How to Become a Millionaire Investing Just $200 per Month

how to become a millionaire

How to Become a Millionaire

In this article I am going to explain how to become a millionaire in 9 simple steps! Read on to find out how!

 

How to Become a Millionaire with Just $200 a Month!

That magical number—$1 million. Even though a million dollars isn’t what it used to be, having a million dollar net worth will still allow you to live a comfortable (and awesome!) retirement. And, sadly, it is still something most Americans won’t attain. But you can do it; it’s really not hard! It takes a little bit of discipline and dedication, but all it takes is $200 a month! And saving $200 a month is very doable for most families if they make it a priority.

So how does $200 a month become $1 million for retirement? The answer is compound interest. Albert Einstein called compound interest the eighth wonder of the world. When I first learned about the amazing power of compound interest in an extracurricular class I took with my husband while he was in college, I got hooked on personal finance. I then began a serious study of personal finance, and it’s something I’m still passionate about, more than a decade later. Even if math isn’t your favorite or your best subject, like it wasn’t for me, you can still rock your personal finances. And I’m here to help you do it.

 

Tip: Pin the image above to Pinterest so that you can easily refer to this article on how to become a millionaire later!

 

 

How $200 a Month Becomes $1 Million

It definitely is realistic to become a millionaire by investing just $200 a month! If you graduate from high school or college and begin investing $200 a month by age 25 and work until age 65, and you earn a 10 percent average annual rate of return (very doable over the long-term with good growth stock mutual funds), then you would retire with $1,168,444.

If you are reading this article a little late in the game and you are already 30, you can still easily become a millionaire by retirement! If you saved $200 a month from age 30 to age 67 and earned an 11 percent average annual rate of return, still very doable with good growth stock mutual funds over the long term, you would have $1,126,825!

Don’t want to work till you are 67? No worries! Just up your monthly retirement contribution to $250, assuming you earn an 11 percent average annual rate of return, and you can still retire at at 65 (if you started investing at age 30) with $1,137,492

And what if you are starting even a little bit later in life than that? You can still become a millionaire with just $200 a month! By saving $200 a month from age 35 to age 69, if you earn a 12 percent average annual rate of return, still realistic over the long term with good growth stock mutual funds, you would have $1,033,592! 

And again, if you don’t want to work till age 69 but want to retire at age 65, then up your monthly retirement contribution to $310, and if you earn an average annual rate of return of 12 percent, then you would have $1,0005,488 at retirement! Or if you like to stick with round numbers, if you contributed $300 a month from age 35 to age 65 and earned an average annual rate of return of 12 percent, you would have $973,053!

So don’t give up on the awesome goal to become a millionaire by retirement! Becoming a millionaire is a great goal to help ensure you reach financial freedom later in life!

And if you make those monthly contributions into a Roth 401(k) or Roth IRA, then all of that money will be tax free when you withdraw it too! That means no paying Uncle Sam again in retirement. Woo hoo!

Note: Are you new to investing and want to know how to start saving for retirement? Do you want to know, generally, what kinds of retirement plans to invest in, how much to invest, what types of investments I would recommend for retirement, and more? Then check out this article with 5 simple steps to start investing for retirement.

 

Check out these related articles:

 

How to Invest Your $200 a Month

If you have a company 401(k) or other retirement plan where you receive a match, take advantage of it, and invest at least enough money to receive the full match in your company plan. If you don’t receive a company match, then you will probably be better off investing in a Roth IRA than investing in your company 401(k) because you will generally have many more options in an IRA. (And with many more options you are likely to find mutual funds that offer a track record of better long-term rates of return.)

To help you adequately diversify your retirement account, I recommend spreading your investing equally among four categories: large cap (large company), mid cap (mid-sized company), small cap (small company), and international mutual funds.

We have investment accounts through both Schwab and Vanguard, and they are both good brokerage companies. My Roth IRA is with Schwab, and personally I prefer them over Vanguard. Fidelity is another good option.

If you would like to know how we choose the mutual funds that we invest in, fill out the information below, and I’ll be happy to send you the information. No strings attached, and I don’t sell anything related to stocks or make any money off of sending you this information. It’s just the kind of thing I really wish I would have known 15 years ago when we started investing for retirement.

Ways to Save $200 a Month to Become a Millionaire

In order to find $200 a month in your budget, see if you can reduce your spending or save more money in one or more of the following areas.

1. Cut back on eating out to help you become a millionaire.

The average American family spends about $3,000 a year on eating out. Even though you’ll have to replace some of that cost with the cost of buying groceries to eat at home, the savings here can be amazing. (To learn how to save money on your grocery shopping, read this article with more than 70 tips for slashing your grocery spending.)

For more than 10 years we’ve spent less than $300 a year on eating out for our family, and I know that that has been part of the reason that we’ve been able to reach other financial goals that we’ve set. Read this article to learn how we save money eating out (when we do eat out :)).

2. Slash your grocery budget.

The grocery budget is one of the areas where most people can save a lot of money if they choose to because there are so many options involved and because the difference between what is expensive and what is cheap is so drastic sometimes.

