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.
1. Invest in Index Funds
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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.
2. Put Money in High-Yield Savings Account
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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
3. Invest in Individual Stocks
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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
4. Fund A Health Savings Account (HSA)
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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.
5. Invest in Entrepreneurship
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Investing in small businesses can yield high returns and personal satisfaction. Diversifying your $10K across multiple ventures reduces risk and can amplify potential profits.
6. Invest in Rental Properties
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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.
7. Max Out Your Roth IRA
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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?
8. Loan to Others Through P2P Lending
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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.
9. Invest In Crypto or Bitcoin ETF
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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.
10. Pay off high-interest debt
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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
More Idea to Invest $10k
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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
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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.
Understand how much extra income you could get from a side hustle like DoorDash and get a budgeting and investing basics refresh.
This Week in Your Money: How much extra money can you really make from side hustles? What are budgeting and early investment strategies for young professionals? Hosts Sean Pyles and Sara Rathner discuss the realities of gig economy jobs with Tommy Tindall, a NerdWallet writer who tried working for DoorDash to see what kind of income it would give him. He shares tips and tricks on the ease of starting with DoorDash, the practical challenges involved, and how your location and lifestyle can impact your earnings.
Today’s Money Question: Host Elizabeth Ayoola joins Sean and Sara to help answer a listener question from a recent college graduate about early investment strategies. They discuss how young professionals can apply the 50/30/20 rule to their finances, the importance of setting clear savings goals, and how to start investing at a young age. They discuss the benefits of starting investments early, the differences between active and passive investing options, and the importance of automating investments to build wealth over time.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Have you ever gotten a food delivery or a ride in an Uber and wondered whether these gigs are really worth the effort as a side hustle? Well, this episode will deliver some answers.
Sara Rathner:
Cute. Welcome to NerdWallet’s Smart Money Podcast. I’m Sara Rathner.
Sean Pyles:
And I’m Sean Pyles. This episode, Sara and I are joined by our co-host, Elizabeth Ayoola, to answer a listener’s question about money goals, especially when you’re early on in your financial journey. How do you get a grip on your finances and set yourself up for long-term success?
Sara Rathner:
But first, we’re turning to side hustles. This month on Smart Money, we’re running a special series about how you can increase your income, whether you want more money to invest or you’re working on building up your savings, or you really just want some extra cash to spend on whatever junk appears in your social media feeds.
Sean Pyles:
And we are not here to judge you for whatever you spend your money on, but watch any social media influencer or read any article about ways to increase your income and inevitably someone mentions taking up a part-time job in the gig economy like Uber, DoorDash, Airbnb, take your pick. And I’ve always been pretty skeptical that these gigs will net you meaningful amounts of cash, especially considering all the time and effort involved.
Sara Rathner:
Absolutely. If you’re going to put miles on your car or let strangers sleep in your rental property, it needs to be worth it. And we don’t have access to a vacation house for the purposes of this podcast, but we do have a Nerd on staff at NerdWallet who actually did DoorDash for a couple of days to get a feel for whether these jobs live up to the hype. Tommy Tindall is here to share his insights with us. Tommy, welcome back to Smart Money.
Tommy Tindall:
Hey there. Thanks for having me.
Sean Pyles:
So Tommy, you recently made a really fun video for NerdWallet’s YouTube channel where you test drove DoorDash for a few days. What were your hopes and expectations going into this journalistic exercise?
Tommy Tindall:
Yeah, so I study and write quite a bit about side hustles and for this one, I really wanted to go the extra mile, get it, and test it out myself, try to make the advice a little more valuable, right? Give it a true test. And delivery driving is super popular and seemingly accessible, at least that’s what I thought, was my hypothesis, I should say, an easy way to make side money. So I really wanted to answer a couple questions that I think people have about a gig like this, and one is just how easy is it to get started? Can you really sign up on your phone, get a red bag in the mail and start driving? And spoiler alert, yes, that’s what I did. You can. And also can you make real money?
Sean Pyles:
Okay, so what were the main things that you were tracking as you weighed whether this side hustle was worth it?
Tommy Tindall:
I wanted to keep it easy, so I was just keeping a close eye on the time I spent driving while delivering, the miles I drove, and of course how much I earned and really wanted to get to what’s the real pay when you factor in the cost of driving.
Sara Rathner:
So talk with us a little bit about the experience of doing this. Was it fun? Was it boring? Did you get chased by any wild animals? Did you use this as an opportunity to catch up on episodes of Smart Money?
Tommy Tindall:
Well, I wanted it to be fun, but it was kind of hectic. I mean, I remember there were a couple moments of zen where I was just cruising, windows down, just looking outside thinking this is the life. But as soon as I started thinking that way, ding, ding, I’d get another delivery. And I think hustle is a real good term for this because it was kind of a grind. And what really got me, which I thought was interesting, was the constant interaction with my phone. It was draining. I was using maps to navigate, to take orders, and it was just a lot of interaction with the phone while driving.
At one point I, quick story had a 16-mile delivery, which was good pay. It was like $18 of base pay, which was really good. So I took it, but I was so distracted kind of trying to figure out where I was going, that I went the wrong way on 95 and was screaming, pounding the wheel, as you can imagine, and just like, efficiency. That’s what I was going for. Also, keep in mind, I was filming this experience for the video and that totally added to my stress. So maybe more practice without trying to film myself, I could be a little more efficient, get a little more time to enjoy solitude and catch up on my favorite podcasts like this one. But yeah, it was hectic.
Sean Pyles:
Yeah. But you can’t forget that this is a job, right? It’s going to have stressful, difficult moments like any job.
Tommy Tindall:
I was reminded of that quickly, that this is a job and I kind of felt the stress. When I would get a delivery, I wanted to make sure the food was hot and get there quickly, know where I was going. So I had that sense of, hey, you’re on the clock, you’re working.
Sara Rathner:
That distracted driving element is also pretty terrifying.
Sean Pyles:
Tommy Tindall:
Yeah. Now when I see people on the road, I’m wondering are they delivering right now? So before I yell “get off your phone,” I’m wondering that.
Sara Rathner:
Sean Pyles:
Sara Rathner:
They might be.
Sean Pyles:
Either way, get off your phone.
Tommy Tindall:
Sara Rathner:
Tommy Tindall:
Sara Rathner:
I know. So Tommy, you mentioned this in your video, you live in a smaller town, a more remote area. How does that affect your ability to make money from DoorDash or any other app-based job like this?
Tommy Tindall:
I mean, it matters a lot because it’s how busy it’s going to be around you. So location matters. It’s where you live, which towns you have access to with a short drive that may be more populated. So I live, it’s a smaller, more rural but kind of suburban town outside of Baltimore. And what I did before I started was I would watch the DoorDash app, the map section of the app and just kind of see where the hotspots were.
And of course areas closer to Baltimore where it’s more densely populated, more restaurants within close proximity of each other, they were regularly busy during the peak times and they were shaded in pink on the maps. That’s how you know you can go out. When the map is like pink or red, you can Dash on a whim. When it’s gray, which it was sometimes in my town, you have to wait or schedule a Dash for later. But luckily where I live during the busier lunch hour, the option to Dash now was available during the weekday when I tried this. So I was able to stay closer to home, which I think was more realistic, because if I did this, I don’t think I’d want to drive that far. I’d want to stay closer to home, so.
Sean Pyles:
You don’t want to have to commute for your side gig.
Tommy Tindall:
Exactly. You want to get out there and do it maybe on the lunch hour during work, which I was thinking, which we’ll talk about. Probably kind of hard to do because I did find myself going from one end of my town to another because it’s not that populated, so it cost me some time.
Sean Pyles:
Well, that also makes me think about wear and tear on your vehicle and other related expenses like gas. Was that a worry of yours as you were doing the side hustle?
Tommy Tindall:
Yeah, this was a big worry for me because I am somebody who loves cars and I can be a little obsessive about keeping our vehicles maintained. So just all the stop and go driving, it was just kind of giving me a nervous tick. That was on my mind the whole time. I think I kind of make that clear in the video a little bit, and I should also mention that I drive a full size Ram pickup truck, which I thought would be fun to test for this, but not the ideal gig economy vehicle. It’s inefficient, hard to maneuver.
Sean Pyles:
Yeah, lots of storage space, but maybe more than you need for a Starbucks run or something like that.
Tommy Tindall:
Oh, yeah. And the maneuverability. I think at one point I pulled off a busy road into the wrong driveway and I had to sort of Austin Powers my way out. You remember that 20 point turn he had to do in the first movie and all while the customer, the next house over was watching me. So when I finally got over there, we had a little laugh about it and I think she did tip me. I don’t know if she tipped me after the fact or not, which you can do in the app.
Sean Pyles:
You were providing some entertainment along with the delivery?
Tommy Tindall:
Oh, yeah. When I did get to interact with customers like that, I made it kind of fun. I’d be like, “Yeah, you don’t see people driving a truck very often, do you?” But yeah, I was a little anxious about my own vehicle and the wear and tear.
Sean Pyles:
Okay, so Tommy, after three days of Dashing, tell us how much time you spent driving, how far you drove, and how much you earned.
Tommy Tindall:
All right, well here are the stats. I went on three Dashes for this test and drove about six and a half hours on deliveries altogether. I put 90 miles on my personal vehicle, which was my big dump truck as I mentioned. Earned a total of $86, but factor in the 17 MPG that I was getting. And gas was I think around $3.60 a gallon when I was doing this. So less than $19 in fuel costs. True earnings are more like $67 or $10.31 cents an hour. So I mean, not a lot of money.
Sean Pyles:
So I’m going to wager that’s less than you’re making at NerdWallet on an hourly basis.
Tommy Tindall:
Yeah, yeah, yeah. Not giving up the main hustle.
Sean Pyles:
Yeah. Do you think this was worth it?
Tommy Tindall:
So yes and no, and I’ll start by saying I’m glad gigs like this exist because I was really blown away by the accessibility of this gig. I mean, I was signed up and through the background check in literal minutes, and if you, the listener, meets the basic qualifications, I mean you can probably start working and start earning, and I like that. It’s not like saying side hustle options, go be an influencer and wait a couple years to build a following before you make your first dollar. I mean, you sign up and you can make money, which I think is great. And flexibility of course is the selling point of a delivery driving job like this. But at the expense of what? I felt like I was really hustling. I didn’t make a lot of money and thinking back, I mean this would be a real grind for me to do on the side.
It’s really about where I’m in my life. I mean, I have a main job, I have a family, I have young kids in school and sports, a home that continues to break that I have to maintain, I serve in my church and I really covet kind of that little free time that I have left. So I guess all that to say, not quitting my day job. And I think doing this made me more grateful of my main hustle and reminded me that I think there’s merit in what’s become kind of an older way of thinking where you find a good company, work hard, build your skills, grow your confidence, gain expertise, and hopefully increase your salary over time. So whether it’s worth it I think depends on personal situation, because you do make money.
Sara Rathner:
So who do you think a side hustle like this is good for?
Tommy Tindall:
People who do have some extra time or need extra cash and can take advantage of the flexibility to work whenever, because again, that is the selling point of a job like this. Also people who can work the system to their advantage. And you see a lot of YouTube videos of people sort of gaming this and chasing something called peak pay, which is an incentive where you can add plus one, two, three, or more dollars to a delivery if it’s really busy. So the competitive types, which is not me, admittedly, but I do wonder if I would’ve tried this at a different time in my life, like back in college or in my first years working a job when I lived in Washington, DC, had it been available.
Sean Pyles:
Well, Tommy Tindall, thanks so much for talking with us.
Tommy Tindall:
Absolutely. Thanks for having me.
Sean Pyles:
So listener, you just heard Tommy describe an interesting way that he earned some money. Ahead of this month’s series about increasing your income, we have our new Nerdy question of the month for July, which is: what is the most creative thing that you’ve done to earn more money? Maybe you negotiated a significant raise or you’re one of those job hoppers that has a new gig every couple of years. Tell us what is the most interesting thing that you’ve done to increase your income?
