Only One in Three American Millionaires Feel “Wealthy” and Nearly Half Say Their Financial Planning Needs Improvement, According to Northwestern Mutual Planning & Progress Study What’s it like to feel like a million bucks? Millionaires indicate it’s less about believing you’re rich and more about having confidence and clarity about the future. Nearly 80% of … [Read more…]
Bilt Rewards, a loyalty program that offers a way to earn rewards on rent, announced a new partnership with Walgreens that’ll make it easier to use a flexible savings account (FSA) or health savings account (HSA) for eligible purchases at the pharmacy chain. You can also earn extra Bilt points when you shop at Walgreens. These new benefits are already live in the updated version of the Bilt app.
When you link your Bilt account with an FSA or HSA card, Bilt can automatically detect eligible FSA or HSA purchases at Walgreens on your other linked credit and debit cards. Through the Bilt app, you can choose to apply your FSA or HSA funds to eligible purchases, and Bilt will credit your original form of payment. You’ll also earn Bilt points for spending at Walgreens with any card linked to your Bilt account.
This partnership presents an easy way to automate applicable health care benefits and earn additional Bilt points.
Bilt’s new health care benefit essentially helps people save money by using the money they’ve set aside for health care expenses in an FSA or HSA. These savings accounts can be difficult to use because people might not be aware of which purchases qualify or they forget their FSA card at the pharmacy.
In a news release announcing the Walgreens partnership, Bilt says the new feature addresses the “approximately $4 billion in FSA dollars lost annually due to non-use.” It’s also the first time this benefit has been available at a major pharmacy chain, according to Bilt.
So how does it work? First, you’ll have to link your FSA/HSA card and the debit or credit card you use for drugstore purchases. When you shop at Walgreens using any debit or credit linked to your Bilt account, Bilt will identify which items are eligible for FSA or HSA reimbursement and offer to apply benefits with a single click.
(Screenshot courtesy of Bilt)
Bilt says this “eliminates the need to carry separate FSA or HSA cards and removes the guesswork in identifying eligible items.” Bilt also does not sell member data, so your health care purchases will remain private.
You don’t have to link your FSA or HSA card to benefit from the Walgreens partnership. If you have any credit or debit card to your Bilt Rewards account and shop at Walgreens, you’ll earn:
1 Bilt Rewards points per $1 spent on all Walgreens purchases.
2 Bilt Rewards points per $1 spent on Walgreens-branded items.
100 Bilt points on prescription refills (subject to exclusions).
🤓Nerdy Tip
Check your Bilt app and turn the toggle on to enable rewards on prescriptions.
(Screenshot courtesy of Bilt)
You could earn even more Bilt points by using the Bilt World Elite Mastercard® Credit Card, for an additional 1 Bilt point per $1 spent on the card, but other cards can earn more points on drugstore purchases. The card must be used five times per statement period to earn points on rent and qualifying net purchases (purchases minus returns/credits) for that statement period.
Because you’ll earn Bilt Rewards for spending at Walgreens with any linked debit or credit card, you could use a card that earns bonus rewards at drugstores and stack them with Bilt Rewards.
Chase Freedom Flex®
on Chase’s website
Chase Freedom Unlimited®
on Chase’s website
Bank of America® Customized Cash Rewards credit card
on Bank of America’s website
U.S. Bank Altitude™ Reserve Visa Infinite® Card
Drugstore rewards
Earn 3x Chase Ultimate Rewards® on drugstore purchases.
Earn 3x Chase Ultimate Rewards® on drugstore purchases.
Choose your own 3% cash back category, including drugstores, gas, online shopping, dining, travel and home improvement and furnishings.
Earn 3 points per $1 spent on mobile wallet spending through Apple Pay, Google Pay and Samsung Pay. Walgreens accepts Apple Pay and Google Pay at most stores.
Still not sure?
Bilt Rewards transfer to several airline and hotel partners, including Alaska Airlines Mileage Plan and World of Hyatt, making it a great way to earn transferable points that you can redeem for travel. Bilt Rewards is free to join, and you don’t need to be a Bilt cardholder to earn rewards. If you do any spending at Walgreens, Bilt’s new partnership with the drugstore is an easy and free way to earn extra points on your purchases.
Source: nerdwallet.com
Got $10,000 and wondering how to make it grow? Investing can be a great way to build wealth and secure your financial future. Whether you’re new to investing or looking for fresh ideas, these 10 brilliant investment strategies will help you make the most of your money. Find out how to wisely invest $10k and watch your wealth grow.
Index funds offer an easy way to invest $10K by providing low fees and diversification. They track benchmarks like the S&P 500, making them a simple way to grow wealth over time. You need a brokerage account to start.
A high-yield savings account is great for storing your $10K safely. It’s FDIC insured up to $250,000, and with interest rates of 2% or more, your money grows without losing value.
To learn more: How Many Bank Accounts Should I Have
Investing in individual stocks can grow your wealth if you’re patient and informed. With $10K, you can buy stocks in 10 to 20 companies, diversifying your investments and potential returns.
To learn more: How To Invest In Stocks For Beginners: Investing Made Easy
An HSA is a smart way to invest $10K, offering a triple tax advantage and saving for future healthcare costs. Contributions, earnings, and withdrawals for medical expenses are all tax-free.
Investing in small businesses can yield high returns and personal satisfaction. Diversifying your $10K across multiple ventures reduces risk and can amplify potential profits.
Rental properties can build long-term wealth. Use $10K as a down payment on a low-cost rental, fix it up, and let tenant payments cover the mortgage and taxes, creating a steady income stream.
Max out your Roth IRA to invest part of your $10K. It offers tax-deferred growth and potential tax-free withdrawals in retirement. Remember, there’s a yearly contribution limit.
To learn more: Can You Have Multiple Roth IRAs?
P2P lending can provide high returns on your $10K investment. By lending directly to borrowers via P2P platforms, you cut out banks, enjoy better rates, and diversify your investments.
Investing in cryptocurrencies or Bitcoin ETFs can offer quick gains with market volatility. High rewards come with high risks, so be prepared for potential losses but also big profits.
Paying off high-interest debt with $10K can be a smart investment. It frees up cash flow for future investments in stocks, funds, or real estate, helping you grow your wealth long-term.
To learn more: How to Get Out of Debt in 5 Easy Steps
Looking to invest $10K? This guide shows options for all risk levels and goals, from stocks to real estate. Start making money and take your first step to becoming a millionaire.
To learn more: How to Invest 10K: The Best Ways to Invest Money for Future
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Source: moneybliss.org
Inside: The answer is so obvious! Stop the assumptions with the 3 percent or 4 percent rule of retirement. Learn how much money to save for retirement today.
We all know that saving money for retirement is something we should do.
Maybe you are contributing the minimum to your 401K through work to get the match. Possibly saving money in a Roth IRA.
