Ways to Save

8 Ways to Save for a Down Payment on a Home and a Roth IRA

Saving for retirement and a down payment for a home may seem like it is an impossible task, especially with all of the other bills you have coming in.  I am going to share 8 easy ways to save for a down payment on a home and a Roth IRA retirement account. Retirement and home ownership are possible, you just have to rework some of your daily habits.

 

8 Ways to Save for a Down payment on a home and a Roth IRA

 

To fully fund a Roth IRA account you must save $15 a day (that’s $458 per month or $5,500 per year).

To save $5,000 a year, you must save $13.50 a day. Over 4 years you will have saved $20,000 for a down payment on a house.

Thus, with $29 a day you can you can fully fund a Roth IRA (that will grow to over $1,000,000 in 40 years) and save for a down payment on a home.

If you want to know how I came up with these numbers, click here. In the article “How to Save for a Down Payment on a Home and Fund a Roth IRA” I break down the numbers and make it really simple to understand.

So now that you know that all you have to do is save $29 a day, let’s look at 8 ways to find this money.

If you already own a home, these saving principles can be used to save for an investment property. If you are in debt, then these same saving principles can help you pay off that debt.

There are a number of ways that you can use this information.

My goal is to break down the process of saving so that it does not seem like a task that is impossible to overcome.

Saving for retirement and a home can be easy. All it takes is a bit of re-working on your end to find $29 a day!

 

 

How To Save $29 a Day:

 

So how do we accomplish this $29 a day?

Visit the Sustainability Shop to find a ton of ways to save by Going Green! For many of the products, I break down how much you can save per year by making the switch!

 

1. Eat at Home:

 

I meal prep 95% of the food I eat.

You can read “Increase the Velocity at Which Your Money Grows: Ways to Save” to learn how you can save $500 to $600 every month by meal prepping.

If you want to learn how easy it is to meal prep and how much time it saves, you can read “How to Increase Efficiency: Time Management Hacks”.

Let’s do a bit of quick math:

Assume a breakfast would cost you $7, lunch costs $12, and dinner costs $16 (I am being conservative here. I am sure many of you have eaten a $20+ dinner).

Let’s add all of that up and then multiply by 30 days per month. That is $1,050 per month on eating out!

If you were to meal prep, you would end up spending around $100 per week on groceries or $400 per month.

That is less than half of what you would spend on eating out!!! Or $600 in savings!

Bang! You just found the $458 per month to fund your Roth IRA retirement account.

An added benefit is that you can portion control your meals, and eat healthier (you know exactly what is going in your food).

To help you with your meal prepping, eco-friendly glass Tupperware,  bento boxes, and reusable food wrap are the go-to necessities:

 

Sustainable Tupperware overviewSustainable bento box 2reusable food wrap

You can find other reusable containers and silicon bags at the Sustainability Shop.

 

 

2. Cut Back on the $5 Cups of Coffee:

 

You will never see me with a Starbucks coffee. In fact, a small Starbucks coffee costs more than $5 a cup!

But, we will go with $5 for easy math.

If you buy a Starbucks coffee every morning before work, that would be $5 x 5 days x 4 weeks x 12 months=1,200 each year!

The point here is that you can save $1,200 per year, per $5 increment…

 

 

3. Carry a Bottle of Water:

 

Did you know that 50 billion water bottles are used every year?!?

Let’s save the planet, its animals, the oceans, and our money by using a reusable water bottle.

Soda and flavored drinks are terrible for you anyway…  The bottles say “natural and artificial flavors”, but what does this really mean?

Most water bottle companies use regular municipal water in their products, so you are really paying for the packaging and the convenience.

It is the $2-$3 increments that we tend to overlook that add up over time.crystal water bottle

Click here to check out this cool refillable gemstone water bottle!

If you believe in the power of crystals, this is a great way to give your water an awesome energy boost!

For thousands of years, ancient civilizations have utilized the power of crystals to release mental, physical and spiritual blockages, thus facilitating the free flow of energy throughout our bodies.

Click here to read more about the healing power of crystals.

 

 

4. Bring a Flask and Pre-Game!

 

The average mixed drink is probably between $10 and $12.

What really drove home the concept of how expensive drinks are, was that I lived in the land of $20 vodka Redbull‘s for 5 years (Vegas).

So I found that I could save a ton of money by bringing a flask and pre-gaming before I went out.