Sara Rathner:
I mean, I’ve rented out my basement for a commercial shoot, so there’s that.
Sean Pyles:
Okay. Interesting.
Sara Rathner:
Made 1,400 bucks and bought new storm doors. What a day. Anyway, if you’ve done something like that or something else, call or text us on the Nerd Hotline at (901) 730-6373. That’s (901) 730-NERD, or email us at [email protected]. We might just share your story on a future episode. Maybe inspire some of our other listeners to take up an interesting side hustle.
Sean Pyles:
And while you’re at it, send us your money questions, too. It is our job as Nerds to answer whatever your money question is. So send it our way on the Nerd Hotline, (901) 730-6373 or email it to us at [email protected]. Well now let’s get into this episode’s money question segment after a quick break. Stay with us. We’re back and answering your money questions to help you make smarter financial decisions. This episode’s question comes from Adrian, who left us a voicemail. Here it is.
I’m a recent college graduate. I graduated college in June of 2023 and I am six months into my new corporate world job. I’m trying to save 25% of my income per month and I’m trying to start investing. I don’t really know what my savings goals should be. I’m down for some high risk investments, but I don’t know, I’m trying to just learn the basics of investing, how to plan for life. What would you do if you were in my shoes, if you could go back in time and be 23 and not have kids or a mortgage or anything?
Sara Rathner:
To help us answer Adrian’s question on this episode of the podcast, Sean and I are joined by our co-host, Elizabeth Ayoola. Hey Elizabeth.
Elizabethy Ayoola:
Hey, my favorite dynamic duo.
Sean Pyles:
I love getting a question from a listener who is so young because even though they’re only 10 years younger than me, it does feel like a lifetime ago that I was 23 and making these financial decisions for the very first time. One thing that I find really interesting about Adrian’s question is that while they are so early in their financial journey, their questions really can apply to anyone, because as I’m sure we all know well, plenty of people in their 30s and 40s and beyond are still trying to figure out their budgets and their financial goals. So with that in mind, I think that our listener and all listeners really could benefit from a little bit of budgeting 101. So Elizabeth, where do you think they should start?
Elizabethy Ayoola:
Basically, I think they need to start with a budget. That’s going to tell you how to slice and dice your money. You should probably maybe start with the 50/30/20 budget, which we are advocates for at NerdWallet, or it might be the 60/30/10 budget depending on your cost of living and where you are. Now, for those who don’t know what the 50/30/20 budget is, 50% go to your needs, 30% to your wants and 20% to debt, paying down debt and also saving money. I do think it’s important to know, however, these numbers are not set in stone. It really just depends on your finances and you can adjust the numbers to fit where you are in your financial life right now. I myself currently save above that 20 bucket, but luckily I don’t have that much debt, so that’s why I’m able to save more money and save more than the 20.
Sean Pyles:
Yeah. And our listener wants to save 25% of their income, which is really ambitious, especially for someone who is so young. I think when I was 23, I was saving maybe 2% of my budget, and it wasn’t even intentionally, it was just by chance, because that’s what I had left over at the end of the month.
Elizabethy Ayoola:
You were doing great, Sean, because let me tell you, I was saving 0% of my budget at 20 something. So that is ambitious. I think it’s possible, but it just again depends on where your finances are.
Sara Rathner:
I like an ambitious savings goal, especially when you’re young. Some of the best advice I was given by a CFP that I used to work with was save as aggressively as you can for as long as you can because life only gets more complicated and more expensive. So if aggressive for you is 3%, that’s great. If aggressive for you is 25%, that’s great, and if you have to change it up from month to month, that’s fine too.
Elizabethy Ayoola:
So our listener is dedicated to being a hardcore saver, and I love that for you, listener. So Sean, I know you’re also big on saving and you have some tricks for effectively saving money. What do you think?
Sean Pyles:
So I would start by encouraging Adrian to have something to save for. Again, I’m thinking a lot about myself in my early 20s, I didn’t really have any sort of short, medium, or long-term goals or priorities of any sort because I was just focusing on paying my rent and having fun. So I understand how it can be hard to understand what your priorities might be, and this is where I think something that’s very woo woo but effective can come into play. And that is a visualization exercise. Now, if you’re rolling your eyes, just bear with me because I swear it can be super helpful. So when you are 23, 33, 43, think about where you see yourself in the future in five years, in one year, in 20 years. So maybe that means do you want to move to a new city in the next year? Do you want to buy a house in five years? Do you want to retire in 40 years? Imagine where you will be at these different points in your life and think about how you can save money to get there.
Elizabethy Ayoola:
I would not even say that’s woo woo, Sean. I mean, so I definitely started doing that in my late 20s and honestly, the life I have today was a lot of the woo woo stuff. So it worked for me.
Sean Pyles:
The manifesting is real.
Elizabethy Ayoola:
It’s a real thing.
Sara Rathner:
And if you’re not really into the whole idea of manifesting as a term, that’s fine too. You could also think about it in terms of just naming your goals. Instead of just being like, I’m going to save 25% of my salary. For what? So say what the “what” is. So maybe online savings accounts like high yield savings accounts, you could actually name the account. So you could have, this is the account because I need to replace my car, or this is the account because I need to buy a new computer. Or this is the account that I’m saving up for a down payment on a home for. And then beginning to say, okay, I’m going to put this amount of money in this month for this goal and this goal. Makes it so much easier to stay organized and there’s some science behind it, making it so that you actually are more successful in terms of reaching your savings goals by just naming the goal. So if you don’t want to do the woo woo thing, you could do the practical thing and just put some names on stuff.
Sean Pyles:
Yeah. And what you’re talking about there is really the marriage of the woo woo and the super practical and tactical, where you can start with knowing what you want and then getting the accounts that can help you save the money for that. So for a lot of people, that’s going to mean starting out with an emergency fund, building up over time three to six months of the needs budget that you have. That’s like rent and medicine and groceries, things like that. And then building out the other savings buckets for things like a vacation fund, a house fund, a wedding fund. I have 10 savings accounts across all of the banks that I partner with. And they are all specifically allocated for my different goals. I know 10 is kind of a ridiculous amount, but it works for me.
And what makes it easy is that I automate my deposits into these accounts. So I don’t even have to think about it. One of my accounts is only getting $40 a month, and that’s enough for me to save, to build on that goal over time. But I don’t have to be worried about, oh, okay, am I going to have enough for when I need a new rug for my house eventually. I just know it’s already going in the background.
Sara Rathner:
Yeah, I love this. It’s that concept of reverse budgeting where you automate transfers into your various accounts for different goals every month.
Sean Pyles:
And whenever we talk about savings accounts, it can be easy for we Nerds who are steep in this to maybe even take for granted the fact that high yield savings accounts are such an amazing thing for people to have. People can be getting even around 5% back for what they have sitting in their savings. And if you think about some average returns from the stock market some years are around 7%, and that can be much riskier than just having a savings account. I really do recommend people shop around, look at some of our roundups on NerdWallet and see what sort of high yield savings account might help you meet your goals, because you’ll be getting a much greater return on your money than you would get from a traditional brick and mortar bank.
Sara Rathner:
So our listener, Adrian, is a spring chicken in the world of finance and in the world of investing, which they also mention, having a long time horizon can be one of your best assets. And if you’re in your 30s and listening to this, you still have a long time horizon. So don’t think it’s all over if you didn’t invest in your 30s. Now let’s talk about investing at a younger age. Elizabeth, what are your thoughts there?
Elizabethy Ayoola:
Oh my gosh. I totally get the feeling of being overwhelmed and not understanding where to start. But it’s really important I think, not to let that paralyze you and to just start as soon as you can. And the first step in doing that is creating a strategy. And what the strategy is going to do is it’s going to tell you what your goals are and how much you need to save to achieve them and by what timeline. Now, it doesn’t have to be over complicated because I think that’s where people get tripped up, especially because there’s so many retirement and saving calculators online to help with this. And yes, I’m going to shamelessly plug NerdWallet. We have lots of those, go check them out. But yeah, knowing what age that you want to retire and how much you need will help guide your investing strategy. It’s also going to help you decide what to invest in, the best vehicles to use, and how much to put in each. What do you think, Sara, about time horizons in that sense?
Sara Rathner:
Oh, it’s probably one of the best things you have working for you because the way compound interest works mathematically is the longer of a time horizon you have, the less you can save per month or per year and still come out with a higher amount of money in the end versus waiting an extra 10 years, an extra 15 years, then you have to invest so much more per month just to catch up and still end up with less money overall.
Sean Pyles:
And I would recommend Adrian or anyone else who’s getting started in investing or just taking it seriously for the first time, is to get a lay of the land and understand all of the different investment accounts that are out there. Because there are all these different ones, like a 401k and a Roth and a Roth IRA that people have probably heard about, but really understanding what they are and when one is more beneficial than another for your circumstances can help you make the most of your investments. And something to think about too, since Adrian is so young, is that your younger years are often the best time to take advantage of an IRA because you are getting taxed at a lower rate when you’re earning less money than you will be taxed at later on in your career. So really use these early years to your advantage.
Elizabethy Ayoola:
Yeah, I’m with you Sean. You guys also should decide for those people listening whether you want to do active or passive investing. If you are like me and you ain’t got time for that, and when I say that, I mean checking the stock market every day, then you may want to consider passive investing and some passive investing options include ETFs or robo-advisors and kind of securities like that. But yeah, once you do all those things, the most fun part is automating your investments and knowing that you’re probably growing both while you’re sleeping.
Sean Pyles:
Yeah, I think for a lot of people, sometimes the best strategy to start can be the strategy of “I want my money to make me more money.” And that’s where I started out in my mid 20s when I first started taking investing seriously. I didn’t want to spend a lot of time actively managing investments. And guess what? Actively managed investments often perform worse than passively managed investments. So passive is probably going to be the easiest thing for most people to do. And I just set up an account with a robo-advisor that was trusted and well-reviewed on nerdwallet.com, and I just have automated deposits and it makes it super simple. I’ve been doing it for years and I’m already receiving literal and metaphorical dividends from that.
Elizabethy Ayoola:
Also, you want to think about fees when you’re looking at things like that and what has low fees and performance and other things, but don’t let that stop or overwhelm you as well. Just check out some resources on how to pick an ETF also.
Sara Rathner:
Yeah, I will also add that whenever I hear somebody in their early 20s say that they are, “Down for some high risk investments,” I think somebody’s been talking to their friends about crypto and I don’t know. I mean, for all I know Adrian just means, oh, I really want to dabble in a more stock forward portfolio. Sure. Honestly, you’re probably talking about crypto, aren’t you? Before you dabble in speculative investments, things like cryptocurrency, things like, I don’t know, precious metals and real estate and all sorts of stuff like that, you want to set aside a solid foundation. Just the things that we’ve been talking about, automating transfers of money into retirement accounts, either through your employer or on your own, diversifying those investments. And then, only then, if you have money left over, then you can dabble a little bit, sprinkle a little spice onto your investments, maybe 10% of your portfolio at the most into the higher risk, like crazy stuff. But set a good foundation first. Don’t put all of your money into speculative investments and then wonder why you don’t have any money left because you probably won’t.
Sean Pyles:
And I will just quickly add for the sake of our compliance department, that we are not financial or investment advisors. If you want specific individualized investment advice, speak with a financial advisor, hopefully a fiduciary financial advisor. Okay. Now, I know we’ve been kind of talking around this question for this conversation, but I would love to hear what you two would have done differently if you could go back to when you were 23 and maybe improve your finances, knowing all that you know now?