But, are you truly saving enough for retirement?
More than likely not.
Don’t feel like you are alone. According to a new study, only half of households actually have money saved in retirement accounts. The good news for those who have saved is the dollar amount saved for retirement has been increasing in the past 10 years.
Here is the real reason you don’t save for retirement… you have absolutely no clue how much money you need to be saved to retire.
You have tried to use all of the online retirement calculators from all of the big companies. Your results are millions of dollars different. You have no clue where to start, or what to believe.
And then you just get unmotivated because you’re like there’s absolutely no way I can make that dollar amount work.
Personally, I completely get it this is a conversation. My husband and I have had it for years.
It is all a complete unknown, it is a best-guess scenario.
There is absolutely no way for you to truly understand how much you need because there are so many things that go into it, including inflation, your savings rate, your withdrawal rate, and your anticipated expenses. So there’s a lot of variables and that’s when the variables get too confusing you don’t know which way to start.
The financial advisors believe they are the know-all-be-all with their calculations while charging you an asset management fee that is putting a drag on your overall portfolio.
And then October 27, 2020, Bill Bengen announced that instead of using the 4% rule is outdated, and now you can use a 5% rule. (Bill Bengan is a financial advisor who made the 4% rule of thumb famous 25 years ago.) So, this latest information just throws a curveball into everything that has previously been used for the past 25 years, and now you’re left wondering…
Well, I have no idea what is the proper amount I need to save for retirement.
Do you know what the amount that you need to save for retirement is?
So, let’s dig in for a little bit and we’re gonna talk about the three different percentages that are talked about the most. It’s the 3% rule, the 4% rule, and the 5% rule is one better than another. We’ll debate that and shortly.
But first of all, you have to realize that not everything works the way you want, so let’s show some examples before we dig into the specifics of the different rules.
Basically, the whole concept is if you save $1 million and you start withdrawing either 3%, 4%, or 5%. That withdrawal amount is the amount of income that you would live on each and every year, while the rest of your portfolio is continuing to grow and increase in value.
The ultimate, perfect-scenario goal is that you would withdraw as much as you possibly could without depleting the portfolio.
Here are the assumptions:
The amount you would need to save based on each of the withdrawal rates:
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
In our example, we used simple calculations that don’t account for age, taxes, or inflation and the amount you need to save for retirement is $666,667 different.
The numbers are too much for the average person to understand and have faith in.
This is why the confusion on how much to save for retirement and what model and which retirement calculator is the best.
Shortly, we are going to give you the simple answer of how much to save for retirement. But, first, a little background on the various percent rules for retirement.
The 3% rule has gotten very popular with the FIRE movement.
The FIRE movement is Financial Independence Retire Early.
Because most of these people aren’t looking at retiring in the normal typical retirement age of 60s, they’re looking to retire in their 30s or 40s. They feel like they need to be super conservative because they are trying to estimate how much they need each month to live off their money for possibly the next 50 years.
That’s a lot of variables that you have to take into account.
The good news is you can always learn and figure out ways to make money in retirement so it’s not a complete waste, you can always go back to work because you are younger, and have youth on your side. So, is 3% a safe withdrawal rate?
The golden advice is you want to plan for the worst but hope for the best. The goal is that 3% would cover all of your necessities and basic expenses.
Is the 4 percent rule viable?
The 4 percent rule of retirement was made famous by Bill Bengen 25 years ago (and just recently he said that number is outdated.)
The assumptions were if you withdraw 4% of your investment account every year, you will still have enough to live on throughout retirement.
This was based on what has happened in the markets, accounted for inflation, and the age you want to retire. He conducted many possible case scenarios and concluded that by only withdrawing 4 percent will make sure your money lasts. That is why it has been what is called a golden rule for retirement.
How long will my money last using the 4% rule? If you do all the calculations, it should last for at least 30 years. Obviously, you are looking at many variables of the stock market doing well and your living expenses staying low. Once again, the other big factor is what inflation will do in the future.
So, is the 4% rule that much better?
And then, October 2020 rolls in. The breaking news is that Bill Bengen announced the 4 percent rule for retirement is too conservative and now you can actually use 5%.
So, that leaves the average person going… Okay. My head is spinning. I’m not sure how much I need to save for retirement. What is a good number?
Can I safely withdraw 5% of my investment accounts and still have enough money? That means I need less money to retire.
This is where people quit investing and saving for retirement becomes too hard.
Real truth from real people
There are too many variables, there are too many unknowns, and they don’t understand how it all works.
That is the real reason people don’t save for retirement.
I get it. I’m there with you. I feel it. I hear it from readers. But, we are going to break down some of the key items so that way you know how much you need for retirement.
And just remember, even if you messed up your numbers, the market went down, or you want to spend more in retirement than you are, then you could always go back to work. Even better, learn how to make money online for beginners, pick up a side hustle, make a little bit of extra money, and actually do something that you truly enjoy doing.
Learn how much money should I have saved by 30.
The simple answer… aim for $1,000,000 in investment accounts.
You may be able to aim lower depending on some variables which we cover shortly.
Investment accounts can include any of the following:
You want accounts with liquidity. Things that can be bought and sold for cash. Those are the assets we are counting on how much to retire with.
Don’t use equity in your house because you need a place to live. If you want to use equity, that is fine, but your calculations just become slightly more difficult. We want simplicity.
Right now, your money goal is to reach $1,000,000 in investment accounts. Specifically in liquid net worth.
(Of course, this number may be lower if you live in a low cost of living area, plan to move with overall lower costs or another country, or have good options with lower health care costs. There have been plenty of people who retired with less and love life.)
Based on these variables, you may just need $500,000 to retire. Or somewhere in that range.
We shared what a realistic retirement savings amount of $1 million dollars is. Is your first reaction – yikes, there is absolutely no way I can reach that amount.
However, you can!
Just break it down into smaller chunks.
For instance, make your next goal to save $100,000. You do that 10 times and you hit that realistic retirement savings amount.
If that seems like a stretch, then break it down even further. To stay motivated you can strive to save $50K or even $20K.
Break it into bite-sized manageable pieces to help you save for retirement and stay on track.
Learn what happens if you don’t save for retirement.
This is the basics to start saving for retirement.
You already know much should you really save for retirement. Now, you just to need to do it.
Here is the safest way to save for retirement. First, open up one or all of these accounts (pending where you are on your money journey). Then, look at investing in S&P 500 Index funds. The most highly recommended index fund for beginners is VTSAX.
This is the simplest way to start saving.
Make sure you are contributing at least the minimum to your employer’s 401K.
Every year you can contribute up to a maximum amount. In 2023, an employee can contribute $22,500 to their 401k (the employer is eligible to contribute as well for a combined amount not to exceed $66,000 or 100% of your compensation, whichever is less). For the latest contribution limits, check out the IRS site.