Yes, I have had a few friends give me a questioning look when I bust the flask out… But halfway through the night, they are asking for a swig…

Moreover, now that I am in my 30’s I find that I don’t really go to clubs and bars anymore. Instead, I find myself at friend’s houses having a cocktail or a glass of wine.

The point is that one cocktail is about the same price as the cost of a meal!

Plus, you tend to drink more than one cocktail when you are out.

 

5. Enjoy the Great Outdoors! 

 

I love going outside to play. Outdoor activities (like hiking) are free or have a relatively small start-up equipment cost.

A really fun indoor activity is salsa dancing.

What’s really great is that many places offer free salsa lessons!

Another benefit is that salsa is an awesome cardio workout.

In fact, it is a great way to meet new people if you are single, and an even better way to work on non-verbal communication and team building skills if you have a significant other.

Not to mention, Latin dance is very sexy and can help spice up your romantic life.

I used to go to the gym quite often, but now I find that I do all of my exercises outdoors and for free. An added bonus is that you get to experience the outdoors, re-connect with nature, and breath fresh air.

I typically walk 2.5 miles a day, salsa 2x per week, and in the winter I go skiing.

When I worked in an office, I would eat at my desk and walk for my 1-hour lunch. I was able to walk 2.5 miles in that 1-hour lunch break.

 

6. Cut the Cable:

 

I haven’t owned a TV since high school. I do have Netflix, and it is so much cheaper!

Additionally, I don’t have to watch advertisements.

On the other hand, I love listening to audiobooks. I mostly read nonfiction, but for fun, I listen to high fantasy and sci-fi books.

I have found that most books take around 14 hours to listen to. That means that you can crush a book every 2 weeks by listening to an audible book for an hour a day!

7. DIY: 

 

It is super easy to make your own lotions with shea butter, olive oil, almond oil, and coconut oil.

Instead of cleaning with harsh chemicals like Clorox, use vinegar.

Imagine all of the chemicals being put out into the environment to manufacture Clorox bleach (wipes, sprays, etc.). Now imagine that you are wiping your entire home down with these harsh chemicals.

 

 

8. Eat Less Meat:

Sustainable living Reducetarian Solution

Reducetarians are committed to eating less meat, regardless of the degree or motivation.

This concept is appealing because not everyone is willing to follow an “all-or-nothing” diet.

This way you can decide when and how much meat you eat. The nice thing about being a reductarian is that it allows for a flexible intake of meat.

A fantastic book that explains how this diet works can be found on Audibles and by clicking this link. The Reducetarian Solution: How the Surprisingly Simple Act of Reducing the Amount of Meat in Your Diet Can Transform Your Health and the Planet“.

Reasons to reduce your meat intake:

  • Meat, and especially beef is more expensive than eating fruits, grains, and vegetables.
  • There are a number of studies about how red meat increases inflammation in your body.
  • Animals are treated with antibiotics and hormones, which we ingest.
  • Biomagnification of pesticides. The grain and corn that cows are fed have tons of pesticides, and cows eat tons of it.
  • Increase in greenhouse gasses (cows produce a lot of methane)
  • Cruelty to animals

 

Cowspiracy is an environmental documentary that explains how animal agriculture is the leading cause of deforestation, water consumption, pollution, and is responsible for more greenhouse gases than the transportation industry.

Methane is 84 times more potent than carbon dioxide and is far more devastating to the climate than carbon emissions. 

 

 

The 10,000 Foot Over View:

 

There are many ways to go about finding $29 a day to accomplish this goal. Homeownership and retirement are within reach and can become a reality.

In an era marked by immediate gratification, saving for the future is a task that you must consciously work on.

Make it easy for yourself and make saving automatic by having your retirement account auto-deduct the $458 per month from your checking account.

Everyone has a financial report card. Make it a priority to constantly check and work on yours.

Take time and money to re-invest in yourself. Re-investing in your financial education is critical.

How are you going to master your financial report card, if you don’t know the rules of the game?

Every dollar has an opportunity cost.

Curious, throughout high school did you learn about how to navigate your personal finances? Or about the importance of living a sustainable lifestyle?

Did they teach you about FICO scores and how much to have in revolving debt? Or what goes into calculating your credit score?

It is up to you to teach yourself about all of these important topics!

 

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Interested in a particular topic? Comment below!

Reverse Mortgage Is One Right for Your Parents

Reverse Mortgage: Is One Right for Your Parents?