Elizabethy Ayoola:
That’s a deep, deep, deep sigh. So honestly speaking, the first thing I thought is like, oh my God, I would’ve stopped partying and buying alcohol and save more money. But then I remembered that I was living in Nigeria earning like $400 a month, which was seen as a good salary. So I barely had any money to live, quite frankly. And I think that’s a reminder that sometimes you just ain’t got really barely enough money to save and you just need to earn more. But I definitely would have educated myself more on personal finance and I would’ve at least stashed away something into an investing account. So that’s what I would’ve done. But then again, if I started investing too early, I might be in Turks and Caicos right now instead of chatting to you all. So I guess it worked out how it was supposed to.
Sean Pyles:
I’m glad you’re here with us, but also I would be happy for you if you were traveling the world instead of doing this. Sara, what about you?
Sara Rathner:
So I think a lot of people in their early 20s are, there’s just a lot of fear and uncertainty at that point in your life, and I definitely felt that at that time where there are all these big life milestones that are coming up for you eventually and you just don’t know when they’re going to happen. And so I was so worried about whether or not I’d be able to get to that point. But you’re 23.
Knowing how fast the next 10 to 20 years will go for you, just savor it because everything else is going to pile on really, really fast. And the way you spend your weekends is going to look really different. Do take a couple of steps to improve your position in life later on and use that gift of time. But then, yeah, you should have the wants budget, you should go travel with your friends, go out with your friends. Once you all get partnered up, you’re not going to see your friends as often, so enjoy it.
Sean Pyles:
Well, as someone who definitely enjoyed themselves a lot in their early 20s, I don’t regret any of it, really, shockingly, but it did come at the expense of my financial health in some senses. I really didn’t invest until my mid 20s. I barely had a budget until around the same time. So I would go back and encourage myself to be a little bit more balanced in the having fun and the forward planning aspect of life. But you’ve got to learn your lessons as you learn them. And that’s where I was at the time.
And one thing I think is important to realize and think about as you are trying to map out what having an adult financial life looks like is that the beginning of this financial journey is always going to be the hardest because you simply don’t know what you don’t know. There’s so much to learn. When you’re 23, you’re paying rent on your own for the first time. You’re figuring out how to make meals for yourself for the first time and building these good habits does take time. So don’t feel like you have to do everything all at once, but do make that concerted goodwill effort to try to better your relationship with money and use it to build the life that you want. Well, Elizabeth, thanks so much for coming on and talking with us.
Elizabethy Ayoola:
Thanks for having me.
Sara Rathner:
And that’s all we have for this episode. Remember, we’re here for you, whatever life phase you’re in, and we want to hear your real world questions because we’re here to make you smarter about your money decisions. So turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-NERD. You could also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode.
Sean Pyles:
And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts and iHeartRadio, to automatically download new episodes. This episode was produced by me. Tess Vigeland helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all their help. And here’s our brief disclaimer again. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sara Rathner:
And with that said, until next time, turn to Nerds.
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.
Saving money is key.
If you have been around Money Bliss long enough, you realize the importance of saving money. If you are brand new here, welcome we are happy to have you.
Either way you are going to learn something important. In fact, what you are going to learn today will be transformational. (guaranteed)
Saving money is the long term key to financial success.
But, you may be thinking, I am living paycheck to paycheck. Well, that may the case now, however, if you stick around long enough that life that is your norm now won’t be your norm later.
We strive for you to find success with money. That place you aren’t constantly worried and stressing about paying bills.
You need to learn how to save money.
This goes beyond the question of “What percent should be savings?”
Your savings percentage today will dictate your decisions tomorrow.
That statement may seem overwhelming, but it definitely shouldn’t it. Shaving extra savings as a percentage of income is completely doable, and more than likely, you probably won’t even notice.
Money Bliss will help get you to the life you dream of…promise.
So first, let’s figure out how much of your income should you save every month?
How Much To Save Monthly
The traditional recommendations from financial experts have you saving 20% a year.
Even when you look at our Cents Plan Formula, you will see we recommend to save 20% each year. However, when you look closer, you notice we recommend to save greater than 20%.
Those words “save greater than” are key to long term success and financial independence.
The traditional recommendation of the 50-30-20 rule is wrong and very outdated. That breaks down into 50% on basic expenses, 30% discretionary (or fun spending), and 20% saving. Maybe it worked well when everyone had a pension in retirement, but social security isn’t enough for many people to survive.
You need to save money each month. But, how much to save monthly is dependent on many more factors.
How much to save monthly depends on your:
Current personal finance situation
Your lifestyle
Your spending habits
Desire to retire earlier
What season of life you are in
Your ability to save more money (ie: debt is out of the picture)
Your income
By giving you a flat dollar amount to save, it wouldn’t be based on you.
This is about your money journey and how much to save monthly depends on you, your money goals, and your financial decisions. Everyone will have a different savings ratio based on their life choicesx.
Is saving $500 a month enough?
If you are young and swaddled in debt, then saving $500 a month is a milestone.
If you desire to stay living paycheck to paycheck cycle, then that isn’t enough to save each month.
However, don’t get down on yourself, if you haven’t ever saved $500 or can only save $500 a month. That is a great starting point if you are just starting out saving money monthly.
We will discuss shorting a better tool on how much of your income should you save every month.
What is Saving Percentage?
Saving percentage is a great way to know how much you are saving overall.
This is when you decide on how much to save monthly based on your income. It is the most personal way for you to decide how much you should save each month.
Written as an equation, this is how you determine your savings ratio based on your income.
Saving percentage = (your overall savings divided by your overall income) * 100
That equation will give you your savings percentage.
Example #1: you saved $7,000 in the last 12 months and your income was $85,000.
(7,000 / 85,000) * 100% = 8.23%
Example #2: you saved $22,000 in the last 12 months and your income was $155,000.
(22,000 / 155,000) * 100% = 14.19%
Should I Base My Savings On Gross or Net Income
Honestly, it doesn’t matter either way. You can choose to base your savings percentage number on gross income or net income. Just make sure to stay consistent and calculate it either way.
Whichever way you choose, you want the savings percentage to increase year over year.
If you use gross income, your saving percentage will be lower because taxes will take a big chunk out of your total percentage.
If you use net income, your savings ratio will be much higher because taxes aren’t included.
Personally, I calculate our savings percentage on gross income since there are ways to lower your tax bill. For instance, by moving to a lower cost of living area.
Why Saving Percentage is a Better Tool
When you look at the retirement rules of thumb (rule of 4 and multiply by 25), you may feel a little bit overwhelmed with the prospect of saving money. However, if you just keep increasing your savings percentage you will get there without all of the sterss.
Remember, slow and steady always wins the race.
So, instead of using retirement guidelines on how much to save monthly, there is another tool that will help you stay on track and not give up.
Use your saving percentage.
Each year you want to increase your saving percentage.
You can do the same thing for monthly when starting your savings percentage journey.
This is something manageable where you can see real results. Stay focused on the percentage. Keep your head down and keep saving away.
That is why your saving percentage is a better tool.
What Percent Should You Save Of Your Income?
This is something we detailed in the Money Bliss Budgeting method found here.
You need to start with how much you want to save this year.
Need motivation, then check out the Money Bliss 52 week money saving challenges or the monthly money saving challenges.
If you are out of debt, then you need to start with a 20% savings percentage. That is the first thing you do is save money from each paycheck. Then, you figure out how to live on the remaining money.
If you are still struggling with debt, then you need an emergency fund in place until you are debt free except your mortgage. Any debt will always hold you back from your full potential and a higher savings percentage. There is too much drag holding you back.
The more you are able to save today will change your financial future tomorrow.
Each year, evaluate how much you can increase your saving percentage. Can you reach 30%, 40% or maybe even 50%?
Savings Percentage in Real Life Examples
Okay, now that we have laid out all of the above information, let’s tie them together into one.
So, is saving 10% enough? No.
Well, what about saving 30 percent of income? Maybe given your age.
Meet Anna
Anna makes $4000 per month or $48,000 per year. She is 25 years old and plans to save a percentage of her income for the next forty years.
Anna
Income is $4000 per month
How Much to Save Monthly
Total Saved
Balance at Age 65
10%
$4000 x 10%
$400
$192,000
$1,288,432
15%
$4000 x 15%
$600
$288,000
$1,932,648
20%
$4000 x 20%
$800
$384,000
$2,576,863
30%
$4000 x 30%
$1200
$576,000
$3,865,295
Assumption of 8% rate of return. No inflation and doesn’t account for taxes.
Assuming no increase in income, Anna will give her a nice nest egg for retirement.
She is right where she needs to be for how much should I have saved by age 25.
Meet Sue & Joe
Sue and Joe feel very behind the game in saving money. They realized lifestyle creep invaded their family life and now are cutting expenses and prioritizing saving money.
This couple with kids makes a combined income of $150,000. They are both 34 and want to see how soon they will be millionaires.
Sue & Joe
Income is $12,500 per month
How Much to Save Monthly
Total Saved
Balance at Age 60
10%
$12,500 x 10%
$1,250
$390,000
$1,288,432
15%
$12,500 x 15%
$1,875
$585,000
$1,864,020
20%
$12,500 x 20%
$2,500
$780,000
$2,485,360
30%
$12,500 x 30%
$3,750
$1,170,000
$3,728,040
Assumption of 8% rate of return. No inflation and doesn’t account for taxes.
Obviously, the more you save, the faster you will watch your account balance grow. If Sue and Joe chose to save 30% of their income, they would reach millionaire status in 13 years or at age 47.
If they saved only 10% of their income, they would be 58 years old when they reach their first million dollars.
Sue and Joe are behind in how much should I have saved by 30.
Meet Brian
Brian is sick and tired of the rat race of working. He doesn’t love his job in his degree field, but it pays well. He wants to save for 10 years and move on with life.
Brian makes $105,000 per year.
Brian
Income is $8,750 per month
How Much to Save Monthly
Total Saved
Balance after 10 years
20%
$8,750 x 20%
$1,750
$210,000
$315,217
30%
$8,750 x 30%
$2,625
$315,000
$472,826
40%
$8,750 x 40%
$3,500
$420,000
$630,435
50%
$8,750 x 50%
$4,375
$525,000
$788,044
Assumption of 8% rate of return. No inflation and doesn’t account for taxes.
Brian realizes he has to save a higher savings percentage each month if he wants to leave his job and take a lower paying job that he enjoys.
He decides that he will save 40% of his salary over the next 10 years, then leaves his nest egg alone for another 15 years. His saving efforts should pay off and will net him around the $2 million dollar mark.
Savings Percentage Calculator
Are you ready to figure out your saving percentage?
Grab a calculator and figure out how much you are saving in the following ways:
Emergency Fund
Rainy Day Fund
Retirement (401k, Roth IRA, or IRA)
Health Savings Account
Other savings accounts
Without downloading our free spreadsheet in our free resource library, you can figure this out very simply with a pen, paper, and calculator.
Add up all of your savings and divide that number by your income.
For instance, you are saving $1200 each month and your income is $5000.
$1200 / 5000 = .24 or 24% savings percentage rate
How Much Do You Save a Month?
Wow! That is a lot of useful information.
Personally, I wish someone would have discussed the concept of saving based on income percentages. It just simplifies how to save money on a consistent basis.
Your savings percentage is a great way to track your financial progress!
In conclusion, there is no right or wrong number to save each month.
Your personal litmus test is to increase your savings percentage month over month, year over year.
Don’t forget to download our spreadsheet to help you with quick calculations!
Up Next:
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
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.
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.
So, What is Our Retirement Number
Personally, I completely get it this is a conversation. My husband and I have had it for years.
What is our retirement number?
What amount do we need to retire with?
And honestly, even can I actually save that much before I am too old to work?
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.
One Guaranteed Truth…
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.
How does Withdrawal Rate work?
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.
Withdrawal Rate Example:
Here are the assumptions:
Plan to spend $50,000 a year
7% rate of return on your money
Age doesn’t matter and not accounting for taxes or inflation (we want to keep this simple)
The amount you would need to save based on each of the withdrawal rates:
3 percent rule, you would need: $1,666,667
4 percent rule, you would need: $1,250,000
5 percent rule, you would need: $1,000,000
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.