Each year, increase your percentage by 1%. A simple way to reach maxing out your 401K.
Pro Tip: Check if your employer offers a ROTH IRA option. These are becoming more and more popular with companies. A Roth 401K will let your money grow tax-free because you pay taxes when you contribute money. If they don’t offer one, pester the human resources department.
The next best option is the ROTH IRA. You want to contribute to a Roth IRA because you pay taxes upfront rather than at withdrawal like a traditional IRA.
Since ROTH IRAs have tax advantages, there are also contribution limits set by the IRS. The contribution amounts have remained the same for a couple of years now. The annual contribution limit is $6,000 per year, or $7,000 if you’re age 50 or older.
The downside to Roth IRAs… the amount you can contribute may be limited based on your income and filing status. However, for the average American, you should be able to max out the amount you can save each year.
Learn if can you have multiple Roth IRAs as it may be a smart financial move.
Pro Tip: Even if one spouse is a stay-at-home parent, you can still contribute to a Roth IRA for the non-working spouse.
Say what? Yes, a health savings account is on the list as a way to save for retirement. It is a great way to grow your money tax-free going in and on withdrawals.
You must have a High Deductible Health Insurance Plan to open a health savings account.
This is something you want to do and contribute the maximum amount each year. For 2023, you can contribute $3,850 for individuals and $7,750 for family coverage. Typically, the limits go up $50 each year, which helps you save more every year.
Pro Tip: This account will stay with you even when you leave your current employer and insurance. Plus you can use the HSA funds forever – even to pay Medicaid premiums. (Hopefully, nothing changes on these tax-advantaged accounts).
The last avenue has no tax benefits, but you are still saving money to be used later. That is what really matters.
Since there are no tax advantages to these basic brokerage amounts, there also are no limits on how much you can contribute.
This is where you would save the remaining money after you exhausted all the other methods listed above.
Side Note…
Yes, there are other ways to save for retirement. For this post and the average investor, the above-mentioned accounts are a great place to start. Once you become savvier and want to invest more money, then you can look at back door IRAs, 529s, or whole life insurance.
Once you reach that 1 million dollars retirement mark, congratulations!!
That is a huge milestone that many people never reach. So, what is the next step?
Now, that you are closer to finally being able to live off your investments, you must start to look at the retirement calculators more seriously and factor in all of those variables (age, taxes, and inflation). It is much easier to predict the future once you have built a solid nest age and are closer to living off your investments.
Everyone started the financial independence journey at a different age and will reach their million-dollar mark at different times.
For the average person, you know learned how to save for retirement. You know what you need to do and where to start.
In this post, we took out all of the confusion on how much to save for retirement. Don’t worry about is the 4 percent rule is viable – or if it should be the 3 percent rule or the new 5% rule. The assumptions and variables will hold you back from starting. You know the dollar amount to start with, move on with that.
This simple advice for hitting your first milestone is the motivation to keep you going. Along the way, you will become savvier with finances and investing.
When it is time to move to the question of “can I retire” at such and such age, you have already taken out many of the variables, and the decision becomes more and more clear.
Take steps to reach that $1000000 mark today.
Get ahead now…
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Source: moneybliss.org
Beauty may be subjective, but modern beauty standards heavily influence what many of us find aesthetically pleasing. Three-quarters of Americans (75%) agree that “pretty privilege,” or personal and professional advantages for those perceived as beautiful, is real, according to a new NerdWallet survey. And many are spending on beauty, possibly to reap those benefits.
The survey of over 2,000 U.S. adults, commissioned by NerdWallet and conducted online April 15-17, 2024, by The Harris Poll, finds that three-quarters of Americans (75%) have made beauty-related purchases for themselves, spending that includes products, services and procedures. The survey also asked Americans how they pay for beauty and how they think social media has impacted beauty spending.
Some Americans have gone into debt for beauty spending. Of Americans who say they’ve made beauty-related purchases for themselves, 15% paid with a credit card that they didn’t pay off by the due date and 9% used “buy now, pay later” services, according to the survey.
Cosmetic procedures are a career investment for some. The survey found that 11% of Americans think cosmetic procedures are a good financial investment — they think looking better will be an asset to their career.
Many agree social media has exacerbated beauty spending. Three-quarters of Americans (75%) say social media has made beauty spending much worse, according to the survey.
Beauty spending is sometimes seen as a necessity. Nearly a third of Americans (31%) consider at least some of the beauty products and services they buy as essential in their budget, the survey found.
“Spending on beauty products and services can be fun and enjoyable, even helping shoppers feel a boost of confidence and joy. But it may also have a dark side,” says Kimberly Palmer, personal finance expert at NerdWallet. “Spending more than you can comfortably fit into your budget can lead to financial stress and, in some cases, long-term debt.”
Three-quarters of Americans (75%) have made beauty-related purchases for themselves, the survey found, including products, treatments and procedures. The most popular expenses are skin care products (54%), hair products (41%) and cosmetic products (39%).
Many of these purchases were made with cash. According to the survey, 72% of Americans who purchased beauty products, treatments or services for themselves say they paid with cash or a debit card. And nearly 1 in 5 (19%) paid with savings.
Credit cards are another popular payment method for beauty-related spending. Paying with a credit card can provide more payment protection than a debit card, as well as potential rewards on spending. However, due to interest charges, this is generally only a good idea for those who pay off their balance in full by the due date, and not all beauty spenders did that. While 44% of Americans who have made beauty-related purchases for themselves say they used a credit card that they fully paid off, 15% say they used a credit card that they didn’t pay off by the due date, the survey found.
Credit card debt isn’t the only debt Americans have taken on for beauty spending. Nearly 1 in 10 Americans who have made beauty-related purchases for themselves (9%) used buy now, pay later services and 5% used a loan product from the provider of the beauty product or service.
Some beauty products and procedures are medically necessary and may allow people to use insurance and/or an HSA/FSA. (An HSA is a health savings account, and an FSA is a flexible spending account; both can be used for eligible health care costs.) For example, sunscreen may be a HSA/FSA-eligible medical expense and Botox as a treatment for chronic migraines may be covered by insurance. The survey found that 8% of Americans who have made beauty-related purchases for themselves used insurance and 5% used their HSA/FSA.
More than a quarter of Americans (26%) say they’ve purchased cosmetic procedures for themselves, with the most popular (19%) being cosmetic dental procedures, like teeth straightening or whitening, according to the survey. In addition to dental work, 7% of Americans say they’ve purchased nonsurgical procedures, like Botox or dermal fillers, and 7% say they’ve purchased cosmetic surgeries, like rhinoplasty or liposuction.
Cosmetic procedures are common for some: The survey found that 11% of Americans say cosmetic procedures are normal in their social circle. Those with a household income of $100,000+ are more likely to say this — 15% say cosmetic procedures are normal in their social circle compared with 8% of those with a household income less than $100,000.