According to Investopia, Baby Boomers (born between 1946 and 1964) are heading into retirement in droves. Approximately 10,000 Boomers retire per day.

Much of the data concludes that this generation is poorly prepared for their later years. As we know, relying on social security alone may not provide enough money to live the lifestyle we once hoped “The Golden Years” would afford us.

The hope is that we have saved enough money over the years in tax-sheltered retirement accounts to live “in style”.

Unfortunately, this is not the case for many retiring Boomers.

Millenials (the children of the Boomers) are now having to make difficult trade-off decisions. This generation must make the difficult choice between caring for their parents and paying for the needs of their children. Not to mention, saving for their retirement and paying for their own needs. 

This is why it is important for Millenials to be aware of the many options out there. Options are just avenues to research so that they can make the right decision for their family. 

The reverse mortgage has received a lot of negative press in the past. This is because the process and option have not been sufficiently explained. I am not here to tell you whether this option is right for you and your family. I am just here explaining what a reverse mortgage is and how it could be an option.

This post will explain the reverse mortgage in greater depth, but a want to provide a quick summary here.

When would you use a reverse mortgage? When you have lots of equity in your home, want to continue to live in the home, and need additional fixed income. Please read this entire article, because there are stipulations to reverse mortgages.

Reverse Mortgage: Searching for Other Options

Reverse mortgages have been shrouded with controversy due to some confusion about how they work.  I would like to clear up some of that confusion and present it as an option for creating additional liquidity for retiring Boomers.

A reverse mortgage is a financial product for homeowners who are 62 or older and have accumulated equity in their home.

This home equity usually represents a substantial portion of an individual’s net worth. As you reach retirement age, you may need to tap into this wealth to supplement your fixed income.

Almost all reverse mortgages today are originated as Home Equity Conversion Mortgages (HECM).  The HECM is a program that is backed by the Federal Housing Administration (FHA). This means that these loans are guaranteed by the federal government.

How does a Reverse Mortgage Work: The Basics

A reverse mortgage is like selling your home to a bank.  First, the bank makes monthly payments to the owner of the home. Second, the owner must continue to use the property as a primary residence for the life of the loan.

The money you get is usually tax-free. As a general rule, you do not have to pay back the money for as long as you live in the home.

When you die, sell your home, or move out, you, your spouse, or your estate will have to repay the loan. Oftentimes, this means selling the home to get money to repay the loan.

Neither you nor your family must pay more than the sales price of the home (the appraised value) upon the owner moving out or passing away. This is because the HECM reverse mortgage is insured by the FHA. In short, the FHA’s insurance will pay for any shortfall.

If the heirs want to keep the home when the owner passes away they must pay off the loan. This is also the case if the owner moves out permanently (no longer uses the home as a primary residence). 

Remember that the owners took out a loan and received monthly payments from the bank. This means that the bank was slowly purchasing the home from them over time.

If the loan balance is more than your home is worth, the heirs will only have to pay 95 percent of the current appraised value of the property. Remember, the FHA’s insurance will cover the rest.

If the loan balance is less than the value of your home, they will only have to pay the loan balance.

Interested in Knowing More About a Reverse Mortgage?

Since this product usually requires that the home gets sold at the end of the term (when the owner passes away or moves out), the government has made it mandatory that a perspective borrower meets with a HUD approved counselor before obtaining a reverse mortgage.

This meeting is set up to determine if the product is suitable for the owner’s needs. The counseling session helps them and their heirs understand how the loan works.

As with any loan, all prospective borrowers must also undergo a financial assessment to qualify.

This assessment makes sure that the borrower can pay to keep the house afloat. This means that they can cover the following expenses: 

  • Property taxes
  • Homeowner’s insurance
  • Basic home maintenance
  • Home Owner’s Association (HOA) fees (if applicable).

You can apply for a reverse mortgage if:

  • The borrower must be 62 years of age or older
  • You own your home and use it as your primary residence
  • The house is a single family, multi-family (up to 4 units), an approved condominium, or manufactured home
  • You own your own home free and clear or only have a small amount left to pay on the existing mortgage
  • The home is in good condition prior to taking out the loan

 

An Example of How It Works:

Home equity is the difference between what your home is worth, its appraised value, and any debt that you owe from mortgages against the home. Unless you purchased the home outright with cash, you most likely have a first or even a second loan on the property.

