Tuesday, November 16, 2010
1. Save For Children Early
Start saving for your child’s education soon after they’re born. Even if the fund starts small, the longer the account exists, the more time it has to grow. Increase your contributions as your salary increases. Allocate a part of your annual bonus to go toward their fund. Grandparents who like to give your children savings bonds or cash at birthdays can instead make a deposit into your child’s mutual fund where it will make an impact on their future.
2. Get Free Money in 401K
Every dollar you save in your 401K save you money on taxes, and these days many employers match 50 percent or more of your contributions. This is free money towards your retirement! If you change employers, be sure to roll the money over or make the proper transfer. Do not let this become a “between jobs fund.”
3. Max Out a Roth IRA
It just takes $5,000 a year, or $417 a month, to max out a Roth IRA. This way your investment grows tax-free, usually at an average rate of 10 to 12 percent over time. If you’re over 50 you’re allowed to contribute $6,000 a year to catch up on retirement. Get one in your name and one in your spouse’s and you’ll double your capacity for tax-free savings.
4. Buy Term and Invest the Difference
Instead of buying an expensive cash value life insurance policy with savings bundled inside, buy an affordable term life insurance policy and invest the difference in a mutual fund or IRA. Not only will you have a higher amount of life insurance for less money, but your savings will gain more interest over time (usually over 5 percent more). By the time the policy expires you should have less financial responsibility (ex: small children, mortgage, unsecured debt), and money set aside for a head start on retirement.
5. Pay Your Mortgage Faster by Refinancing
If you have a good credit score and 20 percent equity in your home, you’re likely to get a better interest rate on your mortgage. Some banks will even include the amount of money you owe on vehicles and credit cards, consolidating your debt onto a single note. That means you could have high interest debts converted to the same lower rate as the new mortgage. If you use money saved on interest to pay off the mortgage faster, you could own your home up to a decade sooner.
6. Pay Off All Credit Card Debt
Holding a big balance on a credit card means you are just hemorrhaging money. You are probably paying 15 percent interest or higher. If you’re just paying the minimums, find a way to pay more. Often the minimums barely cover the interest, meaning it will take years to pay them off. Have multiple credit cards? Start by paying off the card with the highest interest rate first, then use the monthly payment freed up to pay off the next one faster. Repeat as needed until you no longer have credit card debt.
7. Monitor and Improve Your Credit Score
You may not care about it, but lenders and even some employers do. There are a lot of low-cost services online that enable you to check all three credit scores at any time. I’d recommend using sites with calculators that show an approximate interest rate for a car or home loan based on your score. That way if you need to develop smart debt you are sure to know you’re getting a good deal.
8. Become a Vegetarian
By forgoing meat and cheese you’ll save money on your grocery bills in the short term, and save money on healthcare costs in the long term. It’s estimated that the average family saves $4,000 a year buying vegetables instead of meat. Diets laden with meat and dairy are linked to cardiovascular disease, still the number one killer in the U.S.
9. Track and Budget Your Spending
Some banks offer free online banking, which includes a way to track and budget your spending. If not, you should purchase a program for your computer that shows where your money is spent, and breaks it down into different categories for easy viewing. This will help you form and keep a monthly budget so you and your family can work your financial plan.
Still overspending? Try placing the exact amount in cash for one area, clothing for example, into an envelope. When the money is gone, no more clothes ‘til next month!
10. Self Improve
Use a library card and all this will cost you is a little time each day. The library literally has thousands of books written by successful people who work in your field. By reading, internalizing and applying the right concepts you are more likely to be successful too. Don’t know which books to read? Ask a sharp co-worker, the leader of an organization you belong to, or read about someone famous you admire.
Don’t like to read? Get an audio book and listen to it. Turn your car into a classroom and make use of that long commute or road trip. Your kids and your spouse might learn something too. Increasing your income by learning new ideas and developing good habits is a great move that always pays off.
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