Like with beauty spending in general, the most popular way to pay for cosmetic procedures is cash or debit card (59%), followed by a credit card paid in full by the due date (39%). But some have gone into debt to pay for beauty procedures, with 14% using a credit card that they didn’t pay off in full by the due date, 10% using a loan product from the service provider and 9% using buy now, pay later services.
Taking on debt for nonessential purchases isn’t generally recommended, but more than one-tenth of Americans (11%) say cosmetic procedures are good financial investments, believing that looking better will help them get ahead in their career. This sentiment is most popular among young Americans — 17% of Gen Z (ages 18-27) and 20% of millennials (ages 28-43) see procedures as a good investment compared with 6% of Gen X (ages 44-59) and 4% of baby boomers (ages 60-78).
Investment or not, going into debt for beauty spending isn’t looked at favorably by the general population. According to the survey, 4 in 5 Americans (80%) think it’s unacceptable to go into debt for beauty products or services. But this line may be blurry for some. Debt may be considered more acceptable when used to pay for necessities rather than extras and nearly a third of Americans (31%) — including 42% of women — consider at least some of the beauty products and services they buy as essential in their budget.
Social media is very good at influencing purchases, and beauty products and procedures are no exception. The survey found that three-quarters of Americans (75%) agree that social media has made beauty spending much worse. This could be due to ads and influencer marketing, or pressure to look a certain way.
The survey found that 12% of Americans feel pressured by society to spend more on beauty products and services than they would like to, and nearly a third of women (31%) wouldn’t feel comfortable going into work without wearing makeup.
If spending on beauty products and procedures is something you can afford without jeopardizing your finances, then it could fit into the 30% “wants” category in a 50/30/20 budget plan, for instance. But if you’re looking for ways to minimize such spending, here are a few tips to get started.
Save where you can on beauty products to put money away for your future. If spending on beauty is keeping you from saving enough — or saving at all — one place to start is to look at your spending and see if there are ways to cut back. Maybe you believe the serum you love is worth the money, but you’re fine getting fewer pedicures, for example. Think about what’s most important to you and adjust your spending accordingly.
“Taking time to look back at your beauty spending over the last year could lead to some surprising insight into how much you’ve been spending on products and services, perhaps without even realizing it. You might decide to make some changes going forward based on your priorities,” Palmer says.
Set boundaries with kids when it comes to beauty spending. The survey found that 57% of parents have made beauty-related purchases for their children, including skin care products (29%), hair products (27%) and nail salon treatments (21%). For younger children, you can start by setting budgets for nonessential beauty purchases and talking about your limits. For those old enough to take on part-time work, it may make sense to have them contribute or pay for beauty products that aren’t necessities, like cosmetics or manicures.
“Spending on beauty products also offers a great chance for kids to practice budgeting themselves. Giving them an allowance and encouraging them to make their own purchasing decisions gives them experience with those kinds of trade-offs,” Palmer says.
Avoid debt for nonessential procedures. Of Americans who purchased cosmetic procedures for themselves, 14% used a credit card they didn’t pay in full by the due date. Evaluating your options before swiping could save a lot of money in interest.
Some procedures are medically necessary, and if that’s the case, check out your insurance options or whether the procedure is HSA/FSA-eligible.
For procedures that aren’t medically necessary, saving up first is a good idea. Taking on high interest debt for any purchase could lead to future resentment.
“It’s easy to get swept up in trends and overspend. Just as with any big purchase, pausing to think through whether or not the treatment or procedure is actually worth the cost can help you make the best decision for you and your money,” Palmer says.
Consider your motivations for spending. More than a third of Americans who have made beauty-related purchases for themselves (36%) say the products they buy are status signifiers, and as mentioned, many Americans (75%) think pretty privilege exists, giving beautiful people real-world advantages. But it’s a good idea to think critically about why and how much you spend on beauty products.
Consider what beauty products and services you enjoy spending on and what you’re buying because it feels compulsory. Pausing to consider your motivations for your spending may help avoid buyer’s remorse.
This survey was conducted online within the U.S. by The Harris Poll on behalf of NerdWallet from April 15-17, 2024, among 2,082 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.5 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, contact [email protected].
Disclaimer
NerdWallet disclaims, expressly and impliedly, all warranties of any kind, including those of merchantability and fitness for a particular purpose or whether the article’s information is accurate, reliable or free of errors. Use or reliance on this information is at your own risk, and its completeness and accuracy are not guaranteed. The contents in this article should not be relied upon or associated with the future performance of NerdWallet or any of its affiliates or subsidiaries. Statements that are not historical facts are forward-looking statements that involve risks and uncertainties as indicated by words such as “believes,” “expects,” “estimates,” “may,” “will,” “should” or “anticipates” or similar expressions. These forward-looking statements may materially differ from NerdWallet’s presentation of information to analysts and its actual operational and financial results.
Source: nerdwallet.com
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
“What’s the first thing that comes to mind when thinking of how you can improve your financial situation?”
Many people would say “spend less money.”
One way to do this is by buying something used. In fact, a study found that Americans buy 10% more new items than they did in 2008 because we have so many promotional offers available. Not only should you be trying to save some money on your purchases, but also cut all kinds of other expenses from your lifestyle and keep them at a minimum.
Usually, people spend more money than they need.
This can lead them to have less money saved or be able to afford the things they want.
However, with a few simple changes in your spending habits, you will be able to make more of what you earn and feel more satisfied.
In today’s world, it is easy to be overwhelmed by the amount of information available on how you should spend your money.
With more and more people struggling with their finances, I would like to share a few hacks that have helped me spend money wisely and simplify my life.
Also, I am going to include some simple money saving tips on how to spend less money! Do not get duped into buying things you did not plan on purchasing or spending more money than you needed to.
As you can see shortly, there are many ways to spend money wisely. Whether it be through saving, investing, or taking care of your health; with this article as a guide, you won’t have to worry about your money any longer.
This is meant to inspire people on how they can better manage their finances and live more efficiently, while still being able to get the things that they want.
Spending money wisely is a way of life, but it can be tough to know where exactly you should start.
Luckily for you, we will break down ten hacks for you to follow so that your money does not go to waste.
You are probably wondering, why is saving money about how to spend money.
The first thing you should do to spend money wisely is to pay yourself first.
This could be saving for the future with an emergency fund, which can be used in case of emergencies or downturns in your financial situation. This can be done by contributing to a high-interest savings account and saving up to $1,000 or more for emergencies.
Or choose one of our money saving challenges to match your financial goals.
You need to take care of your health, as that will improve the quality and longevity of your life.
Making wise choices on choosing quality food and healthcare may cost more money upfront, but in the long run, it will save you money on huge medical expenses.
You spend your money wisely by taking care of your health. Money spent on a gym membership, healthy food, and other medical expenses can save you even more money in the long run.