When you own a home with a conventional mortgage, you gain equity over time as you pay down the loan. When you first start paying the loan, most of the monthly payment goes toward the interest. Over time you begin to pay more of the principal off and less of the monthly payment goes toward the interest.

Let’s say, for example, that you own a home worth $400,000 in today’s real estate market, and you only owe $100,000, because you have paid down the rest over the years that you have owned the property. This means that you have $300,000 in equity.

The amount you would receive from the bank each month is based off an equation that includes a few simple items. Click this link to use a free online reverse mortgage estimator.

Be careful:

There are non-FHA insured reverse mortgage loans that may have very different loan terms. So if you are considering a non FHA backed loan, make sure you understand the contract fully!!

Hopefully, I was able to dispel some of the myths about reverse mortgages, while providing a valuable option to increase your/your parent’s liquidity.

Many people ask whether a particular investment option is the “Best”, and my reply is that there isn’t one “best investment option for everyone”. Every individual has a unique financial situation and needs to decide what is the best option for them.

Have any questions? Post a comment!

 

Photo credits:

Couple on bench

 

What is a 529 College Savings Plan_ (2)

What is a 529 College Savings Plan?

This article explains how to use a tax-advantaged 529 College Savings Plan. According to the College Board and Investopia, the average annual in-state tuition at a public four-year university tops $20,000. Not to mention, that the cost climbs to more than $45,000 per year at a four-year private university.

In other words, the average student now graduates with approximately $30,000 in student debt. It is estimated that around 70 % of graduates leave college with some level of student debt. The Federal Reserve has said that Americans now owe more than $1.4 trillion in student loans. In short, these numbers are jaw dropping.

What is a 529 Plan

 

Research from Citizens Financial Group suggests that 60% of student-debt-borrowers expect to pay off their loans in their 40’s.  Furthermore, the research by individual states support these findings. 

One study finds that it takes the average graduate of a Wisconsin university 19.7 years to pay off a bachelor’s degree. Moreover, it will take 23 years to pay off a graduate degree. One question we need to ask ourselves is, “aren’t we going to school to earn more?”.

Why is it that the cost of an education now puts people into such large amounts of debt? In retrospect, $30,000 is enough for a down payment on a house in many parts of the country.

Of course, education is important. This is why it is critical to save for college.

What is a 529 plan?

529 plan . Federal income tax rate

It is a tax-advantaged savings plan that is specifically used for future college or continuing education costs. Earnings from a 529 plan are exempt from federal income taxes.

Federal income taxes are calculated based on a percentage of your yearly income. Typically, federal income taxes can range from 10%-37%.

Keeping as much of your hard earned money as possible is critical! Why give money away to the government, when it can go into a savings account?!?

 

What is Covered Under a 529 Plan?

  • Colleges
  • Universities
  • Vocational schools
  • Other post-secondary educational institutions

There are Two Types of 529 Plans

  1. Prepaid Tuition Plans: This kind of account allows the college saver or account holder to purchase credits with participating universities. Typically, public and in-state colleges participate in these programs. This savings plan allows you to use the credits for future tuition and mandatory fees. Another benefit is that you get to purchase the credits based on the cost at current prices.
  2. College Savings Plans: This savings plan is an investment account that is used for higher education expenses. In this case, the money can be used for tuition, mandatory fees, and room and board. Typically, withdrawals from the college savings account can be used at any college or university. Another benefit is that the funds in the account can be invested in a wide range of portfolio options. This including various mutual and exchange-traded funds (ETF).

***Note: The prepaid tuition plan does not cover future room and board costs.

 

How Does Investing in a 529 Plan Affect Federal and State Income Taxes? 

Contributions: Yet another benefit is that many states offer tax benefits for contributions to a 529 plan. These benefits may include deducting contributions from state income taxes or matching grants. Accordingly, be sure to research the state that you are living in, and what option benefits they have for the 529 plans.

Withdrawals: If 529 account withdrawals are not used for qualified higher education expenses, they will be subject to taxes and a penalty. If you took state and federal income tax deductions, then you will be required to pay taxes on those funds. Additionally, you will be hit with a 10% federal tax penalty on the earnings.*** Always consult a tax adviser, as I am not a CPA**

What Expenses Can and Can Not Be Paid for by a 529 Plan?

According to the IRS, eligible expenses include:

  • Desktop computers
  • Laptops
  • Any device controlled by the computer (such as a printer).
  • Internet service 
  • Textbooks

Unfortunately, any additional study material that is not included on the syllabus may not be covered.