The Withdrawal Rate Confusion
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.
3 Percent Rule
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.
4 Percent Rule
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?
5 Percent Rule
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
Can you Overcome Why Most People don’t save for Retirement?
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.
How Much do I need to Retire?
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:
401K
Roth IRA
IRA
HSA (health saving account)
Brokerage Accounts
High-interest bank accounts
Real estate
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.
Realistic Retirement Savings for Motivation
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.
Best Ways to 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.
1. Contribute to 401K
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.
2. Open Roth IRA
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.
3. Health Savings Account
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).
4. Traditional Brokerage Account
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.
Saved $1 million for retirement, Now What?
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…
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
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.
Inside: Learn how to set smart financial goals and change the trajectory of your personal finances. Download our setting financial goals worksheet.
Financial success doesn’t happen just in January. It happens every single day of the year with every single decision you make.
Now, is the time to take your New Year’s resolutions and make them into smart financial goals.
Financial goals will help keep you on track.
There are two ways to look at goals.
You can either set them,
or ignore even making financial goals.
A lot of people don’t like to set financial goals because they feel like they are setting themselves up for failure. (And that is a money mindset that needs to be broken!)
However, by setting smart financial goals, you are more likely to make progress on the things that matter to you most, and that at the end of the day is the most important.
Too many times we see that people are stressed about money and their finances. They prefer to ignore their money situation and dig their head into the sand. You can quickly see that will only make the situation worse, and progress will NEVER be made.
Today, we are going to examine smart financial goals, give a few examples of goals to start with today, and then let you think BIG on long-term financial goals.
Let’s dig in and change your financial future…
What is a Financial Goal?
A financial goal is writing down what you want to accomplish with your money.
It can be big, it can be small.
The size and scope of the money objective does not matter.
The most important part is that you are making a decision, ahead of time about what you want to do with your money.
Everybody has different goals.
Comparing yourself to others is worthless. Each person is on their own financial journey. The only comparison that needs to happen is what is going on with you and your situation.
What are the 5 smart goals?
First, you need to make your goals with this template in mind.
Then, you will become the next millionaire with no money.
S – Specific
An overarching vision for your life is fabulous and will help you to keep on track of what you want to achieve. However, when it comes to making smart financial goals, they need to be specific.
You must clearly identify or define your goal. Be specific.
M – Measurable
With your goal, you must consider how you plan to measure it. Thankfully, this one is easy to quantify with personal finances.
You can gauge progress with dollar amounts or percentages.
If you are paying off debt or starting your journey to saving money, then using dollar amounts makes sense. If you are striving towards financial freedom, then you are looking at savings percentages or metrics to increase your net worth.
A – Attainable
With the smart goal format, we are quick to back off our goals because we don’t think we can achieve them. Don’t sell yourself short.
It is better to reach 80% of your goal than to walk away from it completely because you are 80% closer today than before you set your goal.
Go for a stretch financial goal; you will probably surprise yourself with what you can accomplish. Use those money mantras to keep you on track.
R – Realistic
Think about your financial goal logically. In a levelheaded voice, ask yourself if you are capable of reaching this goal today.
You have to be realistic about the season you are in and what your next financial step is. With the smart goal template, this is the point when you break up your goals into smaller pieces to set reasonable goals.
State your goal in a positive statement.
T – Time-Bound
The last part of the 5 smart goals is probably the most forgotten. Yet, it is the most important to reach your goals.
Changing your perspective on time planning will vastly improve your results.
Keep your financial goals within a timeframe of under 3 months.
Loftier financial goals that are long-term – that is great! You must break them down further into mini-milestones to reach your long term goal.
SMART Goal Example:
A great smart financial goal example would be these statements…
Starting today, I will save $96 each week for the next 52 weeks by transferring money when I get paid.
I will pay off an extra $3000 of student loan debt six months from today.
This year, I will increase my savings percentage to 15% by paying myself first and living off the rest.
These are just a few examples. We will provide more in a little bit.
How To set Smart Financial Goals?
Financial goals will help you make faster progress than you thought possible.
You just must be willing to make changes, be realistic about what you can accomplish, and keep a positive mindset.
Let’s dig in on how to set smart financial goals. This is exactly how you achieve financial goals.
1. Know Where You Stand Financially
That means knowing two important factors. First, what Money Bliss Step to Financial Freedom you are on, and second, what is your net worth?
Those are two benchmarks that will help you to determine what your next financial goal should be.
Without knowing where you stand, you won’t be able to track your progress. Also, knowing your liquid net worth is helpful.
2. Define Your Vision
What is the overarching theme for your life? Think long term 10+ years from now.
Here, at Money Bliss, we like to refer to it as your Dream Big Vision.
This will be the starting point for all of your smart financial goals.
What is the one thing that you want most? This doesn’t have to correlate to money. It can be a LIFE goal.
You must first define your vision to clearly make smart financial goals. Think of it as building blocks. You will progress faster with be stable by building your goals one step at a time versus trying to jump over a few key steps and sinking fast.
Also, make sure you do not have a money block holding you back.
3. Create a Plan
Once you know your Dream Big Vision, you have to create action steps along the way to help you reach it.
That is where the Money Bliss Steps to Financial Freedom will help you define the big financial moves to make along your journey.
Then you can take your personal situation (where you stand financially) and your personal vision to create a plan. Many times your personal finance plan will have many short term and long term financial goals along the way.
Smart Financial Goals Examples
What are some good smart goals? These are the top financial goals we truly believe everyone must accomplish.
Everyone is on their OWN journey.
Here is a list of money goal examples that can be further defined by your situation.
1. Be a constant learner
The first smart financial goal is to be a constant learner. With money management and personal finance, there is so much to learn! We all complain that we weren’t taught how to manage money in schools.
Yet, this is a life-long skill.
Add one or two of these finance books to your booklist. Many of us strive to read books monthly that will enrich our lives.
Recently, I made the decision to want to learn more about investing. While there are a ton of investing books out there (and I have read many of them), I wanted to dig deeper into the investing world. So, I signed up for this course and found a wonderful trading community.
Also, since tax laws are constantly changing, it is wise to stay current on news events and find ways to improve your personal finance situation.
Example #1 – I will read one personal finance book each quarter.
2. Pay Yourself First
This is one of the best long term success factors with money. Yet, it is the hardest for us to grasp.
You must pay yourself first … meaning you save money today for another purpose later.
This is one of the best ways to not be knocked over by unforeseen circumstances and to stay out of debt.
Early on, you must fully fund an emergency fund.
Then, consider saving for a rainy day fund, a down payment on a house, or retirement. This is one of the best money management tips you don’t want to skip.
Example #2 –I will set up automatic withdrawals of 10% of my paycheck to move into a savings account and $200 to Roth IRA when I get paid.
3. Multiple streams of income
A conversation I would love to have with my grandpa is about working for one company for 34 years and retiring with a pension. In today’s world, this is a foreign concept and side hustles are the norm. What would our previous generations say?
Now, you need multiple streams of income.
If you say your job is stable and you’re fine. You are….until you’re not.
That is why you need to be proactive in creating multiple types of income. The quick response is picking up a side hustle. Another would be investing in the stock market. Possibly flipping second-hand items. Maybe picking up a second job.
There are many ways to make money fast. But, you must find ways to make money before you actually need the extra cash.
Example #3– I am going to sign up with Neighbor to lend out the space I don’t use to create extra income.
4. Get out of Debt and Live debt free
You can’t move forward when you have debt hanging over your head and holding you back.
Progress is impossible when you are living with and trying to pay off debt.
The faster you can pay off debt, the better off you are. Then, you need to stay debt free.
This is one of the best smart financial goal examples!
Example #4 – I will pay off the total balance of my student loans before I turn 30.
5. Spend less Than You Earn
This is a simple example. Yet, it is more difficult to achieve with the amount of easy access to credit in our society.
This is an ongoing mandate to live by.
You can easily reach many long term goals, by staying on track in the short term.
Example #5 – I will participate in a no spend challenge for the next 30 days to identify what my spending priorities are.
6. Increase your Saving Percentage
This is one of the best ways to slowly increase your net worth and not notice the difference.
Ultimately, you want to save at least 20% or more of your income. There is no limit to how much you can save.
Save more money today, then work less later.
Yes, there is a trade-off to live below your means. But, the long term impact is well worth it plus you can sleep well at night.
Example #6 – I will increase my saving percentage by 1% each month for the next 12 months. Then, I will be saving 12% of my income.
7. Let money flow through your hands
Too many times, people become so focused on their goals that they forget to let money pass through their hands. This could be with giving money to charitable organizations or paying it forward in the drive-through line.
Don’t make this overall complicated.
Just like Dave Ramsay says about giving, “If you can’t live on 100% of your money, you will still have to make changes to live on 90%.” Start small with giving and increase each year.
Example # 7 – I will research organizations I want to donate money to. Then, pick one to contribute $100 a month for the next year.
8. Keep a Financial goal Journal
Research has shown that if you write down your goals, then you are more likely to achieve them. In fact, statistics show you are 1.4 more likely to reach your goals when you write them down.1
So, be smart and keep track of your financial goals! Plus it is great to look back and see the progress you have made. Each milestone that you have crossed. That is great motivation to keep trucking on your current target.
Example #8 – Buy a money journal and track my progress each month. You can even use Google Keep to create a digital journal.
9. Teach others solid money management skills
Throughout your life, you will learn many valuable lessons. Most of them probably came from the school of hard knocks.
Don’t let those valuable lessons go to waste. Help others learn from your mistakes. We all made them and had to overcome them.
One sentence may positively change the trajectory of someone else’s financial path.
This may seem like an odd example of a smart financial goal. However, your journey has been pivoted by others stepping in to help or maybe be watching others fail.
We need more individuals in this world who understand proper money management. Pass down your knowledge to your kids, local school, friends, neighbors, or by volunteering.
Example #9 – Make monthly meetings with my teenager to discuss money. Discuss a success and failure I did in my past.
10. Retire on Your Terms
The final top financial goal is to retire on your terms when you want.
This looks different from one person to another. Some may want to FIRE. Others love their job and never want to leave. Some are forced to work well beyond what they want.
The key to retiring on your terms is to have enough saved up for you to continue your lifestyle without bringing in earned income.
Honestly, putting off saving for retirement is not a smart financial goal.
Example #10 – Open a Roth IRA and deposit $583 each month to reach the maximum contribution amount each year.
Setting Financial Goals Worksheet
If you want to make progress, you have to take action. If you don’t, then you watch from the sidelines and your dreams go up in smoke.
Take thirty minutes to fill out our financial goals worksheet.
Start with your overall vision. Then, break it down into small bite-sized milestones that you can accomplish. Review monthly and set new money goals once you accomplish previous ones.
Which Financial Goal Examples will you Start With?
Throughout this post, we reiterated this concept. But, it is SO important that it is worth repeating again…
This is your journey. Your journey will be different than anyone else. So, don’t spend time comparing yourself to others. Spend time focuses on what you can accomplish.
From the top financial goals, what is your next priority?
Personal finances are a long term game. You must assemble building blocks to slowly climb one step at a time.
Start with some of the best financial books to get started.
Also, use these millionaire quotes to stay motivated along the way.
Comment below on what your current financial goal is.
Source
Forbes. “Neuroscience Explains Why You Need To Write Down Your Goals If You Actually Want To Achieve Them
https://www.forbes.com/sites/markmurphy/2018/04/15/neuroscience-explains-why-you-need-to-write-down-your-goals-if-you-actually-want-to-achieve-them/?sh=c59f73c79059. Accessed May 8, 2024.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
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.
A certificate of deposit (CD) can be a good option to consider as a savings vehicle for a child. With a CD, you can deposit money for a specific term, such as a few months to a few years, and earn a fixed rate of interest.
CDs are relatively safe investments; they are federally insured for up to $250,000, and can offer minimal but steady growth for a period of years.