For example, the local discount store where we buy most of our groceries regularly sells frozen boneless skinless chicken breasts for $1 a pound. And yet you can also easily spend $5 to $10 a pound or more on expensive cuts of meat. The same goes for produce in season versus produce that is not in season. People spend a lot of money (a lot of money) on junk food and soda and alcohol and other nonessential items; that’s another area where you can likely trim substantially.

This article shares more than 70 ideas for reducing your grocery spending.

 

 

3. Cut your cable or satellite.

There are a lot of free or cheaper alternatives to cable and satellite, so try pulling the plug on these services and banking the savings. The average cost of paid TV in the U.S. is close to $70 a month, so if you will cut your cable or satellite and invest the money each month instead, you will be one-third of the way to saving your $200 a month to become a millionaire right there!

With digital TV through a standard antenna, there are many channels available just on your regular TV—for free. If you haven’t checked them out for a long time, you should. And if you can be a little patient, the library also carries many of the programs and movies you regularly watch, for free. But if neither of those options works for you, you can try Netflix, Hulu, Sling, or other similar options.

4. Save money on other entertainment to help you become a millionaire.

Another area where you can reduce your spending is with entertainment. To save money on entertainment, find things to do with your spouse or family that are free or cheap. There are so many fun activities that you can do for little or no money that reducing spending in this area really isn’t very hard. Check out this huge list of over 90 free activities you can do with your family.

As part of saving money on your entertainment, don’t forget to take a look at the money you spend monthly for your cell phone plan. The average family in the U.S. spends over $1,000 a year (about $90 a month) on their cell phone bill. But you can save a considerable amount if you’re willing to reduce the amount of data you use (or research new data plans with your carrier in case prices have dropped) or switch carriers.

Since September 2018, we’ve been using Xfinity Mobile for our cell phone carrier! If you’re in an area with Xfinity high-speed internet and mobile, you’ve got to check them out! We’re paying an introductory price of $40 per month for our internet (same price as the much slower internet that we used to have from a different provider; it is then set to go to $65 a month, but you can bet we’re going to try to negotiate that down!), and the cell phone plan is virtually free.

Since we’re such light data users (especially given the fact that Xfinity Mobile has free hotspots it seems almost everywhere!), we pay only $3.16 a month for taxes and fees for each smartphone line. (That’s the price if you use less than 100 MB of data per month, which we do; then it’s $12 per GB per month after that, or $45 per month for unlimited.) It’s such an awesome deal!

And Xfinity Mobile has the same coverage as Verizon, which reportedly has the best cell phone coverage in the U.S. You do need to sign up for Xfinity internet in order to use Xfinity Mobile, at least initially. You can then drop the internet service if you want, but then you’ll pay an extra $10 per month per line for the mobile service. Interested in learning more or signing up? Use this referral code to save up to $100 when you sign up: 1RQ4SP

Don’t have Xfinity in your area? Before Xfinity we were with Republic Wireless for over two years. They were a great company, and they are so much cheaper than having service with one of the Big Four cell phone carriers. I spent about $13 a month for my smartphone data plan. Isn’t that amazing? Check out their website to learn about their plans and pricing, and start saving today!

If you use more that 1 or 2 GBs of data, also consider Mint Mobile, which offers plans starting with 2 GB of 4G data and then unlimited LTE data for just $15 per month. That’s an incredible deal. Visit their website to learn more.

Also find ways you can save money on your current cell phone plan with these ideas to slash your cell phone bill here.

Read this article for even more ideas on how you can spend less on entertainment in various areas to help you become a millionaire.

 

5. Save money on vacation.

To save money when vacationing, try going on a staycation, where you vacation at or near your home. No matter where you live, you can still find tons of fun things to do in your own backyard! Chances are there are tons of things that travelers come to your area to do that you have never done—so check them out!

Read this article to find more than 50 awesome ideas for things to do during a staycation!

You can also save money by staying at people’s homes through Airbnb and by staying in hostels. And by camping.

We’ve been staying at places through Airbnb for the last couple of years, and it’s been great. It’s how we’ve done most of our vacationing during that time—even more than camping. I love using Airbnb because the hosts are wonderful and the price is awesome. And so are the amenities (my favorite places are those with pools and hot tubs :)). Read five awesome ways that you can save money by using Airbnb here.

Sign up now for an Airbnb account and receive $40 to use toward your first stay. Pretty sweet!

 

You can also find many ideas for ways to save money on your family vacations here.

 

Check out these related articles:

6. Get rid of your car payment to really make progress on becoming a millionaire.

The best make and model of car to own is the one that doesn’t have any payments. 🙂 Of course for the longer-term you want something that is reasonably safe and reasonably comfortable and that you don’t have to worry too much about breaking down on you.

But for the shorter-term, if you have car payments on a vehicle and it’s squeezing your budget and you can’t increase your income soon, you should look at selling it. Especially if you won’t likely be able to pay off the car in the next 18 to 24 months at the most, I would strongly encourage you to sell the vehicle.

Even if that means selling the car at a little bit of a loss (when you’re upside down on it) and taking out a small loan for the difference if needed, I would encourage you to do it. And then sell some stuff or work extra or even borrow a little extra money from your credit union or local small bank to be able to buy a $1,000 to $3,000 car that you can get around in for a while till you can save up money to buy a more expensive vehicle.