The student should keep a copy of the syllabus with their textbook receipts in a file labeled “529 plan expenses”. Of course, the student should get in the habit of maintaining good records.

Keeping good financial records is a great life skill and will help greatly should the IRS come knocking.

Do not use the funds for lifestyle expenses. Examples of lifestyle expense are furniture for an apartment (big screen TV, couch, sofa or kitchen table) and cell phone bills. None of these expenses are deemed as necessary to attend college.

***Remember: Keep separate receipts for money spent by a 529 distribution. i.e don’t buy school T-shirts or other school team gear from the bookstore on the same receipt.

Does Investing in a 529 Plan Impact Financial Aid Eligibility?

Yes, investing in a 529 plan could impact a student’s eligibility to receive need-based financial aid. It is generally a better idea to plan for the future, than to hope that the government will be able to assist you through college.

Financial aid plans are subject to change, meaning that you could qualify one year but not the next. Most aid programs are also dependent on obtaining a certain GPA minimum, and if the student dips below the required minimum they will lose their financial aid package.

Options for Withdrawing Money From a 529 Plan:

There are three distribution options available:

  1. Send a Check Straight to the School
  2. Sending a Check to Yourself – (typically this is the parent of the college attendee)
  3. Sending a Check to Your Beneficiary (the student)

529 plan loan balance

Planning is an important part of preparing for the future. The sooner you start, the more time you will have to save for college. If you decide to go with the savings plan, the sooner you start saving and investing the more time the money will have to compound! If there is a topic you are interested in knowing more about, let me know by commenting below!

 

Photo credit

Federal income tax brackets

Borrowers by age group

Loan amount  by age group

How to Calculate the Amount You Will Need for Retirement

How to Calculate the Amount You Will Need for Retirement

What is your financial freedom number?  This post will discuss how to calculate the amount you will need to retire.  Financial freedom is the point at which your investments and income exceed your expenses.

At this point, you can safely retire or work on projects of your choosing.  In another blog, I discuss the concept of how to “Increase the Velocity at Which Your Money Grows”. Meaning that not all forms of income are treated the same, and thus are taxed at different rates.

Obviously, the goal is to get your money to work for you while you sleep and to earn income that is taxed at capital gains rate

Learning from the Top Minds in the Financial Industry:

Saving and investing UnshakableIn the book “Unshakable” (the book after “Money: Master the Game“), Tony Robbins condenses the advice from 50 of the most successful financial experts alive today.

In this book, he gives you a step-by-step, actionable plan that can be used by anyone at any financial level.

Money: Master the Game” and “Unshakable” provide you with a blueprint for financial freedom. These two books contain wisdom from world-renowned experts.

To name a few of the top minds that Tony Robbin’s is able to glean advice from are Carl Icahn, Ray Dalio, Warren Buffett, and Steve Forbes.

I found that these two books were super easy to listen to and understand.

What is so Special About These 2 Books on Retirement?:

I want to give you a brief summary about me so that you know where I am coming from. Some of you may know that I have a background in business. My father was a business owner for 40 years (he is now retired), while my stepmother currently owns her own boutique commercial real estate company.

I got my undergraduate degree in International Business. Currently, I am obtaining a Master’s in Business Administration with an emphasis in Renewable Technology. My projected graduation date is in December of 2018. I have been a Broker in Real Estate since 2010, and have been dabbling in the stock market game since I was 16.

Why do I tell you all of this? Because I can confidently say that “Money: Master the Game” and “Unshakable” are excellent books. This is especially true for the average person who may not understand the intricacies of financial jargon. Saving and investing Money Master the game

Tony Robbins is probably the only person with enough pull to get an interview with the 50 most influential financial experts alive today:

Not only does he explain investment concepts in laymen’s terms, but really delves into why each recommendation is so critical to the plan that he puts forth.

It frustrates me whenever I go to an expert and they don’t explain the reason for why I should make a particular change.

For example, have you ever taken your car in for an oil change just to find out that you need to fix or replace 2-3 other parts?

Wouldn’t you feel more confident in the situation if the mechanic showed you how dirty your air filter was? This way you could see for yourself that it does, in fact, need to be changed.

Overall, if you are new to reading finance books for pleasure and want to listen to an audible book that is simple to digest start here.

In sum, to become financially free, you must study the successful individuals who have already achieved this goal. 