An adult can open a custodial account for a child who will assume management of the CD account when they reach adulthood. However, there are some pros and cons you should know before opening a CD, including how CDs compare to other investment vehicles for your child.
Understanding Certificate of Deposits
A certificate of deposit is considered a type of savings account. The account holder deposits the funds and agrees not to withdraw the money for a specific period of time, in effect, loaning the money to the bank. The bank pays the CD holder interest based on the total amount deposited and the maturity date of the CD (the term).
You can open a CD at a bank or a credit union; this can be done in person or online. Most CDs are federally insured up to $250,000.
If the account holder decides to withdraw the funds before the end of the term, they are typically charged an early withdrawal penalty, often forfeiting a portion of the interest. For example, if you deposit $1,000 in a two-year CD, and you want to withdraw the funds after one year, you would only be entitled to the amount of interest earned up until that point, minus any fees or penalties.
CDs are generally considered a conservative investment, but the interest earned on a CD tends to be less than some other investments because CDs are lower-risk investments. When opening a CD account for a child, it’s important to consider whether the peace of mind and a lower return is what you’re after, or whether you’d like an investment that potentially offers more growth, but also possibly more risk.
Can a Child Have a Certificate of Deposit?
A CD for kids can be a solid start to an investment plan for your child. It’s also a way to help explain the dynamics of saving to them and what it means to earn interest on a principal deposit.
That said, minors cannot legally open CDs. An adult must acquire a CD for the child and then transfer it to them when the child reaches adulthood.
One thing to keep in mind about a CD for kids is that funds held in CDs and other savings accounts can affect a child’s eligibility for future financial aid. This is an important consideration, which could affect how much a family might pay for college tuition.
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Who Would Own the CD?
A minor cannot apply for a CD, but they do own it. That means that the account cannot be given to anyone else.
An adult, usually a parent or legal guardian, can open a custodial account for a minor under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act, which is an extension of the UGMA. A custodial account allows one person to deposit funds into an account for another. The account can be transferred to the child once they reach adulthood. The age of adulthood is not federally mandated. However, in most states, it is age 18.
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How to Give a Certificate of Deposit to a Minor
Here’s how to set up a CD for a minor child, and transfer the account to them when they reach adulthood.
Select the Bank Where You Want to Purchase the CD
Explore bank account options and decide which bank or credit union you want to hold the CD for your minor child. Compare interest rates based on the amount you intend to deposit and the term for the CD. Also, look at any penalties and fees the bank might charge.
List Yourself as the Custodian and the Child as the Owner
Fill out the form online or in person stating that you will be the custodian and the minor will be the owner of the CD. You will be asked to provide identifying information such as your Social Security number and the child’s Social Security number.
Deposit the Money in the CD
Deposit the desired amount into the CD account, taking into consideration how different amounts and terms might affect the interest rate paid.
Discuss What to Do With the Funds
Opening a CD account for a child presents a “teachable moment,” in that the minor child, who is the owner of the CD, needs to think through what the money can be used for once the CD reaches maturity. When the CD matures, you can cash it out, or renew the CD. If the child is of legal age at that point, the account is transferred to the child. You may have to contact the bank to remove your name from the account.
Recommended: What Are No Penalty CDs?
Are CDs a Good Choice to Help My Child Save?
CDs are among the lower-risk investment options, and a good way to help a child save.
That said, CDs are also low-yield investments. If you are saving for your child’s education, funding a 529 college savings plan might offer more growth potential over time, if that’s your goal.
For longer-term savings, opening a Roth IRA may also be a good choice for parents hoping to provide financial security for their child.
Tax Implications of CDs for Kids
There are tax considerations to opening a CD for kids. Taxes are typically due on earnings when the CD matures, but a child will likely be in a lower tax bracket than an adult, so at least some of the earnings could be taxed at a lower rate.
The IRS taxes kids’ unearned income, such as interest, dividends, and capital gains, in tiers. In 2024, for a child with no earned income, up to $1,300 in unearned income is not taxed. The next $1,300 is taxed at the child’s tax rate. Any amount over $2,600 is taxed at the parent’s rate. So that is something to keep in mind.
The custodian of a CD should also be aware that they can give up to $18,000 in 2024 to a child without owing gift taxes.
Financial Aid Implications of CD Earnings
There are some implications of CD earnings regarding financial aid. If a child is applying to college and has savings in a UGMA, those assets will need to be disclosed on the Free Application for Federal Student Aid (FAFSA). It may be that the student will have to pay more of their college costs than if their money had been put in a 529 college savings account.
Is a CD a good investment for a child? That depends on the length of time between the opening of the CD account, and when the child reaches the age of majority. If the child is a teenager, a CD will provide a guaranteed amount of money, and there is no risk of loss if the market drops.
However, CDs don’t earn a lot of interest, and a growth-oriented investment might earn more and grow faster if the child is younger.
Finally, as noted above, if you are saving for the child’s education, you may want to explore a 529 college savings account, instead of or in addition to a CD for a child.
Where Can I Find a CD for a Child?
Most banks and credit unions offer CDs, and they allow custodians to open accounts for a child. Online banks can also be convenient. Many offer competitive interest rates and lower fees. Be sure to compare the interest rates and APY of each bank and make sure to understand the penalties that will apply if you withdraw the funds early.
The Takeaway
There are many ways to help your child save. Which one is the best depends on the ultimate use of the funds. CDs are lower-risk, they are federally insured up to $250,000, and they may offer higher interest rates than regular savings accounts. However, other options to consider are a 529 college savings account and a Roth IRA.
CDs are easy to open; most banks and credit unions offer these products. They earn interest on the amount invested as long as the funds are not withdrawn before the CD’s term. If the custodian does withdraw funds before the maturity date, the bank will charge a penalty.
Most online banks also offer CDs, and an adult can open a custodial account online for a child. The child is named as the owner of the account, and they will assume management of the account when they reach adulthood according to state laws.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
What is the best way to save money for a child?
The best way to save money for a child depends on your goals. Some options include a savings account or a custodial CD, a 529 college savings account, or a Roth IRA. Explore the options to determine which is best for your situation.
Can you buy a CD as a gift?
Yes. Under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) an adult can gift a CD to a child.
Can I open a CD for my child?
Yes. Opening a CD account for a child is easy using a custodial account. The child will be named as the owner and you as the custodian. The owner (the child) will assume full legal ownership of the CD when they reach adulthood. The account cannot be given to anyone else but the named holder.
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Inside: The exact habits you need to learn how to be financially stable. Financial stability is when you are in control of your finances. Make sure you have these money habits!
Are you ready to move from financially sound to financially stable?
Well, the good news is this is something you can easily accomplish and we are going to show you exactly how to do it in this post. Learn over thirty simple traits to prove to yourself that you are financially stable.
One of the great things about being money financially stable is it means that you are less worried about money. You are established with your finances and you are consistent on how you spend and save your money.
It is a great feeling to be financially stable because you know that your bills are taken care of and everything that you want to spend money on that you actually can!
The Money Bliss Steps for Financial Freedom is a guide to help you become financially independent. Along your path, you will go through many different journeys and many different seasons, but it is a great feeling to know that you are in a good place financially.
Becoming financially stable is something that anybody is capable of doing.
It just takes determination, a growth mindset, and a desire to be wise with your money.
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 does Financial Stability Mean?
Financial stability is when you are confident in your personal financial situation. You have money to pay monthly bills, set aside for big purchases, invest in your future, and be able to sleep at night.
When you can do these above things, that is when we can say that a person is financially stable.
When you define financial stability, the definition should motivate you to improve your money situation because the more you work towards becoming financially stable, the better the opportunities present themselves.
It is one step up from being financially sound and moving closer to financial security.
Another way of saying financially stable is of good financial standing.
Overall, the financially stable meaning is you have made wise decisions that will ultimately let you live the life you want. One step closer to financial freedom.
How to Be Financially Stable
The good news is you only need to do three steps to become financially stable plus they are not complicated.
This is exactly how do you become financially stable…
It is just a habit that you need to start doing.
If you have bad habits with money, then you are not going to have the success with money that you need. If you have good habits with money, then you will end up becoming financially stable.
Just a side note, If you need a good book on changing bad habits into good habits. I highly recommend Atomic Habits by James Clear. It is a great book to help you change the habits that need to change, and start to live the life that you want.
Now, back to the three steps to becoming financially stable.
If you want to learn how to become financially stable, then this is what you need to do.
1. Pay Yourself First
This is the most important habit that you can do to become financially stable.
Many times, I feel like I sound like a broken record about the importance of how you need to pay yourself first. It doesn’t matter if it is your very first job in high school, starting out at 21, or quickly approaching your 50s, you need to pay yourself first today.
Take your paycheck and automatically save a certain percentage.
If you have never saved before start with 10%.
If you know that your spending is out of control plus you have the income to save a higher percentage, then plan to save 20-25% ot your income.
When you first begin to save, the goal is not the amount you save; it is about the first time that you begin to save.
It is about proving to yourself that you are capable of saving and seeing that account, increase over time will continue to motivate you.
So, if you want to be financially stable, then you must pay yourself first. Set up a separate savings account or an investment account where you will put that money.
2. No Debt
Second, no debt. Period.
If you cannot buy something in cash, then wait until you have the cash available to make the purchase. Do not use debt just because you have access to credit.
If you want to be financially stable over the long term, that means you must eliminate consumer debts.
Now, before you freak out and say, “I can’t be financially stable because I have so much debt that is dragging behind me and holding me back.” Don’t freak out. You can make a plan to get out of debt.
By getting out of debt, you are proving that you are on the path to becoming financially stable.
In the meantime, you just don’t go into any more debt.
If you are in your 20s, steer clear from debt and do not get into the debt trap.
The Trickly Mortgage Debt Conversation….
Because owning a house comes with a price and it comes with a premium since there is a cost to upgrade it, pay property taxes, and so much more. Plus this varies greatly in an HCOL vs LCOL area.
Do your research and figure out is it more cost-effective for you to purchase a home and pay the mortgage payment or is it better to rent and not have the responsibilities of being a homeowner. This is a personal situation that you must determine what works best for you and it is very location and market driven.
For example, we bought in a high cost of living area before the prices skyrocketed. Thus, our mortgage is way less than the cost of rent. So for us, we are still financially stable because we have a mortgage because it is cheaper than rent (and by a lot).
On the flip side, if you are just starting out and trying to purchase a home, it may be more cost-effective for you to keep renting to stay out of debt and become financially stable quicker. Then you will be able to reach financial independence faster.
3. Invest Your Money
The last piece to becoming financially stable is you must invest your money.
This is not the time or place just to be stuffing money under the couch or in a savings account that is earning .02%. You need to invest your money in the stock market.
The best way to invest is on a consistent basis. Every paycheck you invest a certain amount consistently. It does not matter if the market is up or the market is down.
The returns from investing will be greater than doing nothing with your money.
Doing nothing with your money means that you are actually losing money when you account for the cost of inflation.
So, you must invest your money.
One of the types of income is passive income, and you can earn passive income through investing.
A huge step to becoming financially stable is to diversify your income. This may not be as important to you today, but if you are in that category of “I don’t want to work anymore” or retirement is on the horizon.
Your financial future can be secured through investing in your portfolio.
Recap – How to be Financially Stable at any Age
You can become financially stable at any age – 20, 25, 30s, without college, or even in your teens at 17 or 19. You can even be financially stable with a low income.
The formula is still the same for everyone.
These are the three things you must do for financial stability:
Pay Yourself First
No Debt
Invest
If you are serious about wanting to be financially stable, these are the three steps that you need to take. It is not rocket science.
It is very simple, clear steps to make sure that you are successful in the long term with money.
Now, let’s dig into the habits and traits of someone who is financially stable.
Learn:
Traits of someone who is financially stable
This is when we can say that a person is financially stable.
In this section, we are going to dive into the qualities, traits, and habits of people that are financially secure.
These are things that you can start working on today. Over time you will begin to make better solid money choices going forward.