Because having $3,000 to $5,000 of debt on a personal loan and inexpensive car is a better option than keeping a large debt on your current automobile. And then you can save up and buy a vehicle you can afford—with cash! Learn how to buy a (nice) car with cash here.

If you will commit to buy cars with cash from now on and invest some of the money you were spending on car payments in your own awesome financial future instead, you will be well on your way to retiring with dignity and comfort. Let’s work on building your wealth instead of the bank’s, shall we? 🙂

Learn how to get (and stay!) out of debt here.

 

7. Find other ways to save money on transportation.

You can also save money on transportation by driving less through carpooling or biking or telecommuting, saving money on gas with apps like GasBuddy, saving money on car maintenance and car repairs, driving the speed limit :), finding cheaper auto insurance or saving money on your current auto insurance by taking advantage of discounts, and more. Find more than 30 ideas on how to save money on transportation here.

 

More money-saving tips: Do you want even more ideas on how to reduce your spending in order to find your $200 a month to invest? You can find ways to save money on housing, save money on utilities, and save money on clothing.

Also read this article that has more than 20 ideas for ways to reduce your spending in nearly every budget category.

 

8. Increase your income to help you become a millionaire.

Even though I spend a lot of time teaching people how to spend less money, and I honestly feel that learning to control your spending is the more important of the two factors when it comes to gaining financial stability and building wealth, I feel that earning more income has the greatest potential impact. And let’s be honest—it’s just more interesting and more fun. Because there are only so many things that you can do to reduce your spending (but check out this article to learn more than 20 ways to reduce your spending), but the opportunities to increase your income are nearly limitless!

You can potentially increase your income in many ways, from seeking a raise or promotion at your current job to starting your own business to getting a second job or finding a side hustle to starting a profitable podcast or YouTube channel or starting a money-making blog! 🙂

You can learn awesome, realistic tips for how to increase your income here.

If you are ready to earn more money (and who isn’t?!), then sign up for my free 10-day Earn More Money, Change Your Life challenge below.

 

9. Automate your investing.

Automating your investing for retirement will help ensure you reach your financial goals. This is so important! So just do it! If you have a 401(k), make sure you have a percentage of your income at least equal to the company match automatically withdrawn from the paycheck and invest in your 401(k). If you don’t have a 401(k) available, then open and set up automatic investing for your IRA through a brokerage company such as Schwab.

When you automate your finances it not only saves time but makes life much simpler—and it ensures that you stick to your financial goals! To learn more about how to automate your finances to simplify your life and start to build wealth, I recommend The Automatic Millionaire by David Bach. It’s one of my favorite personal finance books because it gives simple, actionable steps you can follow.

Learn how to automate your finances to build wealth.

 

 

Conclusion

With these 9 simple steps not only do you know how to become a millionaire, but if you follow them, you really will become a millionaire! It really will be your financial future!

When you think about it, it’s pretty amazing that for less money than most American households spend on eating out each month, you can set yourself up to be a millionaire, to be financially stable and live comfortably throughout your retirement! The fact that you can retire in comfort for $200 a month is really pretty incredible. So get started today!

To learn more about how to become a millionaire by investing for retirement, read this article.

Want to Track Your Financial Progress?

Check out the free app Personal Capital, which allows you to track how your investments as well as checking and savings accounts are doing and also view your account history to see how your accounts and overall portfolio have done over time. It’s a great tool! Sign up for your free Personal Capital account here.

 

Check out these related articles:

What are your best tips for how to become a millionaire? Are you working toward that goal now? Or have these tips inspired to you work to become a millionaire? What questions do you have? Leave a comment below and let me know your thoughts!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

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How to Be Smart with Money: 9 Tips That Will Cause You to Win with Money

how to be smart with money

How to Be Smart with Money

An important part of winning at life is learning how to be smart with money because money touches nearly everything that we do in our modern society.

If you learn how to be smart with your money and manage it well, you will be able to accomplish some amazing things in life such as building wealth so that you can have security and do the things you enjoy doing, retiring in comfort, helping those in need, supporting worthy causes, and more.

Tip: Pin the image above so that you will be able to refer to this article easily later!

 

9 Must-Know Tips for How to Be Smart with Money

In this article I am going to discuss 9 things you must do related to how to be smart with money.

 

1. Determine your why and set financial goals.

The very first thing I believe you should do when you want to be smart with your money is to figure out your financial why. Why do you want your financial situation to change? Why do you feel you need to pay off debt or start saving more money or investing for retirement? What are your ultimate financial goals and dreams?

Your why is crucial because it will give you the motivation to set crucial financial goals that will change the trajectory of your life. With simple and realistic but amazing and far-reaching financial goals, you will be able to accomplish incredible things with your money that most people never will. That is sad, but it’s true.

Many people go through life half awake, never having the ambition or the discipline or dedication to really accomplish awesome things. But you are not that person! Or if you were, you are not anymore! 🙂

You are going to accomplish incredible things in your life by setting and steadily working toward simple but incredible financial goals like building up savings for emergencies and large expenses, getting out of debt (including paying off that mortgage!), investing for retirement. helping to pay for your children’s college educations so that they will not be saddled with debt, and building wealth so that you can achieve ultimate financial freedom.