Money: Master the Game” and “Unshakable” are the perfect books to start your journey of being a life-long student of success!

 

Financial Freedom: Your Retirement Number: 

 

According to Tony Robbins, you will need to earn 20x your current yearly income to retire.

For example: If you earn $100k per year, your financial freedom number to retire is $2 million.

My Recommendation: The goal is to save, re-invest, and obtain cash flow that is taxed at capital gains rate.

Capital gains rate is so special because it is taxed at 15%- 20%, instead of an individual’s regular income tax rate (10%-37%).529 plan . Federal income tax rate

Typically, cash flow comes from real estate, equity ownership in a company, dividends, and interest. All of these are higher level income streams, also known as passive income.

With respect to the stock market, Tony Robbin recommends dollar cost averaging and using a “buy and hold” strategy.

As most of us know, the stock market has “bull” and “bear”  cycles. A “bull market” is when the market is increasing, and a “bear market” is when the market is declining.

Tony’s research shows that bear markets last a maximum of 2 years, and happen every 3-5 years.

Bear markets have occurred once every 3 years, for the past over 100 years.

Moreover, throughout Money: Master the Game” and “Unshakable”,  every major investor Tony interviews expects bear markets to occur.

The Power of Dollar Cost Averaging:

 

These financial experts advise not to get skittish and sell all of your holdings. By selling your stocks in a downturn, you lock in your losses.

***Keep your holdings and continue to buy stocks (dollar cost averaging) throughout a downturn. This will result in purchasing stocks at a cheaper price per share. Additionally, you will have obtained more shares at this lower cost.

When the stock market bounces back you will own more shares and have bought them at a discount.

In another blog post, I discuss how on average over any 40 year period the aggregate stock market increases 7% per year. This includes the downturn bear market years.

The “buy and hold” strategy worked even during the lost decade (during the 1990’s). If you had invested $100,000 in a diversified basket of indexes, you would have grown it to $191,000 (about 6.7% return per year).

  • A bear market is defined as a 20%  or more fall in stock prices
  • A correction is defined as a 10% decrease in stock prices

How to Diversify your Portfolio Through an ETF:

Research shows that 75%-90% of money managers (professional stock pickers) do not outperform their benchmarks (like the S&P 500).

Additionally, money manager’s charge a fee to manage your portfolio.

  1. Typically, they either take a percentage of assets under management. Example: 1%-3% of whatever assets they oversee in your portfolio or
  2. They charge a flat fee for every trade transaction completed. Example: $15 per stock trade.

Without exception, every financial expert that Tony interviews recommend a diversified portfolio.

Moreover, the general consensus is that an individual should invest in at least 6 asset classes.

These asset classes include:

  1. US stocks
  2. International stocks
  3. Emerging market stocks
  4. REITs
  5. Long-term treasuries
  6.  TIPs.

 

As always, I urge you to invest in your future by becoming a life-long student of success!

Every 10,000-mile journey starts with a first step. Get started learning the fundamentals of finance with Tony Robbin’s  Money: Master the Game” and “Unshakable“!

Which cash flow investment are you most interested in and would like me to write about? Comment below!

 

Photo credit

2018 Income tax rate

 

 

Roth IRA: How to Become a Millionaire by the Time You Retire!

Roth IRA: How to Become a Millionaire by the Time You Retire!

Instructions on How to Grow $1,000,000!!!

A Roth IRA is a type of retirement investment account. The difference between a Roth versus a regular IRA is “when” you pay the taxes on the money.

Roth IRA: Pay income taxes at the time you earn the money, and the invested funds and compounded interest grows tax free. When you pull the money out later, you will not have a tax liability on those funds.

Regular IRA: You take a tax deduction for the funds during the current tax year. When you liquidate the funds at the time of retirement, you owe taxes on the amount you withdraw per year based on your current income tax rate.

I like a sure thing, which is why I pay my taxes up front (so that when I withdraw the funds later I don’t have to pay taxes). This means that when I look at my Roth IRA account, all of the funds are mine (no calculations or guessing involved)! You can open an account with any number of brokerage companies. I use Vanguard because you can trade an unlimited number of their index funds for free.

gold piggy bank

In a prior blog post I showed you how you can save $650 per month by reducing the amount you eat at restaurants and cooking your own meals. The maximum amount that you can contribute to a Roth IRA account per year is $5,500, which is $458 per month (you can fund your future retirement by not eating out today)!

