won’t cost as much as high interest debt. By hedging larger loans and limiting the traction their high interest gains, the debt is more manageable over time.
More commonly known as an IRA, the Individual Retirement Account is exactly what it sounds like. An IRA is a tool used to put away investments for your retirement. An IRA allows you the opportunity to earn and earmark funds for yourself later on in life.
Understanding the difference between a Roth IRA and a Traditional IRA is very important as using one or the other can have a great impact on yourself and your family’s savings in the long term. While there are a great many variables between the two, but we are going to look at the primary differences that will ultimately affect your decision on which option is best for you and yours.
Traditional IRAs come with a specific age restriction. Any individual who is receiving an earned income from their employer and is under the age of 70 & ½ may contribute to their Roth IRA. Now, there are some variables when it comes to whether or not what you contribute to your IRA is tax deductible. If you or your spouse have a 401(k), or a similar retirement plan already in place that can change your contribution’s tax deductible status as can the level of your income.
Roth IRAs do not bear an age restriction. This means that you’re never too young (or too old, for that matter) to get started. The restrictions that Roth IRAs carry are more related to your income. The breakdown can be a bit tricky so allow us to explain.
If you are a single tax filer then your modified adjusted gross income (AGI) may not exceed $135,000.00 (up $2,00.00 from 2017).
If you are a married couple that is filing jointly then your modified AGI may not exceed $199,000.00 (up $3,000.00 from 2017).
Roth IRAs and Traditional IRAs both offer tax breaks. Contributions to your Traditional IRA are tax-deductible on both the State & Federal level for the calendar year in which the contributions were made. Neither your Roth nor your Traditional IRAs offer tax breaks for your contributions, but you are generally able to avoid taxes when retrieving your funds during retirement. You should also know that (as long as the funds are still in their respective accounts) you will pay no taxes on the increases that you see to the funds you’ve contributed.
There are rules in regards to the withdrawal process for you your IRA, specifically when you may begin withdrawing your funds. Once you’ve reached 70 & ½ years of age your Traditional IRS will require that you begin withdrawing from your account. Roth IRAs do not require this. In fact, with a Roth IRA, you can leave that money untouched for the entirety of your life, if you so desire. Both Roth and Traditional IRAs will allow you to begin making withdrawals at the age of 59 & ½.
Lastly, it is important to note that Both Roth and Traditional IRAs have a plethora of investment opportunities, from individual stocks to index funds.