 

 

2. Make a spending plan.

Once you have determined your financial why, get after it by creating a plan to accomplish your financial goals—a financial plan, otherwise known as a budget. 🙂 But just call it a spending or smart money plan or whatever you want if you don’t love the b word.

When you create your budget, make it a zero-based budget. In other words, allocate your monthly income down to nothing on paper. You may think that this seems odd; that it would be better to leave a little money as a buffer. And that is great, if you designate that money to be put into a particular savings account or something, like your emergency fund. But don’t just leave the money unaccounted for. The reason? It’s almost certain to get spent.

No budget? No problem! Sign up below to receive a free spending tracker and starter budget forms!

 

Figure out your monthly income.

Ready to start creating your budget? Great!

Your first priority as you create your spending plan is to figure out your total monthly income. If you (and your spouse, if he or she works outside of the home) have a steady, fixed income from an employer, this is really easy. Just look at your pay statements or your bank account where you deposit the money, and record how much you make on your budget.

If your income fluctuates because you work for yourself or work on commission or in sales, then look at your pay statement or bank deposits for the last two or three months, and make your best estimate of your monthly income.

 

Track your spending to determine your expenses.

Next, begin to track your spending or else review debit or credit card transactions and receipts to estimate your monthly spending.

If you buy and pay for most everything with your debit card or credit card, this is really simple. If you don’t, then carry a little notebook with you or jot down your purchases in a note-keeping app on your phone.

Either way, track your expenses for at least a week, but preferably a month so that you get a more complete picture of your spending. If you have not been following a budget or paying much attention to your spending before now, this will likely be very eye opening, and you will likely see some big leaks in your wallet that you will want to plug.

But the good news about that is that once you fill those holes, you will feel like you got a raise! You really will! (Yeah, I might just be speaking from experience. :))

Adjust your budget as needed.

As you are creating your budget and then as you are working to fine tune and follow your budget, be flexible and cut yourself some slack. You are going to find things that you need to adjust, and it will probably take about three months for your budgeting to really start to work. But once it does, the results can be amazing as your money starts to work for you and move you toward your awesome financial goals!

Learn more about how to create a budget (or how to tweak it to make it successful) with this post on the complete beginner’s guide to budgeting.

Tip: I recommend that you start budgeting on paper if you can so that you really have to write down and see where all of the money is going. But after that, you can sign up for an online  budgeting app such as YNAB, Mint, EveryDollar, or Personal Capital if you like to make things easier. But the most important thing is that you do it, so if that means being digital from the beginning, then do it!

 

3. Differentiate needs versus wants to ensure you are being smart with your money.

As you create your budget, begin to differentiate needs versus wants, and make adjustments to your budget as you go along. Sometimes we do a pretty good job of justifying wants by calling them needs. But to truly differentiate needs versus wants, remember this: you need housing (unless you can live under a palm tree or something), but you don’t actually need a fancy or new or even nice home.

Similarly, you need food, but you don’t need restaurant food or gourmet food or to always eat name-brand food. You need transportation, but you may be able to get around with one car for a while (or even possibly no car, if you can use bikes or your feet or public transportation). And you definitely don’t need a brand-new or ultra-safe or super fancy car.

The better you can differentiate needs versus wants and base your budget on your needs first and then the wants that you can truly afford while still saving and investing adequately to meet long-term, crucial financial goals, the better off financially you will be later in life.

As you create your monthly spending plan or budget, allocate money for your needs first. That means designate money first for reasonable food, clothing, shelter, transportation, utilities, and other true necessities.

Then designate money to build up an adequate (three- to six-month; I recommend six months) emergency fund, to create sinking funds to cover future larger expenses and larger purchases (such as app and so on), and to save adequately for retirement (save at least 10 but preferably 15 percent of your income for retirement as soon as you are financially able to).

Learn more about differentiating between needs and wants here.

 

4. See where you can reduce your spending to be smarter with your money.

To be smarter with your money and reach your financial goals, you are probably going to need to reduce your spending. Fortunately, you should be able to cut your spending in the categories below pretty easily by following the tips given for each budget category.

 

Save money on entertainment.

There are many, many ways that you can save money on your monthly or yearly entertainment and related costs. Here are some of the biggest ones:

  • Ditch your dish (satellite) or cable service.
  • Save money on your cell phones or smartphones.
  • Save money on your internet service.
  • Go to the movies less.
  • Buy fewer books and movies (go to the library instead :)).
  • Go to fewer and less expensive music concerts.
  • Go to fewer and less expensive sports games.
  • Spend less on video and computer games.
  • Spend less on electronic devices.
  • Cancel your subscriptions to magazines and paid TV services (Netflix, Sling, and so on—again, videos from the library are free!).
  • Consider canceling your memberships to the gym, rec center, museums, aquariums, zoos, and the like.
  • Spend less money on recreational activities like skiing, bowling, miniature golf, playing arcades, and so on.
  • Spend less on Christmas shopping.
  • Spend less on family vacations.
  • Reduce the amount allocated to your personal monthly spending money (your fun money or blow money).

 

Save money eating out.

The average family in America spends about $3,000 a year eating out. That means there is a lot of money that can be saved here! I know it probably sounds crazy, but we spend less than $300 a year eating out. And I don’t feel deprived! Want to know why? The reason is that that frugality has allowed us to be able to reach other financial goals that we have—and to do it on one average income.