Experts say that over any 40 year period, the stock market has an average return of 7%. By using a retirement fund calculator, we can see that the overall return for a Roth IRA account that has annual contributions of $5,500 which grows at 7% per year is $1,174,853!!!  Bam! You are a millionaire!!!

Dollar Cost Average:  Buying a fixed dollar amount ($458 to max out the Roth IRA) of a particular investment on a regular schedule (say the 1st of the month).

Retirement is possible. Start young, and be consistent. The younger you are, the better off you will be. The more time the funds are invested, the more tax free compounded interest you will earn! With any retirement account, there are restrictions and penalties for withdrawing before the age of 59.5.  One of the general goals of this blog series is to explain how to win the “game of money”. We all have a financial report card, dreams of retiring (or at least want to not HAVE to work), and a desire to have enough money financially.

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Investing in your future should be part of your once per month habits. You pay your bills on the 1st of the month, add “Roth IRA contributions” to that list (so that you won’t forget)! Investing should become an automatic habit, like brushing your teeth. You get one body and one mind, what habits and routines do you have in place to  take care of yourself?

 

Do you have a topic that you would like to know more about? Post a comment below!

 

Photo credit piggy bank

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Financial Loopholes: Increase Your Wealth

Today, I will be writing about “money fast passes”. Ever wonder what the “loopholes” of the rich are? Well, I am about to share them with you! You can use this blog series to help you increase your wealth and up your financial IQ!

The government uses incentives to get individuals to perform tasks in two areas (owning a company and real estate) through tax breaks in order to increase free market transactions.

This means that the government gets people like you to perform tasks by giving them tax incentives so that it does not have to perform these functions. In short, the government wants you to provide jobs and housing.

There are 3 types of income

  1. Earned income
  2. Passive income
  3. Portfolio income

 

Earned income is taxed at the highest rate. Earned income is the income that you receive when you go to work. The government wants individuals to save their money and reinvest. When individuals re-invest their earned income (which they have already paid income tax on) they get to pay “capital gains” tax on any income or interest that the investment makes. Currently, the capital gains rate is 15%-20%.

The key to investments is that your money works for you, even while you are asleep!!!

Saving Money is a Daily Habit and a Lifestyle Choice:

 

Someone who earns $1 million and spends $1 million is still living month-to-month. The first step to investing money is finding the money to invest by saving.

You have to be willing to look at your current lifestyle and see how you can reduce your spending, to increase your savings.

 Saving and investing rich dad poor dadLearning tax loopholes and finding investment vehicles isn’t the hard part. The truly difficult part of investing is finding the money to invest.

That means living below your means so that you can set aside the funds to start investing. Remember, saving and investing requires strategy. You must be a student of the game!

To learn more about highly effective morning routines click here. To be successful, you must be a student. Humble yourself and strive to learn one new concept each day. I read a book every week and a half. That is around 30 books per year! You can do it too. Don’t have time to read? Listen to books on Audio! 

If you haven’t readRich Dad Poor Dad” by Robert Kiyosaki, it’s a great place to start!

Passive Income and Capital Gains Tax Rate:

 

Ever wonder why Warren Buffet only pays 17% in income taxes (according to a Forbes article, see resources below)?

It is because most, if not all, of his income, is derived from income streams that are taxed at capital gains rates.

He owns many companies, which allow him to write off expenses and roll losses forward (all to come in future blog posts). For now, let’s focus on how to get our income into the capital gains tax bracket.

Passive income usually comes from rental properties or a business that you own equity in.

Portfolio income (think papers in a portfolio) is typically derived from stocks, bonds, mutual funds, index funds, etc.

You must have savings in order to invest and achieve these higher levels of income streams.

AND I know what most of you are thinking… “I don’t have extra money laying around!”.

 

Where to Find Money to Start Investing:

I am going to give you one $5 example, which you can then apply to every $5 increment in your personal daily spending habits.

Say I were to buy a $5 coffee every morning before work. That is $5 x 5 days per week x 4 weeks per month x 12 months=$1200 per year on coffee!!

One last tip, learn what it takes to go out and achieve your goals by reading this article. Get started building your dream life today!

Be a student of success, and start by downloading the “Rich Dad, Poor Dad” book on Audibles. It has become one of the cornerstone books in finance for beginners.

What else do you spend $5 on that you could save? Have any easy tips for saving money? Please share your thoughts with the community by commenting below!

 

 

 

 

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