Many people love the idea of time freedom for this reason.
One way to spend money wisely is by investing in your future. This might be done through a 401(k) or Roth IRA, which lets you invest pre-tax dollars and then withdraw them tax-free once you retire.
This can be a great way to save on taxes, but the money needs to stay invested for at least five years before you’re able to withdraw it without a penalty.
We live in a society that prizes material purchases and spending. Remember to prioritize experiences by getting outside. Not just for your health, but also on the mental and emotional levels, as well as the personal and even family levels.
Also, a plethora of benefits to spending money on experiences, not all materialism related.
Try to spend less on electronics and materialistic items that fill your home and more on experiences like travel or going out with friends.
This is a great way to spend time with your family and friends instead of buying things for them.
Related Reading: Overcome Gift Regret: Experience Gift Ideas That Do Not Go To Waste
Many of us, regardless of financial status, know that if we want to live on the right path without having our finances stress us out, then there are good habits to be followed.
Think about how much money you want to make in the next five years or ten years and make up how to get there.
Now, you need to line up your spending to make that happen.
Not sure how to set goals? Start here with making smart financial goals.
The next hack is to make a budget and stick to it, which will help you spend your money wisely by only spending what you have available in each category.
A budgeting strategy helps you develop better financial skills. These strategies are practiced in order to help prevent overspending and create a set spending plan for you.
Create a budget that includes all your expenses and then each time you get paid, put a little bit of your paycheck into each category.
Oftentimes, we find ourselves buying items that are not necessary and just a waste of money. This hack is to evaluate what you’re spending your money on and think about whether or not you want to continue this habit.
For every purchase ask yourself if the item is worth it and what will happen if you don’t buy it.
By completing a no spend challenge, you will be amazed at the things you find out are not worth spending the money on.
Next, you should try to spend less time with people who are going to make you feel bad about yourself.
This is a hard one but just think of the good things that will happen when you stop hanging out with people who make you feel bad.
If you are constantly around people you need to learn how to not spend money, then you will be battling upstream battle. Look for those who have the same mindset and are determined to spend money wisely.
The best way to buy quality items is to spend more money on them. Buying cheaper items has its risks, but over time it will lead to dissatisfaction with the product and waste of money.
If possible try to spend money on things that will last a long time and not just stuff like food or rent.
This concept of quality of quantity is not difficult to understand. For example, instead of owning 10 pairs of jeans that you think you need, you spend money on the two pairs of quality jeans that you love.
Because items are so cheap to pick up, it is easy to quickly fill our homes with quantity and excess stuff (plus we are spending more in the process). Instead, spend a little more and buy less of what you truly need or want.
One way to save money is by cooking more at home and not going out to eat. You can also cut down on the amount of food you purchase, which will help you save a ton of money in the long run.
Instead of buying food that will go bad quickly or ruin your health, buy more expensive food. This way you are spending less money on the product but it is going to last longer and be better for you.
By spending money wisely, you must learn how to spend less money on food.
Specifically, I am talking about FSA or HSA, or dependent care FSA. This is when you set aside money each year for these purposes. Money goes into these accounts tax-free, so you are lowering your taxable income.
On how to spend FSA money, you must have the proper documentation on your plan. The same is true for how to spend HSA money.
The limits change each year on how much you can contribute to each of these plans, but the maximum you can spend tax-free is over $20,000 for a family.
This is a great trick to spend money wisely and lower the amount you owe in taxes. Just make sure to spend the amounts in the FSA each year!
Personally, I have a hard time spending money. Period. This is something I am working on as we progress through our financial journey. Now, I look to spend money on ways that will improve our life or bring smiles to our faces.
Spend on things that add happiness to your life.
For example, if you’re happy with the new shoes you’ve just bought, then it’s worth spending money on them! If you love to travel, spend on travel. If you like reading fiction novels, spend on fiction novels.
Spend your money on things you enjoy and make the most of the disposable income you have.
One of the best ways to make money is to give back. However, it takes some money to make money, which is typically frustrating to those who constantly want to make more money per year.
By selling a product or service, you are supplying them with your knowledge, advice, and understanding. Another way is through investments. Investing, while not always profitable, has companies that adhere to companies of all kinds.
One of the best ways to spend money wisely is to invest in ways to make money.
There are plenty of ways to make money and start your own business.
Here is a great book to open you up to the idea of starting your own business and the freedom with money it can bring.
Here are great ways to make money on the side:
It is possible to make more money on your business than you make more money in your current job or career.
Many of us spend too much on material items that are not actively used. This creates a situation where we have to make more purchases in order to get the same level of happiness.
The first step towards becoming frugal is deciding what you want out of your possessions, and then only buying those things which will provide you with this goal.
Here are 32 easy ways to do that!
There is a lot of conflicting information on how much money should be allocated to needs vs. wants, but this takes into account what percentage of take-home pay should be spent on necessities.
Here is the Cents Plan Formula we Use at Money Bliss:
So, the average person should spend 50% of their take-home pay towards needs. That means you must spend your money wisely.
Keep a list of what you spend and how much it cost.
You should have some idea of how much money you are able to spend on what. This will help you decide whether it is worth buying a thing or not before purchasing it.
Use the list to see where you can make adjustments, for example spending more time with your family or finding fun things to do with no money.
Spending money wisely can seem complicated at times.
The key to using money wisely is understanding how you spend your cash. Spending tends to happen automatically, which can lead people down the path of overspending and debt if not monitored closely.
The affordability of happiness and satisfaction depends intensely on the money we have.
The activities we could do, and expenses we could cut out, can be often atrocious and insufficient for our expectations.
Extreme dissatisfaction and the whole time earning less than we would desire, we may feel that we need to know how to spend money wisely.
The vital hacks elaborated in this post will help to understand caring for a budget, and changing our habits to spend more wisely.
When spending money wisely, people should be aware of their habits so they can change them in order to save more and spend less on things that do not bring happiness or benefit the person’s life.
If you want to save money, spend it on something that will make your life better or more enjoyable.
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Source: moneybliss.org
La información sobre inversión proporcionada en esta página es sólo con fines educativos. NerdWallet, Inc. no ofrece servicios de asesoría o corretaje, ni recomienda o aconseja a los inversionistas comprar o vender acciones, valores u otras inversiones en particular.
A principios de 2022 entré en pánico al darme cuenta de que tenía poco más de treinta años y sólo tenía unos $4,000 ahorrados para la jubilación. Una vez que el pánico disminuyó, mi solución fue tener un segundo trabajo (en inglés) para acelerar mis ahorros para la jubilación. En dos años, pude utilizar mis ingresos como trabajador independiente y de 9 a 5 para aumentar mis ahorros para la jubilación en más de $100,000. Aquí hay algunas estrategias que utilicé para lograr mi objetivo.