These are solid money habits that will transform your financial future.
These are simple and easy ways for you to become financially secure.
1. Emergency Fund
An emergency fund is the backbone of financial security – there is absolutely no way around it.
The goal is for you to never use your emergency fund. But let’s be real, there will be a time or a place that you will have to dig into your emergency fund because an actual true emergency exists.
A financially stable person has an emergency fund to fall back on when times get tough.
Here is more information on how to build an emergency fund and the steps that you need to build one fast:
2. Plan to Be Debt Free
Like we said earlier, one of the basic steps of how to become financially free is to have no debt.
However, for too many people that would automatically say that is not in the cards for me. Paying off my debt is way too difficult. But, not for the financially stable person!
I am here to tell you that you can become financially stable by creating a plan to becoming debt free and actually stick to it.
That means your debt balance is going down each and every month. Plus you know your debt payoff date because that paying off debt is one of the best decisions that we ever personally made.
Also, it does not matter if good debt and bad debt – the concept promoted by many financial gurus. Debt is debt.
Debt means that you owe somebody else and you are going to have to pay it back at some point for a premium. So, the sooner you pay off your debt, the better of you will be.
3. Save 20% of Income
Do you save at least 20% of your paycheck? If so, then you know what financial stability means.
When you are financially stable, you are not living paycheck to paycheck and you automatically save money at the beginning of the month when your paycheck comes in.
The best place to start is to start saving at least 20% of your income.
If you are not quite there (yet), then look at one of our main money saving challenges. They are plenty of savings numbers to start small and then work on the bigger challenges. Prove to yourself that you save money.
Since saving money is easy for them, they work on increasing their savings percentage each year. Personally, I find it a better challenge to increase that savings percentage more than anything else.
4. Spend Less Than You Make
In order to make progress, your expenses are less than the money that is coming in.
That does not mean the amount of money coming in is the same amount that you can be spending. The reason why is you have to account for the money saved adn invested.
You learn how to live below your means.
This may mean giving up a coffee, a trip to the salon, happy hour, or something you do out of habit in order to start saving money.
Remember, the goal for this type of person who is financially stable is they spend less than they make. They may spend on the little luxuries here and there because they are able to do since they have set money aside and they are not overspending.
5. Mastering Money management Skills
The best trait of somebody that is financially stable is they understand the basics of money management.
This does not necessary mean the person is in love with spreadsheets, budgets, numbers, and reads money management books every single second. This means they understand the basics.
You earn, you save, you spend.
You save more, spend less, and you prioritize your money goals to make sure you are making the progress on your financial journey that you want to do.
Many times financially stable people start to enjoy learning about money management and tend to dive into their finances even further. Once they get started, they want to learn more about their money situation, and how they can improve their finances quicker by making a few more changes.
6. Their Finances are Exciting
You don’t have to be an Excel spreadsheet nerd to find that your finances are exciting.
This type of person enjoys waking up checking their balances and seeing a positive increase in their net worth.
They find it exciting, they find it motivating. It makes them realize all of their sacrifices is making a difference in the long term. They look at the greater picture and saying I’m not going to work till I am 65; I may look at retiring when I am 50.
They are working hard today and enjoy finding ways to improve their money situation; which they find exciting and fun. You love quoting these money mantras daily.
7. Month or More Ahead on Bills
A financially stable person uses their income from this month to pay for the next month. They are not living behind where the income coming in is going is paying for the current expenses.
They are actually a full month, maybe even two, maybe even three months ahead of their bills.
For example, their paycheck from July will be their August spending. For some that want an even bigger cushion, their money earned in July is actually going to be for their September spending.
That is a sign that somebody is financially stable and has the ability to avoid temptation and not to spend the extra money.
8. Sinking Funds are a Priority
A financially stable person sets aside money regularly for expenses in the future. These are called sinking funds.
These buckets of money is money allocated for a certain purpose.
One of the most popular sinking funds that most people have is for vacations, kids activities, home repair, or car repair. Those are probably the most common.
You can have as many sinking funds as you want as a financially stable person. Another option is just to have one big sinking fund that will cover whatever is needed in case something be happens. A wise person knows how much money they need to cover these expenses.
A financially stable person utilizes sinking funds to make sure they are able to meet unexpected expenses when they happen.
9. Invest in Stock Market Consistently
In the last two years, the stock market on average typically earns 13.9% each year (source).
The reason that this is important is your money can make you money without you doing anything.
Once you have your investment account set up and automatically contribute a slice of your paycheck, then you select a fund or a few stocks of companies you believe in. Starting your investing system is not as bad as you would think.
By investing in the stock market consistently, you are more likely to have higher returns than somebody who invest once a year, twice a year, or three times a year.
By investing either every week or every month, the likelihood that your account size will increase is greater than when you try and time the market.
I’ll be very honest…the average person has no idea how the stock market is going to react and even most experts. However, you can take an investing course, like Trade and Travel with Teri Ijeoma, and learn about buyers zones and seller zones. This is the best financial knowledge someone can have and you probably will not lose money by attempting to figure it out yourself.
This investing course is a great resource and something I highly recommend all of my readers to take. Read my Trade and Travel review.
Because the amount of the course is eye-opening, I can pretty much guarantee it will be less than the amount that you can lose in the stock market by yourself.
That is what a savvy person would do – invest in the course and then invest in the stock market.
10. Focused on Next Money Goal
A financially stable person knows exactly what they have done to get where they are today. Plus they know exactly where they are headed to in the future.
They don’t waver on their next money goal.
They have short term financial goals that they are determined to make happen. That is their number one or two priority in their life because they know that by reaching their money goals, they will have more time freedom in life.
At the end of the day, having money equates to freedom.
This is not the same as having money does not equate to success. There will always be the age-old debt on whether is money everything.
The answer may surprise you, but at the end of the day… money does equal freedom.
11. Saving for Retirement
If I don’t save for my retirement, then who else will help me in my older golden years? That is exactly what a financially stable person would ask.
They know that social security and all the government programs might run out of funding, so they are focused on saving for their retirement and most financial state. They are in control of what they are able to control. You cannot control future government programs or tax rates.
In addition, they are using a Roth IRA to get the maximum contributions that they can have each year for retirement. They are savvy enough to get the maximum contribution from their employer’s 401K match.
This type of person won’t be wondering… What Happens If you Don’t Save for Retirement?
12. Able to Vacation When They want
These are the people that you probably envy the most because they paid cash for the vacation that you financed.
A financially stable person is not worried about having to pay for the trip on the way home. They are savvy and use a vacation fund that they contribute to on a regular basis.
That right there helps them to go on vacation each and every year.
Don’t be jealous! Join the bandwagon and start traveling the world today.
13. Money Set Aside for a Rainy Day
As much as we like to think we can predict the future, in reality, we do not know what the next day, week, month, or even year can bring. And in many circumstances, you may be caught off guard when difficulties come.
If you have a loss of income and still have bills to pay today, that is where having a rainy day fund set aside will help you be prepared.
This is a step to becoming financially secure and a long-term habit to embrace.
A person who has a rainy day fund that will cover at least six months of living expenses is somebody that is financially secure.
They know that hopefully, they will not have to use that money, but in case they do, the money is available to them.
14. Don’t Cry When Something Breaks
When you’re financially secure, you know things that are going to break.
And as much as it sucks, you are not going to be in tears, trying to figure out how to pay to replace that item. You understand the concept of… It is what it is you move on.
Replace the item and you go on with your day.
Since you know you have money set aside for various purposes, there is no reason to cry. It may not be how you feel like spending money, but that is just part of life.
When you are financially insecure and a light comes on in your car, that is a red flag that something is wrong. Many people freak out because they don’t have the money set aside for a $500 or $1,000 repair.
So you know when you are financially secure when you can laugh it off, shake it off and move on with your day.
15. Fun Spending Can Happen
This is one of the best reasons for being financially secure…you can spend money!
When you decrease your other expenses, you can increase the amount of fun spending. There are great benefits to becoming aware of your financial situation.
Too many times, people give up to their money situation. Instead of saying, no, no, no all the time, you will get to a position where you can say yes yes yes! I want to do this and this!
You do not feel guilty about spending extra money!
At this point, you know you have earned whatever it is you want to spend money on.
16. You Can Sleep at Night
This is one of the best traits of a financially secure person! Their finances are NOT waking them up in the middle of the night wondering “oh my gosh, how am I gonna pay my bills, how am I going to pay my rent, how am I going to pay my car payment, I am sick of my job, etc.”
You quit worrying about do I have enough money to make it to the end of the month. That is financially security right there.
When you can sleep at night knowing all of your bills, expenses, and saving are taken care of. You know deep down that you are on track of your financial future.
That is financial security at its best.
If you are in a situation right now where you can’t sleep at night, then you need to learn how to drastically cut expenses. You must get a hold of your situation before it spirals any further out of control.
17. No Frivolous Spending
Financially, even though a financially secure person can spend money when they want. They have the money to be able to spend, right?
Most choose not to be frivolous with their money.
(Hint: that is why they stay financially stable.)
They tend to be a thrifty person knowing a good price to purchase an item. They know when something is overrated or overpriced.
Even if they can afford it, they are just not willing to spend money on it. That is okay because they are in the situation of being financially secure because of the solid money decisions they have made.
Spending frivolous money here and there can up quickly. Even something as low as $10 or $20 here or there may not impact your financial picture in one day. If you add it up over the course of a year, it can become $3,650 or $7,300. Just by frivolously spending a small amount each day.
18. Know Your FI Number
Your FI number will help you to make the jump to financial freedom.
You know what it will take for you to become financially independent – specifically, the dollar amount needed.
In the FIRE community, it is typically known as your FI number, which is your financial independence number. The number is the amount of your net worth and the amount saved up, so you can start living off of your investment income.
This number will vary from person to person.
It is based on your personal situation. The variables that impact your FI number include:
Your income today
How much you plan to spend today
The amount you save today
How much you plan to spend in the future
Your age now
Age you want to quit working (aka retire)
Typically, most couples with kids can start looking at FI number in the $1.5 million range. The first reaction is that the number is either WAY LOWER than they thought it would be. Yes, because we have been taught by “financial professionals” that you need so much more in assets in your retirement accounts than you actually do.
The time is now to become a financially secure person and learn your fi number today. Here’s a great resource to help you.
19. Diversify Your Income
Just as with as above and knowing your FI number, financial independence becomes more likely to happen once you start diversifying your income.
A financially stable person earns all three types of income.
Most people rely on earned income only. If you only rely on earned income, then you reach a max threshold of what you are able to earn.
So a financially secure person has multiple buckets of income; they are diversified in investments, real estate, or side hustle. The key to long term success is finding ways to make passive income.
20. Budget isn’t AS Important
A trait of a financially secure person is they know how much they are able to spend, how much they need to save, and the amount of money that they come in every single month.
They do not need to budget down to the very last line item. (thank goodness for many of you reading this!)
A financially secure person has an overall sense that income exceeds their spending and saving goals.
That is financial security.
While a budget may help them stay focused and a more detailed budget may help them reach their longer term goals.
It does not mean that a budget is necessary. You can still have a loose budget and know that you are still making ends meet because they have a system set up and a system set in place.
Budgeting is not as important as it was previously.
21. Splurging is Okay
This is one of the best feelings as a financially secure person is knowing that it is okay to splurge. It is okay to spend extra money. It is okay to stop cutting corners at every single turn.
You remember back to the days when each month was a struggle to make ends meet. That is not the life that you live anymore; you live a completely different life. And now, it is okay to splurge.
And to be very honest, for most people, once they become financially secure, it is actually really, really hard for them to loosen that tight fist on their money and start spending it.
22. Same Page with Finances with Spouse or Significant Other
They share the same money vision and together they set smart financial goals. All of their decisions are made together.
Did you get that keyword??? Together. Meaning with the other person.