The best thing you can do to save money eating out is to simply do less of it. 🙂 But there are lots of other ways that you can save money eating out, as well! Read this article to learn how to save money eating out.

 

Save money on groceries.

 There are so many—so many!—things that you can do to reduce your grocery spending. I discuss more than 70 ways that you can save money on groceries in this article.

But here are some of the things you can do to save the most money:

 

Check out these related articles:
31 Budget-Friendly Easy and Cheap Dinner Recipes for under $5
42 Cheap and Easy Budget-Friendly Meals for under $5
13 Ways to Save Big When Eating Out!
73 Easy Ways to Save Money on Groceries without Coupons!
59 Must-Know Tips to Slash Your Grocery Bill in Half!
151 Easy Ways to Save Money: Your Ultimate Guide to Saving Money! 

 

Save money on transportation.

 Another way that you really need to be smart with your money is with your spending on transportation. The average car payment in America is close to $500 a month! Is is any wonder that nearly 80 percent of Americans are living paycheck to paycheck? Our savings accounts and emergency funds and retirement funds are sitting in our garages!

So here is what you can do to turn things around and save money on transportation costs:

Find more than 30 tips for how to save money on transportation costs here

 

Save money on housing.

For many families, housing is their single largest expense. But there are also many things that you can do to save money on housing. Here are some of my best tips for saving money on your housing:

  • Shop around to see if you can lower your homeowners insurance premiums.
  • Look into refinancing your home if interest rates have dropped. (But don’t lengthen the term of your loan! If anything, shorten it!)
  • If you are renting, find a cheaper place.
  • If you bought too much house, look at downsizing.
  • If you really want to save money on housing, consider renting out a spare bedroom (or bedrooms) either long term or on sites like Airbnb and Booking.com.
  • Save money on alarm monitoring with inexpensive services like SimpliSafe. (I love SimpliSafe!)

Check out this article for more than 30 ways to save money on housing.

 

Save money on utilities.

You can pretty drastically reduce your utility bill if you want to. Years ago I heard about a professor of economics who just couldn’t bear to see the money spent on utility costs go down the drain because he knew what that money could grow to if it were invested, and so he kept his AC up and his furnace down, and his family wore sweaters and bundled up during the winter and found ways to stay cool during the summer.

We haven’t gotten that extreme in my family (not yet, anyway :)), but it’s a little tempting! Because I hate spending money on things that have no lasting value, too! Sigh. In any case, here are some free and easy ways that you can save money on your utility bill:

  • Turn down (to 62 degrees or lower, if you can) and turn up your AC (to 78 degrees or higher, if you can).
  • Wash all of your clothes in cold water. Washing machines are so powerful these days they will still get your clothes clean even with cold water.
  • Hang your clothes out to dry.
  • Use your dishwasher less. Wait till it is full to run it, and consider using your dish drain and washing the dishes by hand.
  • Turn off lights, TVs, computers, radios, nightlights, and so on when they are not in use.
  • Unplug appliances and electronics when they are not in use.
  • Open your curtains during the day to let in the sun to warm up your house during the winter or keep them closed to keep out the sun to help keep it from heating up too much during the summer.

Also, read this article for more ideas on how to save money on utilities during the summer and this article for more ideas on how to save money on utilities during the winter.

 

Save money on clothing and shoes.

Some people just love to buy designer clothes and shoes. And they look really nice! But so does a paid-for beach house in retirement. 🙂 So we buy most of our clothes, for us and the kids, either on sale or from thrift stores or the classifieds. For now our kiddos are young, so they don’t know the difference (and I hope that even when they are older, they won’t care—and I hope they never do :)).

My sisters and I also swap clothes back and forth for our kiddos that are the same ages, which is awesome! I love to see the clothes that my kiddos wore on my nieces and nephews; it brings back such fun memories! If you have family or friends with kiddos the same age as yours, see if you can set up a kids clothing co-op!

Read this article to learn easy ways to save money on clothes.

 

5. Comparison shop.

Another super smart thing that you can do to be good with your money is to comparison shop—on virtually everything. When I have done this, particularly with larger expenses like fairly major home and auto repairs, the difference in prices I have been quoted has sometimes been surprising! Get the most bang for your buck by calling several (I usually call at least five) places or checking several stores before making a purchase or spending money on a service like a car, plumbing, or home repair.

 

6. Put money where it needs to go to be smart with your money and build wealth.

To put your family on solid financial footing and to ultimately build wealth, make sure to do the following things.

 

Build an emergency fund.

As I mention briefly above, it’s important for your family’s well-being that you have a substantial emergency fund. I recommend at least three but preferably six months’ worth of expenses saved in your emergency fund.

If you haven’t already, make your emergency fund its own separate savings account. You may even want to open an account at a different bank so that the money is not too easy to access, if you think you might be tempted to use it for other things besides true emergencies.

Learn more about emergency funds here.

 

Check out these other related articles:

 

Get out of nonmortgage debt.

Once you have at least a starter emergency fund of at least $1,000, another very smart thing to do with your money is to pay off all nonmortgage debt as quickly as possible.

