I saw this great article over on Investopedia and thought I would share it my readers. It offers seven tips on how to save $100,000. To some, $100,000 might not seem like much. But to others, $100,000 is a ton of money. Regardless how you view $100,000 know that saving this amount of money can change a lot of things financially for you. Here are the tips for how to save $100,000:
Tips For How To Save $100,000
- Have The Right Mindset
- Create Short-Term Savings Goals
- Save on Taxes
- Reduce Interest Burden
- Take Advantage of Employer Benefits
- Generate Additional Income
- Keep Costs Low
Have The Right Mindset
I agree with all of the points listed on how to save $100,000. You need the right mindset and have to stay positive, regardless of what is happening in life. I have read studies that if you place two people out in the wilderness, one person with all of the survival skills and a negative attitude and someone else with no survival skills and a positive attitude, the one with a positive attitude will survive.
The point being that you need to stay positive. Life gets tough at times. But learn to see the positives in everything. You’ll be much happier and much more likely to succeed. If you are in debt currently, realize that you didn’t get into debt overnight and you won’t get out of debt tomorrow. But stay in the mindset that you WILL get out of debt.
You have to stay positive and believe that you can overcome your financial troubles. If you doubt yourself from the start, you really have no hope in changing things. Learn to believe in yourself and think positively.
Be sure to read more about thinking positively or learn how to start thinking positively if this is an area where you need help.
Create Short-Term Goals
I follow short-term goal making too. If you have read my monthly goal posts, you will see that I like to focus on goals at 30 day increments. Keeping goals short keeps you interested and more likely to succeed. Succeeding makes you feel good and everything comes full circle.
Of course, there are some goals that are long-term and breaking them down into 30 day increments don’t make much sense, like paying off your mortgage. Even though this is the case, you should still break the goal down into small, more manageable chunks.
If your current balance is $150,000 then make your goal to get your mortgage to $140,000 this year. If you have $25,000 in student loan debt, focus on getting the balance to under $20,000. When you hit these mini-goals along the way, you keep your motivation high and your focus on achieving your goal. After all, seeing your mortgage balance drop from $150,000 to $147,000 in a year when your goal is to have it paid off will cause feelings of doubt. Push through these feelings by making smaller, more attainable mini-goals.
The same idea holds true for saving money as well. Your emergency fund may not look like a lot of money, but over time, a monthly savings into the account will have it grow. Just set up short-term goals to grow the account by. Make it your goal to save $1,000 this year and when you reach $500, have a mini-celebration.
When it comes to saving for retirement, realize again that it’s a journey. You don’t need the money tomorrow, so don’t get frustrated or discouraged that you “only” have $50,000. Continue to invest and over time, the balance will grow. I started out saving for my retirement with a measly $20 from each paycheck. Close to 15 years later and I’ve cleared six figures and continue to save.
Save on Taxes
It’s a must to keep taxes as low as possible. You don’t need to be CPA or study the IRS rules. At the end of the day, to reduce your taxes the most you should:
- Contribute as much as you can to your 401(k) plan. Your contributions are taken out of your pay before taxes, making your taxable income lower, meaning less tax paid.
- Contribute to an HSA account if you have a high deductible insurance plan. If not, contribute for an FSA. Both will reduce your tax burden.
- Know the difference between a credit and a deduction. Many people confuse the two. A credit is much more valuable to you then a deduction.
- Invest wisely. Bond interest is taxed at ordinary income rates whereas capital gains and dividends from stocks are taxed at a lower rate. If you hold taxable bonds or bond funds, they should be in your retirement accounts so that you don’t have to pay taxes on the income.
- Take advantage of tax-loss harvesting. This is where you sell some holdings at a loss if you have already some some investments at a gain. You can offset your gains with the losses, eliminating any tax you owe.
- Give to charity. You should be giving because it is the right thing to do. But you do get the added benefit of writing off your donations. Keep a detailed list of the donations you made throughout the year – money, clothing, time, travel, etc.
- Pay attention to the law. I know I said you don’t have to study the IRS rulebook, but you should stay abreast of new tax laws and changes every year. You never know when something will change that will affect you. Just keep your eye out for news stories and read them. If you don’t understand what it is talking about or if it benefits you, ask your CPA.
Reduce Interest Burden
There are a few ways to reduce your interest burden. When talking about credit cards, the solution is to pay off any outstanding balance as quickly as possible. If you are paying 18% interest on your debt, by paying your card off in full you are essentially getting an 18% guaranteed return on your money. You won’t find this kind of return anywhere else.