While they may not agree on every single line item of their budget or how they spend money individually, they still set aside money for each of them to spend as they please. Around here at Money Bliss, we call this money a slush fund.
Because at the end of the day, as a couple, they know they are still making progress in the right direction for the long term. So, these couples do not worry about the short term of how you spend your $100 each month if you are reaching your goals and that happens once financial security sets in.
23. Net Worth Grows Significantly Each Year
If your net worth does not grow significantly each year, then you got a problem.
A financially secure person knows their net worth and has systems in place to keep it growing significantly each and every year.
It’s not just one or two percentage points typically, you can expect a much higher rate of growth of 8-10%. Once your net worth increases, the bigger the bucket for the percentage of growth.
24. Credit Cards are Paid in Full
Financial security means you were able to pay your credit card bill in full each and every month without blinking. This is a mantra of a financially secure person.
They chose to use their credit cards wisely so they can get points, cash back, and travel benefits.
But, they are also cognizant that each and every month that credit card is paid off in full; this type of person will not carry a credit card balance for any reason. Period.
25. Prepared for Large Purchases
Nothing states financial security more than being able to go out and replace $5000- $10,000 worth of appliances or home repairs or something similar.
A financially secure person realizes that they have to be prepared for large purchases since they are going to happen.
It is only a matter of when a big purchase will happen.
This person is consistently setting money aside in a sinking fund for those large purposes. In our house, we like to call it the big murph fund.
We know that it may be a small remodel project, an appliance that needs to get fixed or looking at replacing a car. Many items can fall under this big murph fund umbrella. For us, we do not set aside money for each of those purposes in their own sinking funds because then we would not able to maximize our investments.
Instead, we estimate how much money is likely needed and set aside for large purchases that are likely to happen in the next one to two years.
Ways to Save $5000:
26. Your Health Matters
Financial stability means that you are able to spend money on your health and it is a priority for you and your household.
You start realizing the benefits of taking care of your body, eating properly, and managing your health in better ways.
The light bulb starts going off and says slaving at my work for 60 to 80 hours a week may not be worth it. While the income may be great, a financially stable person may feel like they are killing themselves inside for the benefit of others.
A financially secure person knows that their health matters more than money does.
You are more likely to spend money on organic produce because you know it is better for your body. You consistently review to see if you are spending your time in ways that benefit your overall health.
27. Bad Money Habits Are a Thing of the Past
We have all had them.
We have all made stupid money mistakes.
And the best part is a financially secure person has learned from their bad money habits and made changes so they never happen again.
All of the things that they used to do, they don’t do anymore. Bad habits are something that happened in the past. While they may regret it, which is absolutely okay and part of working through the process to make further progress.
Their past mistakes are not going to hold them back from their future self and build solid money habits.
28. Giving Money is Generous
When you are able to give 10% of your income and not be panicked about making ends meet, that is when you know that you have reached a higher level of financial security.
Giving money is generous.
It is something that helps society come together and as a community making the world a better place.
By you being able to give money will help somebody else become a better version of themselves. We have all had others that have helped us.
By giving money, you can pay it forward. It can be something as simple as paying for the people behind you. It could be something grand like having a building named after you because you made a massive donation.
The size of the giving does not matter. It is the fact that you decided and made the conscious decision to start giving your money.
29. People Ask You about Money Questions
When others start looking towards what you have accomplished in your financial journey, that is when you know you have created an environment of solid money management skills.
People will start coming to you asking questions on how they can improve their money situation. And that is fabulous!
That means that others view you as being financially secure and stable in your personal finances. You deserve a pat on the back and motivation to keep up the hard work.
30. Happy With Your Financial Path
Remember that saying, “If you are happy and you know it, clap your hands.” Well, as a financially secure person, it is when you wake up and look at your overall financial picture and say, “You know what, I’ve got this, I’m on the right path,” and you put a big grin on your face. And you pat yourself on the back.
As a financially stable person, you are proud of what you have overcome, the difficult challenges you faced, and now you are excited about where the next step is going to take you and your future.
It is not roses and happiness the entire way; there are ups and downs along your path that got you to a financially stable place.
But deep down you know that you are on a stable future with a solid path.
31. You Know You are In Control of Your Money
This type of person knows exactly where their money goes.
They are in control of their money; their money doesn’t control them.
They make the decisions on how, when, why, and where they spend money.
They are not told by outsiders how to manage their money. A financially stable person has control over their money and in the long run, it opens up the doors of opportunity.
This is a sign of financial independence.
How Much Money is Financially Stable?
How much money do you need to be financially stable?
This will depend on everybody’s personal situation.
If you are single and only providing for your one household, the amount of money that you need is much less than a family of six to eight people. In view of that fact, the more people that you’re responsible for, the more money that you need to become financially secure.
Let’s put some number on the question of how much money is financially stable.
3-6 months of expenses
Positive net worth
No debt (or a solid plan to get out of debt)
Able to give 5% of your income
Saving at least 20% of your income
$100k of F-you money (read JL Collins book for terminology)
Increasing saving percentage each year
At a bare minimum, you could estimate to need at least $25,000 for a single person or $100,000 for a family of four.
These assumptions include you continuing to live below your means and not regressing from the progress you made.
However, most people feel more financially secure when their net worth hits $250,000 or $500,000. Once you hit millionaire status, you are financially secure.
Are you Ready to Move from Not Financially Stable to Financial Stability?
You are in charge of your destiny.
You are able to go from one place to another, but you have to be willing to take the jump, take the risks, and seize opportunities.
So if you are not sure that you are ready to move on to financially stable, you need to be financially sound first. For now, save this post and come back once you are ready to move to the next step of becoming financially stable.
If you are ready to move to financial stability, then you need to start today and make all of these habits of somebody who is financially stable a part of your life.
There is no “Oh, I’m gonna wait till tomorrow.” Because then you are just going to keep putting it off. Tomorrow needs to become today.
The sooner that you can become financially stable, the better off that you will be.
Procrastination is just like having a plan, but not setting it into motion. You actually need to take action and start today. Enough planning, enough procrastination.
Start slow with easy habits. A good habit here and there. Keep building on those habits and you will slowly step-by-step learn how to become a financially stable person.
It does not take a huge monumental stream of income to achieve financial stability. All it takes is perseverance to make better yourself.
You can become the next millionaire with no money!
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
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.
A self-directed IRA (SIDRA) allows you to save money for retirement on a tax-advantaged basis while enjoying access to a broader range of investments. Opening a self-directed IRA for real estate investing is an opportunity to diversify your portfolio with an alternative asset class while potentially generating higher returns.
Using a self-directed IRA to invest in real estate offers the added benefit of either tax-deferred growth or tax-free withdrawals in retirement, depending on whether it’s a traditional or Roth IRA. Before making a move, however, it’s important to know how they work. The IRS imposes self-directed IRA real estate rules that investors must follow to reap tax benefits.
What Is a Self-Directed IRA?
Individual Retirement Accounts (IRAs) allow you to set aside money for retirement with built-in tax benefits. These retirement accounts come in two basic forms: traditional and Roth.
Traditional IRAs allow for tax-deductible contributions, while Roth IRAs let you make qualified distributions tax-free.
When you open a traditional or Roth IRA at a brokerage you might be able to invest in mutual funds, exchange-traded funds, or bonds. A self-directed IRA allows you to fund your retirement goals with alternative investments — including real estate.
You can do the same thing with a self-directed 401(k).
Self-directed IRAs have the same contribution limits as other IRAs. For 2024, you can contribute up to:
• $7,000 if you’re under 50 years of age
• $8,000 if you’re 50 or older
Contributions and withdrawals are subject to the same tax treatment as other traditional or Roth IRAs. The biggest difference between a self-directed IRA and other IRAs is that while a custodian holds your account, you manage your investments directly.
Boost your retirement contributions with a 1% match.
SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.
Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included.
💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with an IRA account. With a traditional IRA, the money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).
How Self-Directed IRAs for Real Estate Investing Work
Using a self-directed IRA to invest in real estate allows investors to invest in various funds or securities that, themselves, invest in property or real estate. Those securities may be real estate investment trusts (REITs), mutual funds, or ETFs focused. Investors with self-directed IRAs can, then, direct retirement account funds toward those securities.
Other types of real estate investments can include single-family homes, multi-family homes, apartment buildings, or commercial properties — actual, physical property. For investors who do want to buy actual property using an IRA, the process generally involves buying the property with cash (which may require them to liquidate other investments first), and then taking ownership, which would all transact through the IRA itself. It’s not necessarily easy and can be complicated, but that’s the gist of it.
With that in mind, the types of investments you can make within an IRA will depend on your goals.
For instance, if you’re interested in generating cash flow you might choose to purchase one or more rental properties using a self-directed IRA for real estate. If earning interest or dividends is the goal, then you might lean toward mortgage notes and REIT investing instead.
The most important thing to know is that if you use a retirement account to invest in real estate, there are some specific rules you need to know. For instance, the IRS says that you cannot:
• Use your retirement account to purchase property you already own.
• Use your retirement account to purchase property owned by anyone who is your spouse, family member, beneficiary, or fiduciary.
• Purchase vacation homes or office space for yourself using retirement account funds.
• Do work, including repairs or improvements, on properties you buy with your retirement account yourself.
• Pay property expenses, such as maintenance or property management fees, from personal funds; you must use your self-directed IRA to do so.
• Pocket any rental income, dividends, or interest generated by your property investments; all income must go to the IRA.
Violating any of these rules could cause you to lose your tax-advantaged status. Talking to a financial advisor can help you make sense of the rules.
Pros and Cons of Real Estate Investing Through an IRA
Using a self-directed IRA for real estate investing can be appealing if you’re ready to do more with your portfolio. Real estate offers diversification benefits as well as possible inflationary protection, as well as the potential for consistent passive income.
However, it’s important to weigh the potential downsides that go along with using a self-directed IRA to buy real estate.
Pros
Cons
• Self-directed IRAs for real estate allow you to diversify outside the confines of traditional stocks, bonds, and mutual funds.
• You can establish a self-directed IRA as a traditional or Roth account, depending on the type of tax benefits you prefer.
• Real estate returns can surpass those of stocks or bonds and earnings can grow tax-deferred or be withdrawn tax-free in retirement, in some cases.
• A self-directed IRA allows you to choose which investments to make, based on your risk tolerance, goals, and timeline.
• The responsibility for due diligence falls on your shoulders, which could put you at risk of making an ill-informed investment.
• Failing to observe self-directed IRA rules could cost you any tax benefits you would otherwise enjoy with an IRA.
• The real estate market can be unpredictable and investment returns are not guaranteed — they’re higher-risk investments, typically. Early withdrawals may be subject to taxes and penalties, and there may be higher associated fees.
• Self-directed IRAs used for real estate investing are often a target of fraudulent activity, which could cause you to lose money on investments.
Using a self-directed IRA for real estate or any type of alternative investment may involve more risk because you’re in control of choosing and managing investments. For that reason, this type of account is better suited for experienced investors who are knowledgeable about investment properties, rather than beginners.
Real Estate IRAs vs Self-directed IRAs For Real Estate Investing
A real estate IRA is another way of referring to a self-directed IRA that’s used for real estate investment. The terms may be used interchangeably and they both serve the same purpose when describing what the IRA is used for.
Again, the main difference is how investments are selected and managed. When you open a traditional or Roth IRA at a brokerage, the custodian decides which range of investments to offer. With a self-directed IRA, you decide what to invest in, whether that means investing in real estate or a different type of alternative investment.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Opening an IRA With SoFi
Opening a self-directed IRA is an option for many people, and the sooner you start saving for retirement, the more time your money has to grow. And, as discussed, a self-directed IRA allows you to save money for retirement on a tax-advantaged basis while enjoying access to a broader range of investments, including real estate.
Once again, using a self-directed IRA to invest in real estate offers the added benefit of tax-deferred growth and tax-free withdrawals in retirement. There are pros and cons, and rules to abide by, but these types of accounts are another option for investors.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
FAQ
Can you use a self-directed IRA for real estate?