To get out of debt, first figure out how much you owe on your various debts such as credit cards, student loans, car loans, department store loans, and so on.

Then, decide which method you would like to use to get out of debt. Depending on your disposition and what motivates you, I recommend you use either the snowball debt payoff method or the avalanche debt payoff method. Briefly, with the debt snowball method, you pay off your smallest debts first to gain momentum and keep up motivation. With the debt avalanche method, you pay off the debts with the highest interest rates first, and knocking out those higher interest rates could be what keeps you most motivated.

Personally, I recommend the debt snowball method because I think it is a better way to gain momentum, and that is the debt payoff method that we personally used.

Once you are out of nonmortgage debt and are adequately saving for larger expenses and purchases (more on that below) so that you can stop taking on new debt, work to pay off your mortgage early! Being mortgage debt free is amazing, and it is one step closer to ultimate financial freedom!

 

Save for larger purchases and expenses.

After you have paid off your nonmortgage debt, start saving toward large purchases and expenses so that you can pay for them with cash and avoid going back into debt. Debt freedom = financial freedom = peace and joy 🙂

To save for these large expenses, I recommend that you set up several separate savings accounts (also known as sinking funds). We personally have more than 20 different savings accounts for our various financial goals. You certainly do not have to be that detailed, but I would recommend that every family set up these nine savings accounts:

  • Emergency fund
  • Vehicle maintenance and repairs
  • Vehicle purchase
  • Home down payment
  • Home repairs
  • Furnishings and appliances
  • Christmas and gift giving
  • Vacations
  • Miscellaneous/other short-term savings

By having these nine savings accounts and consistently working on funding them, you will have the cash you need to take care of all of the expenses that that occur.

 

Start investing for retirement.

Once your nonmortgage debt is paid off and you are saving toward the necessary expenses above, start investing for retirement. I recommend that once you are out of nonmortgage debt you start to save 15 percent of your income for retirement as soon as you can, but at least save 10 percent.

Remember the incredible power of compound interest and start saving as much for retirement as you can as soon as you possibly can.

 

Check out these related articles:

 

Start saving for kids’ college (if applicable).

If you have children, also start saving for their college educations as soon as possible to take advantage of the power of compound interest and to help ensure that they are not burdened with student loans later in life.

 

7. Consider doing overtime, getting a second job, starting a side hustle, and finding other ways to earn more money.

I believe that there are more ways to make money today than there have ever been before. And many of these you can do from the comfort of your own home after you get back from work! Some of my favorite ways to make more money are those listed below.

 

Do overtime.

Working overtime is one of the simplest ways to make extra money. If your employer offers overtime, then consider taking advantage of it. Especially if you are in a situation where you are working to pay off debt, save up your emergency fund, or save for a large and necessary purchase, working overtime is an excellent option to help you reach those goals more quickly.

Ask for a raise or promotion.

One of the benefits of asking for a raise or promotion is that you receive additional income for (potentially) doing the same amount of work!

If it’s been a few years since you received a significant raise and especially if you’ve been an exceptional employee at work, make a list of your contributions and your accomplishments, and schedule a meeting with your supervisor to request a raise or a promotion. Focus on ways that you’ve earned the company money or saved them money.

If you learn during the meeting that a raise or promotion isn’t going to happen right away, ask what specific steps you can take in the next year or two to make it a reality. Read this article for more information on how to seek a raise or promotion.

Do freelance work.

If you work in a field that lends itself to doing freelance work, consider taking advantage of that opportunity to earn extra income. I have been doing freelance writing, editing, and proofreading since before I graduated from college with my English degree and editing minor, and doing freelance work has not only helped me gain experience in other areas besides what I do for my full-time job but has also at times (when I wanted to give the time to it) brought in significant additional income.

If you similarly enjoy and have a knack for writing, look into freelance writing jobs. You can find ideas for close to 30 freelance writing jobs here.

Freelance proofreading is another great option if you love to read and have a good eye for detail. If freelance proofreading might be a good opportunity for you, then check out this awesome general proofreading course by my friend Caitlyn at Proofread Anywhere!

Look at indeed.com, monster.com, or your favorite job search site for opportunities.

Do consulting or coaching.

Similarly, if you have job experience or a skill that lends itself to it, consider putting that skill to use to do consulting or coaching work. Popular areas for consulting include human resource (HR) consultant, public relations (PR) consultant, marketing consultant, business management consultant, and accounting consultant.

Popular areas for coaching include financial coaching, job coaching, personal fitness coaching, and leadership coaching.

Look for consulting and coaching opportunities on indeed.com or your favorite job website.

Start a side hustle.

If you would rather earn money without working another regular job, there are a lot of things you can do to earn a little extra income with a side hustle. Some ideas include starting your own small business where you turn a hobby into a money-maker, being a virtual assistant, or driving for Uber or Lyft. Learn how to start a side hustle and find out about many side hustles that you can explore.

Start a money-making blog.

The potential for significant income is one of the reasons that I started this blog. If you love helping people and enjoy writing, being a blogger might be a great fit for you. In addition to great income potential (check out these amazing income reports of bloggers who make $10,000 to $100,000 or more per month!), there are many other benefits of being a blogger, such as being able to be your own boss and work on your own schedule. Learn how to start a blog for less than $5 a month.