A lo largo de los años, no había pensado mucho en cuándo quería jubilarme ni en cuánto necesitaría. Comencé leyendo artículos en línea y utilicé una calculadora de jubilación.
Elaborar un plan de jubilación fue un proceso catártico: me desafió a pensar en el estilo de vida que quiero durante la jubilación y cuánto podría costar. Llegué alrededor de la marca de los $2 millones, lo que inicialmente fue un shock para mi sistema nervioso porque sólo tenía alrededor de $4,000 ahorrados. Llegué a esta cifra ingresando mi edad ideal de jubilación, mi esperanza de vida, mi contribución mensual, mi presupuesto mensual y otras variables en una calculadora de jubilación.
La calculadora de la jubilación también me ayudó a desglosar cuánto necesitaba ahorrar mensualmente para alcanzar mi objetivo ambicioso (en inglés).
Antes de buscar trabajos por cuenta propia, quería asegurarme de tener lista una estrategia de inversión. Es fácil gastar dinero de trabajos por cuenta propia antes de que llegue a su cuenta corriente; lo sabría porque lo he hecho muchas veces.
“Como persona con un segundo trabajo, las cuentas a las que debe recurrir para ahorrar para la jubilación son IRA, Roth IRA, SEP IRA y 401(k) individual”, dice Alleson Tate, planificadora financiera certificada y fundadora de Avere Wealth Management en Atlanta. Este tipo de cuentas pueden ayudar a maximizar los ahorros para la jubilación y la atención médica.
Para alcanzar mi objetivo de ahorro mensual, planifiqué dividir mis ingresos del segundo trabajo (en inglés) en cinco grupos: mi fondo de ahorro de emergencia dentro de una cuenta de ahorro de alto rendimiento, mi 401(k), una cuenta IRA, una cuenta de ahorro para la salud y una cuenta de corretaje estándar. También planifiqué maximizar mis contribuciones permitidas a mi 401(k), HSA e IRA a medida que mis ingresos aumentaran.
Con el tiempo, encontré varios segundos trabajos de redacción independientes consistentes al enfocarme en conseguir clientes que pagaran bien y que me dieran trabajo constante durante un período de tiempo acordado. Fui colaboradora habitual de algunas plataformas en línea y también tenía clientes privados a los que les entregaba artículos. Utilicé bolsas de trabajo, correos electrónicos en frío y aproveché mi red. Aunque la mayor parte de mis ingresos como trabajador independiente fueron constantes, algunos contratos no se renovaron. Esto significaba que tenía que tener un presupuesto sólido y revisarlo con regularidad para estar al tanto de mis objetivos de ahorro.
Tate sugiere utilizar un sistema de presupuesto 50/30/20 (en inglés) para manejar el ingreso de su segundo trabajo, que NerdWallet también recomienda para los ingresos primarios. Con este método, el 50% de los ingresos netos se destina a las necesidades, el 30% a lo que quiere y el 20% al ahorro, las deudas y las inversiones.
“Los porcentajes de cada uno se deben ajustar de acuerdo a su propio estilo de vida y sus prioridades financieras”, dice Tate. “Pero ese sería un gran punto de partida”.
Yo ajustaba con frecuencia la distribución de mi presupuesto. Algunos meses invertía demasiado y no tenía suficiente en mi fondo de emergencia, mientras que otras veces no dejaba suficiente para las cuentas por pagar. Me excedí varias veces con el tema del esparcimiento y el cuidado personal, y durante los meses en los que tenía menos ingresos secundarios tuve que reducir mis ahorros.
Durante mi primer año de tener un segundo trabajo agresivo, quería la gratificación instantánea de ver crecer mis ahorros para la jubilación. Decidí dar prioridad al ahorro y esperé a pagar al Tío Sam de un solo pago durante la temporada de impuestos. Antes de tomar esa decisión, debería haber leído la letra pequeña del IRS sobre los impuestos del trabajo por cuenta propia. Si lo hubiera leído me habría ahorrado la multa que tuve que pagar ese año.
La tasa de impuesto del trabajo por cuenta propia es del 15.3% para 2023 y 2024. Para evitar una multa por pago insuficiente, generalmente deberá adeudar menos de $1,000 en impuestos después de restar las retenciones y los créditos fiscales reembolsables. O bien, necesitaría haber pagado una retención e impuestos estimados equivalentes al 90% de los impuestos del año en curso o al 100% de los impuestos del año anterior. Puede hacerlo pagando los impuestos trimestrales estimados del IRS o reteniendo impuestos suficientes de sus ingresos del formulario W2.
Para ayudar a calcular esto, Abraham Ziadeh, un contador público certificado (CPA, por sus siglas en inglés) y propietario de una firma de contabilidad pública certificada en Pembroke Pines, Florida, sugiere el uso de un software de contabilidad, un contador o un CPA.
Opté por la ruta del formulario W2 y trabajé con un asesor financiero para calcular cuánto necesito retener para evitar otra penalización.
También decidí aprender sobre formas de reducir mis impuestos de trabajo por cuenta propia. Una estrategia que mi asesor fiscal sugirió fue cambiar la estructura de mi negocio de una LLC de miembro único a una corporación S. Si tiene ingresos consistentes y cumple con los requisitos, incorporar su negocio lo podría ayudar a ahorrar en impuestos, especialmente si elige una estructura de corporación S, dice Ziadeh.
Aprovechar una cuenta de jubilación para independientes fue otra forma de reducir mi cuenta de impuestos. Elegí una SEP IRA, ya que puede aportar una cantidad mayor que con una Roth. Tate dice que las cuentas SEP IRA son sus cuentas preferidas, ya que reducen su ingreso tributable y tienen un límite de contribución relativamente alto.
Dicho esto, es importante elegir la cuenta que mejor se adapte a su situación financiera.
Este artículo fue redactado por NerdWallet y publicado originalmente en inglés por The Associated Press.
Source: nerdwallet.com
As a former college athlete, John Bovard has always prioritized exercise. Building a home gym helped him balance health, career and family.
“To be able to walk right downstairs, get our workout in, be back upstairs without any travel time or any commute was something that was our best option,” says Bovard, a certified financial planner and owner of Incline Wealth Advisors in Cincinnati.
The cost to build a home gym ranges from $300 to $15,000, according to home improvement website HomeAdvisor, and depends on your equipment and renovation needs. It may seem daunting and expensive, but there are ways to manage the costs. Here are five tips to tackle a home gym so you gain muscle — not unmanageable debt.
Before jumping into plans for a dream gym, reflect on your past and current exercise patterns.
“Know the equipment you like that keeps you motivated, so you’re not wasting money,” says Megan Kopka, a certified financial planner at Apprise Wealth Management in Wilmington, North Carolina, “so [the equipment] doesn’t become a clothes rack.”
