Saving For Your Future Part 3
So if you haven’t read my last 2 posts on savings, you may want to go back and read them….go ahead I’ll wait.
We have been talking about savings, 401K plans, etc. The point of these posts if that I want you to be able to save…..I want my friends, family and people I have never met before to be successful. Remember though, any investments you personally do is on you and not on me….I’m not personally investing or planning for you and I’m not touching your money, I’m not licensed to.
Now that we have that out of the way….so let’s say you don’t have a 401K to put money in, but you should hopefully have a checking and savings account. If you have those, then you have the basics to get started to save and pay monthly, daily bills, etc.
Now lets look into stock possibilities or stock plans. There’s various companies that will allow you to open a stock account, for example: Charles Schwab, ING, E-Trade, Fidelity, etc. They may charge you a fee to trade stocks, like Schwab is $8 a trade. These accounts can be great if you want to play with your hard earned money to make more money. This is called “make your money work for you”, but that’s also if you make money in the market (which has been volatile recently due to oil prices and foreign markets). There are some different stock accounts to look into: I use a IRA Roth and a Money Market account.
A Roth IRA is straight-forward. Money that you put into it is pre-taxed (taxed before it goes into your account) and you can start withdrawing out of it at age 59 and there’s no mandatory time to take money out. There are certain restrictions where you can withdraw without penalties (say to buy a house which is up to $10,000), but you will have to pay it back, possibly with interest (on Traditional IRA). Traditional Roth’s are tax free when you put money in, but are taxed when money is withdrawn (think capital gains). Traditional Roth plans are also required to take cash out at age 70 1/2 which means you’ll be taxed at 70 1/2 until you die. I like Roth IRA’s because I’m young….I can work a lot and put away more money a month. When I’m retirement age my tax bracket might be higher (which means higher income tax) and most likely we (Generation X & Y) won’t get Social Security so I’d rather have more money all ready taxed when I’m older.
Both accounts let you put in $5,500 a year before maxing out the account. I try to max out every year if possible. A IRA Roth doesn’t offer taxable deductions a year, but is tax free when removed at age 59. A Traditional Roth is tax deductible on the year invested, but is taxed as normal income when removed. Now in most cases you need $2,000 to open an account, but after you have those accounts started you can invest as little or as much as you want. IRA Roth’s and Traditional IRA’s have limits but Money Market accounts do not.
A Money Market is what I use to invest in stocks. I can invest, reinvest or sell as much as I want. The great thing about this is I can buy and sell as much as I want (with fees) but if I have an emergency, I can sell a stock to take the money to pay for that emergency. Remember….anytime you make money off a stock you sell, you have to pay taxes. This is called Capitol Gains (think of it like getting a paycheck taxed). If you like, you can even let you money sit in it if you don’t want to invest, you’ll just make interest on your money based off of the current interest rates (which in most cases is more than the .01% or .03% you bank pays). For example, Bank of America’s checking and savings give .01% interest, but their Rewards Savings gives .03%. If you look at Charles Schwab High Yield Savings Account, they pay .10% interest on your money. So definitely some things to think about.
Look into some of your options. Find out which company works for you. You don’t have to “make it work” for you, there’s plenty of options out there that are right for you. Remember, you work hard for you money, so make your money work for you.