To pay off your debt, find ways to cut monthly expenses, take a second job, or start a side business for additional income. Understand the wealth equation and learn to increase your income. Apply the savings or extra income to your debt.
Another area where you pay interest is on your mortgage. You can refinance or you can look to pay off your mortgage early. In either case, doing so will save you thousands of dollars in interest.
Employer Benefits
When it comes to employer benefits, the biggie is the retirement plan. If your company offers you one, you need to be investing in it. At the very least, you should be investing up to whatever your company matches you with. So if they offer a 4% match on your contributions, you better be investing 4% of your salary.
But again, that is what you should do at the very least. Ideally, you should be saving between 10-15% of you salary in your 401k. The more the better. I know that money might be tight, but you have to find a way to save now for retirement. You are going to need money to live and it’s not going to magically appear in your account. Take advantage of time and let your money work for you.
For those that can afford to save for retirement but are scared of the stock market, you need to get over your fear. Yes the stock market has been on a roller coaster ride as of late. But there is always short-term volatility in the market. When you look long-term, much of the volatility goes away and the general trend is positive. The stock market is not a game that is rigged and you have no shot at winning. If you play the market and try to chase returns, you will fail miserably. But if you are smart about your investing, you can easily become a stock market millionaire.
Aside from retirement plans, many employers offer other benefits as well. One company I worked for had a discount on cell phones through AT&T. I was able to get a 17% discount on my monthly bill. In addition, they had relationships with all sorts of local companies offering discounts on flowers, golf, car washes and more. Email your benefits team to see if your company has any such benefits.
If not, all hope is not lost. Depending on who your health insurance is through, they might offer you discounts as well. Mine provides a $25 coupon on a bike helmet, a reimbursement for visiting a gym and a free consultation with a nutritionist each year. They even have an 800-number with counselors to help if I am going through a tough time. If you aren’t covered by an employer, shop around for the best health insurance for your money.
Generate Additional Income
Taking a second job or starting a side business is great to help you pay off your credit card debt, but the income from these ventures after paying off the debt goes a long way too.
I have done this since college. I am always looking for ways to add some extra money to my pocket. The reason is simple: the more money I have saved, the more it can compound upon itself and grow more.
With the proliferation of the internet, you can do all sorts of things to generate additional income. Just figure out what you enjoy doing and then see if there is a way to earn an income from it. When you do this, your “work” never feels like work at all.
Keep Costs Low
Being aware of what you get charged in expenses for mutual funds and ETF’s is a must. There is no point in paying high management fee’s when you can get funds that suit your needs for a fraction of the cost. It is one of the things you can control when you invest. After all, the fees you pay are like being charged twice:
- You first pay the fee that the investment charges
- You lose out on the opportunity of that money growing for you
Here is what I mean by this. Let’s say you have an investment that charges you 1% and another that charges you 0.50% and you have $1,000 invested. At the end of the year, with a 1% fee, you paid $10 in fees. With a 0.50% fee, you paid $5 in fees. (This is the first charge.)
Had you not invested in the investment that charges you 1% but only in the fund that charges you 0.50%, you would have $5 more in your account. While this $5 might not seem like a lot, it becomes huge when you take into account the real value of your account and time. (This is the second charge.)
Over the lifetime of investing, you are paying over $75,000 in investment fees! This shouldn’t cause you to rethink if investing in the stock market should be done or not (it should be), it’s just showing you that you have to pay attention to fees.
If you have no idea how much you pay in fees and want to know, you should sign up for a free account with Personal Capital. They have a great tool that looks at your investments and tells you exactly how much you are paying in fees each year. It was truly an eye-opening experience for me.
Final Thoughts
If you can incorporate these tips into your daily financial life, you are going to see a complete change in your finances, and all for the better. You don’t have to use every tip, but the more you do, the better off you will be financially.
While making all of these changes at once might seem overwhelming to you, use the one tip to your advantage right off the bat: create short-term goals. Divvy up these points into manageable pieces and attack them one by one. This will remove the feeling of being overwhelmed and will allow you to take action instead of being paralyzed by seeing too much to do.
What are your thoughts on how to save $100,000? Do you think anything needs to be added or removed?
The post How To Save $100,000 appeared first on MoneySmartGuides.com.