For some, equipment can mean dumbbells and a strength training machine, which can range from $1,000 to $6,000 or more. For others, a yoga mat and a few light weights, which can total less than $100, may be sufficient. Consider gym add-ons like speakers, floor mats or app subscriptions, which can amplify your workout but increase your costs.
Kopka pays for a Peloton app subscription and says the workouts it provides are affordable and rewarding. “I’m a financial planner. I work all the time,” says Kopka, “I’m planning for everybody else, and it’s just nice to have that online class where they tell you what to do.”
Once you have a firm idea of what’s needed for your home gym, create a budget by researching equipment, adding up the costs and factoring in any savings from, for example, canceling a gym membership. Identify equipment you may want to buy new versus secondhand.
Bovard found used equipment through Facebook Marketplace and Play It Again Sports. He says rubber-coated dumbbells or weights with low wear-and-tear can be good second-hand purchases.
It may be tempting to buy everything you want for your gym quickly, but it’s best to build the space over time.
“You’re not going to be able to go from zero to a fully decked-out gym,” says Bovard. Lead with your budget as you decide what to purchase and when, and stagger the purchases to give your bank account a rest.
The cheapest way to finance a home gym is to pay with cash. “Savings would be more of a slow and steady route,” says Bovard. “That’s where it would make more sense to save over time and slowly start to accumulate what you need.”
Setting aside cash from your monthly income and building the gym in stages can help you avoid high-interest financing options like a credit card or personal loan. Bovard also suggests checking if you can use funds from a workplace health savings account (HSA) for qualified gym equipment. Your employer may also provide compensation for a gym membership that can go toward home gym costs instead.
Another consideration for how much to invest in the gym: How long do you intend to stay in the house? While a gym may increase your home’s value when you sell, the space should also be adaptable for a future homeowner.
Financing is another way to pay for the home gym. Credit cards can be convenient for purchasing equipment and accessories, but interest rates can be high. To avoid interest, pay off the balance each month or get a credit card with a no-interest introductory period, which can be 15 to 18 months. Earning credit card rewards or points can also help offset other costs.
“Buy now, pay later” providers like Klarna and Afterpay allow borrowers to break up a major purchase into equal biweekly or monthly payments, often with zero- or low-interest plans. You can find buy now, pay later options during checkout at major retailers and fitness companies like Peloton and Tonal. Applying for a buy now, pay later plan typically only requires a soft credit check, so there’s no impact on your credit score, but the convenience can also make it easy to overspend.
Borrowing funds using your home equity or an unsecured home improvement loan is best suited for a gym that requires remodeling that may include electrical and plumbing work. A home equity loan or line of credit uses your home as collateral and has low interest rates relative to a credit card or personal loan, but it can take a few weeks for a credit decision. An unsecured home improvement loan will have a higher interest rate but won’t require your home to secure the loan, and some lenders offer same-day funding.
A home gym pays off if it’s used regularly, so staying consistent with your workouts is important to get the most out of your money. “If you’re not going to use it, it’s expensive,” says Kopka.
Feel comfortable adapting the space as needed, like getting additional equipment or selling anything you’re not using.
After building their home gym, Bovard and his wife realized an added benefit: Their five young kids got involved. “They might watch us work out or they might hang out in there,” says Bovard. “I think that’s a great part of it.”
Source: nerdwallet.com
Americans Believe They Will Need $1.46 Million to Retire Comfortably According to Northwestern Mutual 2024 Planning & Progress Study People’s ‘magic number’ for retirement rises faster than inflation, jumping 15% in just a year and a whopping 53% since 2020; while retirement savings falls to $88K The ‘Silver Tsunami’ is here: 11,000 Americans will turn 65 … [Read more…]
If you find yourself in a bad financial situation, making an early withdrawal from your 401(k) may sound tempting. But early withdrawals from your 401(k) come with hefty fines and can put your retirement at risk. So, before you do this, you should be sure that it’s truly a financial necessity.
That being said, there are situations when it makes sense, and occasionally, you can find ways to get the fees waived. This article will review everything you need to know before making an early 401(k) withdrawal.
Wondering if you can tap into your 401(k) funds ahead of schedule? The ability to make an early withdrawal from your 401(k) hinges on several factors, including your employer’s policies, the specifics of your plan, and your current employment status. Here’s a straightforward guide to understanding your options.
Your first step should be to get in touch with your human resources department. Not every employer permits early withdrawals from their 401(k) plans, and those that do may have specific criteria and procedures you’ll need to follow. The ease of starting this process and the options available to you will depend on various factors, such as your age and the specific rules of your plan.
If you’re no longer employed with the company that holds your original 401(k), reaching out to the plan’s administrator is your next move. The administrator can provide you with the necessary steps and documentation required to initiate an early withdrawal. They’ll guide you through the process, ensuring you understand any implications or penalties associated with accessing your funds prematurely.
Still working for the company where you’ve built your 401(k)? There might be restrictions on your ability to make early withdrawals. But don’t lose hope; you might have the option to borrow against your 401(k) instead.
Taking a 401(k) loan can be a viable alternative, offering a way to access your funds without the penalties associated with early withdrawals. We’ll delve into the specifics of 401(k) loans and how they work later on, providing you with all the information you need to make an informed decision.
When it comes to pulling money from your 401(k) before reaching the age of 59 ½, the Internal Revenue Service (IRS) doesn’t give you a free pass. Let’s break down what this really means for your wallet. You’re not just facing a flat fee; it’s a combination of penalties and taxes that can significantly reduce the amount you end up with.
If you dip into your 401(k) early, the IRS imposes a 10% penalty on the amount you withdraw. This is their way of discouraging people from using their retirement savings prematurely. For example, if you withdraw $10,000, you owe $1,000 right off the bat to the IRS as a penalty.
But the financial impact doesn’t stop there. Since 401(k) contributions are made pre-tax, when you take money out, it’s considered taxable income. This means the amount you withdraw will be added to your total income for the year, potentially pushing you into a higher tax bracket.
To illustrate, let’s say you’re in the 22% tax bracket. On a $10,000 withdrawal, you’ll owe $2,200 in income taxes, in addition to the $1,000 penalty. So, from your $10,000, you’re down $3,200, leaving you with $6,800.
Imagine John, who decides to withdraw $10,000 from his 401(k) to cover an unexpected expense. John is in the 22% tax bracket. Here’s how his withdrawal breaks down:
This example highlights the importance of considering the combined effect of penalties and taxes on early 401(k) withdrawals. It’s not just about the immediate need for cash but understanding the long-term impact on your retirement savings.
Making an early withdrawal from your 401(k) can have significant tax implications. However, with careful planning, you can manage these impacts more effectively. Here are strategies to consider:
If possible, spreading out your withdrawals over several years can help manage your tax bracket. Large withdrawals can push you into a higher tax bracket, increasing your overall tax liability. By taking smaller amounts over time, you may stay within a lower tax bracket, reducing the amount of taxes owed.
