Most of us have multiple savings goals at any given time and a limited amount of money to divide among them. If you need to save for both your retirement and your child’s college, a Roth IRA is an option to consider.
Roth IRAs, unlike traditional IRAs, allow you to withdraw your contributions (but not the earnings on them) at any time. If you are under the age of 59, you may be subject to a penalty for early withdrawals.
This means you can use a Roth IRA to save for retirement while also tapping into the account to pay for college expenses. The disadvantage, of course, is that you will have significantly less money saved for retirement at a time when you may require it even more.
The maximum allowable IRA contribution (for traditional and Roth IRAs combined) for 2021 and 2022 is $6,000 if you are under 50, or $7,000 if you are 50 and up.
Saving Money Suggestions
If you need to save more money than you can easily extract from your paycheck, here are a few suggestions from financial planners.
- Budget or Manage Your Spending
- Consider Cash Back
- Do Not Experiment
- Concentrate on Major Expenses
1. Budget or Manage Your Spending
People frequently find themselves wasting money on things they don’t need and could easily do without. Keep track of every penny you spend for a set period of time, whether it’s a week or a month. You can keep track of your expenses with a notebook or an app like Clarity Money or Wally.
Some apps will even save your data for you. The Acorns app, for example, connects to your payment card, rounding up your purchases to the nearest dollar and depositing the difference into an investment account.
2. Consider Cash Back
Signing up for apps like Ibotta or Rakuten may make sense as long as you only buy things you truly need. Apps like these provide retailers with cash back on groceries, clothing, beauty supplies, and other items.
You can also use a cash rewards credit card, which offers 1% to 6% cash back on every purchase. For example, the Chase Freedom card offers 5% cash back on categories that change on a regular basis.
This strategy is only effective if you transfer your savings to a savings account and pay your credit card bill in full each month.
3. Do Not Experiment
You might want to eat out less frequently, try to get a few more wears out of your clothes, or keep driving the old car for another year. However, unless you enjoy living like a miser—and some people do—don’t deprive yourself of every last pleasure in life. The goal of saving money is to build a financially secure future, not to make yourself unhappy in the present.
4. Concentrate on Major Expenses
Clipping coupons is fine, but you’ll save far more money if you cut back on your biggest expenses. For most of us, this includes things like housing, insurance, and transportation costs. Could you save money by refinancing your mortgage at a lower interest rate? Could you shop around for lower premiums or combine all of your policies with a single carrier to save money? Is there a cheaper alternative to driving to work, such as carpooling or working from home once a week?
How Can I Save $1,000?
Here are a few options if you need to stash away $1,000 cash right away. If you haven’t already, sign up for direct deposit through your employer and set up automatic transfers to a savings or other emergency account. Sign up for cash back apps or credit cards to add to this account. Take advantage of a 401(k) or automatic withdrawals from your account into an IRA if you want to save for retirement (which, yes, counts as savings).
What Exactly Is the 30-Day Rule?
The 30-day rule is straightforward. It’s a savings rule designed to help you shift your mindset from spending to saving. Stop shopping online or in the mall if you see something you like and are about to buy it. Turn around or log out. Defer the purchase for a month and put the money you would have spent into your savings account instead. You can return to the purchase once you’ve passed the 30-day mark.
What Is the Most Effective Way to Save Money?
To save money, you must have discipline and a plan. Determine your objectives and how much money you need to set aside. Take advantage of your options, whether they are an employer-sponsored retirement account or an IRA. Make sure you have assets that can be easily liquidated in case of an emergency. Also, seek the advice of a financial professional to guide you in the right direction.
I hope this article will assist you in managing your expenses so that you can save for Long-Term Goals.