Make money with affiliate marketing.

Affiliate marketing is where you recommend a product or service to others, and in return for your sending business their way, a company pays you a percentage of the sale that they made because of your recommendation. Affiliate marketing can be an excellent way to make extra income; those who do it well can make thousands of dollars a month (or much more).

For an excellent course on affiliate marketing, check out Making Sense of Affiliate Marketing by Michelle Schroeder, who makes more than $50,000 a month with affiliate marketing! When I decided to start blogging, Michelle’s course is the first one that I bought.

Interested in finding out more about this truly amazing money-making opportunity? Learn more about affiliate marketing here.

 

Get a (second) job.

If you are in a situation where money is tight or where you have a lot of debt or where you simply want a bigger hammer to pound out your financial goals, then look into the possibility of one of you getting a job or a second job.

If one spouse is not working outside of the home, for example, then consider whether it would be worthwhile for that spouse to start earning an income (perhaps with a job that could be done exclusively from home).

Similarly, if one of you works only part-time, you might want to consider  going full-time at least temporarily in order to reach your financial goals more quickly.

Or consider if one spouse is available to get a second job in the evenings or on Saturday, for example, and earn more money that way.

Earn passive income.

Some options for earning passive income are to create a product you can sell, write a book, create a money-making podcast or vlog, or develop an online course. Read this article to learn more ideas for earning passive income.

Use rebate apps like Ibotta and Ebates.

With rebate services such as Ebates and Ibotta, you can earn money by shopping for things and at places where you would shop anyway. With Ebates, you generally buy items through their website to save up to 40 percent on purchases. It is primarily an online service. Ibotta, on the other hand, is an app you use primarily after you make purchases at brick-and-mortar stores. Because of this, you can actually sign up for and use both apps to save on purchases.

Sign up for a free Ebates account here, and sign up for a free Ibotta account here. You can literally sign up for both in just seconds and let the savings start stacking up.

Sell stuff on eBay, Amazon, or your local classifieds.

If you have a good eye for a bargain, you can buy items at thrift stores or garage sales and sell them for a profit on eBay, Amazon, Craigslist, or your local online classifieds.

Sell your clothes to consignment shops.

If you’re like most people, you probably have more clothes than you need. So use them to bring in some extra cash!

Have a garage sale (or regular garage sales).

Declutter your home and earn money, all at the same time!

 

Check out this article to learn more about and find more ideas for increasing your income!

 

Would you like to start making more money? Sign up below to participate in the free 10-day Earn More Money, Change Your Life challenge and learn actionable steps you can start taking today to really increase your income!

8. Automate your finances.

Another smart thing that you can do with your money that will really help you to be successful with your finances is to automate your finances as much as you can. By automating your finances, you’re not left so susceptible to temptation. And you are able to effortlessly work toward reaching your financial goals and can do so without having to make the conscious decision to save or invest or pay off debt every time you get paid.

Right after you get paid, transfer money directly to pay extra toward debt, into your emergency fund and other savings accounts, and into your  401(k) or Roth IRA. Take care of your financial goals effortlessly by funding them automatically! And then live on what is left.

You should automate your finances in order to get paid (through direct deposit); save for emergencies, large purchases and expenses, and so forth; pay off your debt (as long as you are not in an adversarial relationship with anyone you owe money to); pay bills; invest for retirement; save for kids’ college; and more.

Read this article to learn more about automating your finances.

 

9. Stay out of debt to be smart with your money.

The best way to be able to build wealth, and one of the best ways to be smart with your money, is to first get out of debt and then stay out of debt. That is because when you get out of debt—as one of my favorite personal finance gurus, Dave Ramsey, says—you free up your biggest wealth-building tool: your income.

By paying off all of your debt—including eventually paying off your mortgage—and then staying out of debt you will have all of your income to use to meet your needs and build your wealth, instead of the bank’s. And ultimately, you will be able to achieve financial freedom.

 Learn how to get and stay out of debt.

Conclusion

As you follow these steps for how to be smart with your money, you will be able to move yourself and your family steadily toward financial freedom. First you will be able to achieve freedom from overspending, then freedom from living paycheck to paycheck, then freedom from the stress of having no financial cushion (savings), then freedom from being in debt, and then ultimate financial freedom—from having to work.

With ultimate financial freedom, you will get to the point where you can choose when and how you want to work, or if you want to work. Your time will be your own to accomplish the amazing things that you want and maybe even were meant to do in your life.

So be smart with your money and go after your amazing financial goals!

 

What do you think are the most important steps related to how to be smart with your money? Did one of the steps above inspire you to try something new? Where are you on the journey to financial freedom? Let me know your thoughts in the comments below! I would love to hear your best ideas for how to be smart with your money!

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

5 Crucial Steps to Financial Freedom

steps to financial freedom

 

Steps to Financial Freedom

In this article I will share 5 simple steps to financial freedom. By following these simple steps you will be able to achieve financial freedom for you and your family! And you’ll get there before you know it!

 

Tip: Pin the image above so that you can easily refer to this article later!

 

5 Simple Steps to Financial Freedom

If you are looking for simple steps to reach financial freedom, then this article is for you! There are many things you can do to help you achieve financial freedom, but these are 5 of the most important steps to help you reach financial independence for you and your family. Follow these simple steps to start working toward your financial freedom today!