Remember that state taxes can also apply to 401(k) withdrawals. Tax rates and regulations vary by state, so it’s essential to understand the rules in your state and plan accordingly. Some states offer tax breaks or exemptions for retirement income, which could influence your withdrawal strategy.
If you must make an early withdrawal but don’t need the funds immediately for expenses, consider reinvesting them in a tax-advantaged account. This could be a Roth IRA, where withdrawals in retirement are tax-free, or a health savings account (HSA), if eligible. These moves can help mitigate the tax impact and potentially grow your investment tax-free.
Implementing these tax planning strategies can help you navigate the complexities of early 401(k) withdrawals, minimizing the tax bite and keeping your retirement goals on track. Consulting with a tax professional or financial advisor can provide personalized advice based on your individual situation and financial goals.
When life throws you a financial curveball, tapping into your 401(k) through a hardship withdrawal might seem like a viable option. This choice allows you to access your retirement funds early without the standard 10% penalty, under specific conditions. Let’s explore what qualifies as a hardship withdrawal, the documentation you’ll need, and how to prove your need effectively.
Hardship withdrawals are not given out for just any reason. The IRS defines specific scenarios where these withdrawals are permitted. These include:
To successfully apply for a hardship withdrawal, you’ll need to provide substantial proof that your situation matches one of the qualifying conditions. This might include:
Proving hardship is more than just submitting documents. You’ll need to:
While a hardship withdrawal can offer a lifeline during financial distress, it’s crucial to approach this option with a full understanding of the qualifications and process. Remember, these withdrawals can impact your retirement savings, so consider all alternatives before proceeding.
Considering a 401(k) loan instead of an early withdrawal might be a strategic move under certain circumstances. Below, we will clarify the nuances of 401(k) loans, including repayment conditions, interest rates, and when it’s advantageous to choose this option over withdrawing funds directly.
A 401(k) loan allows you to borrow against the savings in your retirement accounts without incurring the penalties and taxes associated with an early withdrawal. It’s a feature many plans offer, providing a way to access your funds for immediate needs while still keeping your retirement goals on track.
Repayment terms for 401(k) loans vary by plan, but typically, you’re expected to repay the loan within five years. Payments are usually set up on a monthly basis and are deducted directly from your paycheck, making the repayment process straightforward and manageable.
The interest rate on a 401(k) loan is often comparable to or slightly higher than current market rates, but significantly lower than the rates associated with credit card debt or personal loans. The interest you pay goes back into your 401(k) account, essentially paying yourself back with interest, which can make this option particularly appealing.
Choosing a 401(k) loan over a direct withdrawal or other financial avenues can be wise in several scenarios:
Before opting for a 401(k) loan, consider the impact on your retirement savings. While you’re repaying the loan, the borrowed amount is not invested, potentially missing out on market gains. Additionally, if you leave your job, the loan may become due in full much sooner than the original five-year term.
When considering accessing your 401(k) or IRA funds before the typical retirement age without facing penalties, the Substantially Equal Periodic Payments (SEPP) program can be a lifeline. This strategy requires a commitment to taking consistent withdrawals for a significant period. Let’s dive deeper into how SEPP works, how to calculate your payments, and when this approach might be particularly beneficial or risky.
Calculating your SEPP involves choosing from one of three IRS-approved methods: the Required Minimum Distribution (RMD) method, the Fixed Amortization method, and the Fixed Annuitization method. Each method uses your current account balance and life expectancy factors to determine annual withdrawal amounts, but they vary in flexibility and payment amounts.
SEPP plans can be particularly useful in several situations:
While SEPP offers a way to access retirement funds early, there are important considerations to keep in mind:
SEPP can be a strategic tool for managing retirement funds before reaching the traditional retirement age. However, it’s crucial to carefully assess your financial situation, consider the long-term implications of starting SEPP, and consult with a financial advisor to ensure this strategy aligns with your overall retirement planning goals.
Accessing your 401(k) early can come with significant financial repercussions, including penalties and taxes that diminish your retirement savings. Fortunately, there are several other strategies you can consider to meet your financial needs without tapping into your retirement funds prematurely. Let’s delve into some of these alternatives and how they might serve as viable solutions.
One of the most straightforward alternatives is to seek a loan from family or friends. This option can offer more flexible repayment terms and potentially lower (or no) interest rates. However, it’s essential to approach this solution with clear communication and, ideally, a formal agreement to avoid any misunderstandings or strain on your relationships.
Another strategy is to evaluate your personal assets for items that you can sell. This could range from high-value items like a second car or recreational vehicles to smaller, valuable assets such as electronics or collectibles. Selling assets can provide a quick influx of cash without the need to worry about interest rates or penalties.
For those facing financial hardship, various government and non-profit programs offer financial assistance. These programs can provide support for a range of needs, including housing, utilities, food, and medical expenses. Researching and applying to these programs can offer a way to bridge your financial gap without compromising your retirement savings.
If you have equity in your home, tapping into it through a home equity loan or a home equity line of credit (HELOC) might be a strategic alternative to early 401(k) withdrawals. Both options can offer more favorable interest rates than a personal loan or credit cards, but with distinct differences in how you access and repay the funds.
Home equity loans provide a lump sum at a fixed interest rate, making it an excellent choice for one-time, significant expenses. The predictable repayment schedule helps with budgeting but requires you to take out a precise amount from the start.
HELOCs, in contrast, offer a flexible credit line, similar to a credit card, but with lower interest rates. This option allows you to borrow as needed over a draw period, usually with variable interest rates. The flexibility is ideal for ongoing expenses, but it’s vital to manage this responsibly due to the fluctuating payments.
Personal loans from banks or credit unions, as well as low-interest or 0% APR credit card offers, can also provide temporary relief. These options may come with higher interest rates than a HELOC but don’t require collateral. When choosing this route, it’s vital to compare offers and understand the terms to ensure they align with your financial recovery plan.
When faced with financial needs, deciding whether to access your 401(k) early is a significant choice. It’s crucial to weigh the immediate benefits against the long-term impact on your retirement savings. As we’ve explored, alternatives like borrowing from family or friends, selling personal assets, or tapping into home equity through loans or HELOCs can provide the necessary funds without the drawbacks of early withdrawal penalties and taxes.
For those considering a 401(k) loan or Substantially Equal Periodic Payments (SEPP), these options offer ways to access your funds while minimizing the negative effects on your retirement account. However, each choice comes with its own set of considerations and potential impacts on your financial future.
Ultimately, the decision should align with your overall financial strategy and long-term goals. Consulting with a financial advisor can provide personalized advice, helping you to make an informed choice that balances your immediate needs with your retirement aspirations. Remember, the goal is to ensure financial stability now without compromising your future well-being.
Source: crediful.com