You can use a self-directed IRA to invest in real estate-related or -focused securities and other types of alternative investments. Before opening a self-directed IRA to invest in real estate, it’s important to shop around to find the right custodian. It’s also wise to familiarize yourself with the IRS self-directed IRA real estate rules.
What are the disadvantages of holding real estate in an IRA?
The primary disadvantage of holding real estate in an IRA is that there are numerous rules you’ll need to be aware of to avoid losing your tax-advantaged status. Aside from that, real estate is less liquid than other assets which could make it difficult to exit an investment if you’d like to remove it from your IRA portfolio.
What are you not allowed to put into a self-directed IRA?
The IRS doesn’t allow you to hold collectibles in a self-directed IRA. Things you would not be able to hold in a self-directed IRA include fine art, antiques, certain precious metals, fine wines, or other types of alcohol, gems, and coins.
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“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.
How to Spend Money Wisely
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.
1. Pay Yourself First
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.
2. Take Care of You
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.
3. Invest in Your Future
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.
4. Choose Experiences
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
5. Set Goals
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.
6. Budget
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.
7. Evaluate Your Spending
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.
8. Likeminded People
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.
9. Spend on Quality Over Quantity
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.
10. Eat at Home
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.
11. Use Tax-Advantaged Accounts
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!
12. Spend on things that add happiness to life
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.
How to Spend Money to Make Money
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.
How to Spend Less Money
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!
Shop at Discount Stores: You don’t have to go all out with your shopping if you’re looking for a way to save some money. There are plenty of stores that offer great deals and you can still find some really cute clothes.
Find Online Deals: You can find deals online for just about anything. This is a great way to get the deals that you might not know about. There are so many websites out there dedicated to helping you find the best deals and coupons.
Save Money on Your Cell Phone Bill: Just because the cell phone companies want to charge an arm and a leg for service doesn’t mean you have to. There are plenty of options out there where you can find great deals on your cell phone bill without having to break the bank.
Call and Cancel Unnecessary Services: Do you really need to subscribe to cable? How about getting rid of your gym membership because you know that all the exercise won’t do anything for your weight. The truth is you don’t need a lot of these things that are costing you money. Also, try a free service like Trim or Billshark.
Buy Generic Items: Do your shopping at the grocery store and buy generic items instead of brand names for most of your purchases.
Buy in Bulk: Buy items like toilet paper, cleaning supplies, and other things in bulk to save on the cost of each individual item. This is more so for families who can buy food in bulk.
Start Couponing: This is a great way to save money. I know it’s not the most enticing offer, but if you’re looking to save money then coupons can be your best friend. You can go online and find coupons for items that are on sale at your favorite store or you can get them in the Sunday paper.
Use Public Transportation: This is a great way to save on gas and wear and tear on your car.
Get Rid of the Car: If you live in an urban area, it might be worth getting rid of the car and using public transportation or just walking instead. Or become a single-car family.
Carpooling: One of the biggest hacks that many people are unaware of is carpooling- which can save up to $1,000 per year.
Rent Things: Whether it is a video, movie, or power tools to complete a project, renting will save you money.
Use Less Electricity: Turning off lights and other electronics when they are not in use can really help!
Eat Spaghetti: Eating pasta saves money and reduces your grocery bill.
Use the Library: If you like to read, the library might be another alternative to buying books.
Borrow Books: Borrowing books from the library or your friends is a great way to read for free!
Use Online Promo Codes: Using promo codes or coupon codes on all of your online purchases will make a huge difference. Here is a great place to find promo codes and get money back on your purchases.
Eat Out Less Often: Eating out less can save money!
Eat Less Meat: Eating less meat will save on your grocery bill! There are so many wonderful delish meals made with beans!
Buy Used: If you must buy something but don’t want to spend much, consider buying used versions of the items you need. Buying used products will save money and help the environment.
Share with Friends: Sharing your belongings, like clothes or toys, can save you money.
Ask for Help: When someone offers to help you do something it’s only polite to take them up on it.
Find Used Clothing: Buying clothing used can save you a lot of money and help the environment!
Downsize Your Hobby: It’s important to live within your means. If you have an expensive hobby it may be time to scale back on the expense or find a cheaper one.
Need vs Want: Try not to spend money on things that are “needed” but not “wanted.”
Avoid Impulse Spending: Try to plan before you buy anything- think about what you need, the price of items, and if it is worth buying.
Plan Free Activities: Plan outings with friends and family, rather than going to the movies or restaurants alone.
Plan For Expensive Times: Give your friends a heads up before you go out on an expensive outing so they know it’s coming. They may be able to help cover the cost or provide a cheaper alternative. This will help everyone’s budget.
Do Your Research: Research all of your options before you make any purchase- this will allow you to get the best bang for your buck and find the best deals.
Bartering: If you must buy something, but you don’t want to spend much money on it-consider bartering with someone or buying used items instead of new ones (e.g., clothes, furniture).
Know-How You Spend Money: Keep a budget to track your spending and be aware of how much money you have left at the end of the day or week so you can plan accordingly.
Negotiate on Price: If you plan to buy something, don’t tell the retailer how much money you have until after they give their price- this can help save money and time by eliminating any final price negotiations.
Think Before You Spend: Put some thought into your purchases before you make them- this will help you make sure you really want to spend money.
How Much Money Should you Spend?
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:
50% to Basic Expenses
20% to Savings
10% to Giving
20% to Fun Spending
0% to Debt
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.
Ready to Start Spending Money Wisely?
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.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
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.
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.
Money is a tricky concept.
It can be both the best and worst thing in your life depending on how you manage it.
Understand how to manage your money wisely and apply a few helpful tactics to your daily life. Simple habits will help you manage money better every day.
You must make money management easier and understand what types of pitfalls to avoid while we’re at it!
The following are a few ways to manage money. You can save it, spend it, or invest it.
There are many ways to manage your money wisely, but you should always start with your own control. You might not make all the choices that are right for you, but you must be prepared for the future.
This blog post provides tips for managing money, avoiding common mistakes by other people, reducing debt, spending wisely – these are just some examples of topics covered.
If you are ready to learn how to manage your money like a millionaire, then you are in the right place!
How to Manage Money Wisely
The key to managing your money is following the steps that are outlined in this article.
Financial stress can be managed by following the steps of managing money wisely. It is important to prioritize spending, don’t overspend on things that are not necessary, and learn about saving too because it will help you move towards financial stability.
You can learn how to properly manage your money with these swift mindset changes.
Below are 10 money management tips that will help you make better use of your finances.
1. Build a Firm Foundation
In order to make money better, people should set a firm foundation for themselves. This means setting up a financial strategy and making sure you have a plan in place. It also means having the right mentality about money and spending less than what you earn every month to avoid debt.
The first step is to establish a firm financial foundation, which means you must spend less than you make, save money for emergencies, and get out of consumer debt.
2. Design a Money Management Blueprint
A financial blueprint is a tool that can help you to build and maintain your money.
The problem for most people is they are starting at one place in their financial journey and are stuck on how to move to where they want to be.
That is where you need to follow the Money Bliss Steps to Financial Freedom. These are the exact steps to help guide your journey and a helpful blueprint to follow.
By taking each step one at a time, you will be able to make progress faster.
3. Define Your Goals
You must identify what your financial goals are.
What do you want?
Are you looking for more income?
Work fewer hours?
Something else entirely?
By setting money goals, this process will help you set a timeline and map out your journey.
4. Analyze Your Current Situation
This step is about taking stock of what you currently have to work with, such as income and expenditures, debts and assets, and savings.
This will help you decide what changes need to be made so that your goals can happen.
Honestly, this is probably the hardest step, and when most people give up. Taking a look at your true financial picture can be scary and painful to do.
5. Get on a Budget
Money is a source of stress for many people. It can be difficult to manage money when it’s not well-organized and set up properly.
In order to make sure that your money does not continue being a source of stress, create a budget and track spending!
A budget is a plan that helps you organize your money so that it can be spent effectively. It also shows where your money goes and what you are spending it on. Budgeting is an important part of managing money wisely because it helps you stay within your financial means, which ultimately saves you from living paycheck to paycheck or needing to borrow more than needed.
To create a budget, first set aside time for research and planning (this will take one day). Then create and write down the basic budget in a well-organized manner. It is important that you have a budget that works with your lifestyle and spending habits, so take the time to create one that fits what you need.
Some people go into budgeting with the goal of changing everything, but this is not necessary.
It’s important to make sure you’re realistic about your goals and target in order to get the most out of it. This will ensure you can meet your financial targets without breaking account after account or losing track of what has been spent already.
6. Say No to Debt and Create a Plan to Pay Off Debt
Creating a plan to pay off debt is crucial in order to reach financial goals.
It is important to create a plan to pay off your debts in order for you to be able to manage them better. High-interest rates should be tackled first, then work your way down through the rest of the debts.
The other key aspect is to stay out of debt. There is no need to buy something you cannot pay for in cash today.
Tools and tips to help you pay off debt:
This includes creating a budget and sticking with it, getting out of the habit of using credit cards, and saving money for an emergency fund.
7. Track Spending
Tracking expenses can help you see where your money is going so that you can make better decisions. For example, tracking your spending will allow you to know if the $200 concert was worth it.
Tracking spending will help you manage your money better.
It is important to be aware of how much we spend and what we spend it on so that you can make the best financial decisions possible.
This will help you to manage bills and save money.
8. Save Money
Every month, save money and put it in another account to be used in the future.
In order to make large purchases, it is important to have money set aside for that purpose. It is also a good idea to budget and save money in case there is an emergency.
An important phase in making smart money management tactics is to start investing as soon as you can. This is how you make your money work for you. Learn how to start investing.
9. Invest in your Financial Future
Almost a third of older Americans have nothing saved for retirement. That is a statistic you do not want to be a part of.
It’s never too early or too late to start saving for your retirement.
You should always be mindful of the future and plan accordingly. Whether it is through a 401k, IRA, Roth IRA, or other investment vehicles that you can contribute to in order to save up money for when you retire; make sure that whatever vehicle you choose gives an appropriate return on your invested funds (e.g., stocks).
In order to learn how to properly manage money wisely, you must be contributing to your retirement accounts. It may seem like a long way off until it is not.
10. Be Persistent
Managing your money can be a difficult task.
There are many ways that you can take control of your money situation and make it easier for yourself.
When it comes to managing your money, persistence is key. You’ll need to be persistent at all income levels in order for your savings and investments to grow.
How to Manage Money Effectively Now
Only do what you need to, not what you want to or can afford. Set up a budget and stick with it. Pay yourself first before buying anything else. Always save for the future, even if that means sacrificing now on some luxuries like eating out more often or setting aside money for retirement since your employer doesn’t offer one of those options yet.
A budget is a plan for how much money you will spend in each category every month. This will help you to pay off debt and reach your financial goals.
1) Create a monthly budget.
2) Track your progress in the spreadsheet throughout the year.
3) Make sure you’re saving at least 10% of your income/income minus loan payments, bills, and other expenses for emergencies and savings.
4) Pick one of these how to manage money books.
Take Action!
This step is all about taking the necessary steps to achieve your goals.
Again, this will vary for each individual and goal setter, but might include: cutting out unnecessary spending on luxuries; increasing income by asking for a raise or starting up a side hustle; and spending less on debt repayment by extending the term of your loan.
Be Patient!
This step is about being mindful that not every goal can be accomplished overnight, but it will happen with dedication and patience.
Be patient with yourself, your progress, and the change that is happening in your life as you work on achieving these new goals!
Are you Ready to Manage Money Better?
Learning how to manage money can be overwhelming when you haven’t built a strong foundation with money.
We have covered ways to make your life easy and money management better.
You need to learn how to manage your money.
You have to be the one to implement these tactics.
Proper money management ensures better outcomes with your finances.
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
This section may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. Please read the full disclosure below.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
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.