1. Build a six-month emergency fund.

As a first crucial step for financial freedom, save up a six-month emergency fund.

To achieve true financial freedom, you have to be able to take care of life’s financial setbacks. And those setbacks do happen. Cars break, roofs leak, windows get broken, kids break bones, car accidents happen, people get laid off from work or become permanently disabled—no one is immune from financial problems. And in order to reach and maintain financial independence, you need to be able to take care of those financial challenges when they arise.

That is where a six-month emergency fund comes in. By having at least six months’ worth of expenses in an emergency fund you can pay for these financial challenges as they come up.

While you are working toward financial freedom, if you have a stable job (and especially if you have two stable jobs) and you have newer cars and a newer home and no major health conditions, you might decide to get by with a three-month emergency fund. But as you get closer to complete financial freedom, you should plan to have a six-month emergency fund.

Learn about how to create an emergency fund here.

2. Get out of all consumer and other nonmortgage debt.

Once you have an adequate emergency fund, begin to aggressively pay off all nonmortgage debt. That includes credit cards, student loans, medical debt, installment loans on furniture and appliances, auto loans, personal loans, and all other debt so that you can cover any large financial setbacks that might come your way.

One very effective modification to this step is to build just a starter emergency fund of $1,000 (or up to one month’s worth of expenses, if you want to save a little more) until you have paid off all of your nonmortgage debt. Then you would work to pay off all of your debt as quickly as possible.

With a starter emergency fund in place, if you have financial trouble while you are working on getting out of debt, even though you won’t have a full emergency fund, you will have enough that in the vast majority of situations you won’t have to go deeper into debt to take care of it.

The sooner you can get out of debt, the better! When you are debt free, as Dave Ramsey teaches, you get control of your most powerful wealth-building tool—your income!

Read this article to learn how to get and stay out of debt.

Related articles:

 

3. Invest regularly to fund your (amazing!) retirement.

As a next step to your financial freedom, once you are out of nonmortgage debt, start to invest systematically for retirement.

If you work for a company that offers a retirement plan (such as a Roth or traditional 401(k) or 403(b)) where they match your contributions, start there, and invest up to the match. If you don’t have a match available to you, and once you have met the match, then open a Roth IRA and start funding it.

If you can, save 15 percent of your income between your company retirement fund and your Roth IRA so that you can build a nice, comfortable retirement for yourself.

Once your income is high enough or if you aren’t able to contribute to a company retirement plan, max out your Roth IRA ($6,000 per year, or $500 per month).

Read this article to learn more about investing for retirement, such as what to invest in and how much to invest in various types of mutual fund accounts.

 

4. Pay off your mortgage!

Once you have paid off your nonmortgage debt and are investing 15 percent of your income toward retirement, start getting serious about paying off your mortgage as soon as you can!

My husband and I have owned two modest homes, and we were able to pay them both off (not at the same time; one and then the other :)) in less that 6 years. I definitely don’t say that to brag but rather to give you hope and encouragement and let you know that you can totally do it, too! Because we were able to pay off those two mortgages on just one average income, too! But we’re nothing special; we have just been burned by debt and by other stupid financial decisions we made when we were younger, and so now my husband and I are very intentional with our money. We’re not perfect by any means, but we have become savers, and we have figured out a lot of the tricks to win this money game.

Don’t worry; they’re pretty simple, and you can figure them out too! Just keep studying and learning and trying! And you’ll be mortgage debt free before you know it!

Read this article to learn the 7 simple steps that allowed us to pay off our mortgages early!

 

5. Save and invest systematically to build wealth.

As a final step to financial freedom, save and invest regularly to build wealth so that you can stop working when you want to.

Even if you decide not to shoot for FIRE (Financial Independence, Retire Early), having enough money so that you could retire if you wanted to or needed to is the ultimate level of financial freedom for many people.

If you are currently living paycheck to paycheck or if you regularly overspend, learn how to break that cycle so that you will have money to save and invest to reach your awesome financial goals and to finally reach financial freedom.

 

Conclusion

By following these simple but crucial steps to financial freedom, you really will be able to achieve financial independence, and you will be able to do it far sooner than you probably ever thought possible.

And while you’re at it, in order to put yourself and your family on wonderfully solid financial ground, check out these cool things to save up money for to run your financial house smoothly.

 

What does financial freedom mean to you? What steps to reach financial freedom are you planning to follow ? Do you have a goal for when you hope to achieve financial independence? Leave a comment below and let me know—I would love to hear your ideas!

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

FIRE Acronym: What Does FIRE Mean?

FIRE acronym

FIRE Acronym

In this article I am going to define and explain the FIRE acronym. I’m going to talk about what FIRE is, and I’ll explain 4 steps you can take to achieve FIRE yourself! 🙂

 

 

FIRE Acronym: What Is FIRE and What Is the FIRE Movement?

The FIRE acronym stands for Financial Independence, Retire Early.

And the FIRE movement is the small but growing number of young people who want to be able to achieve FIRE.

Those who are a part of the FIRE movement (or who long to be) are generally young people (in their 30s to 40s) who are working hard in their professions and saving up a lot of money (often 50 percent of their incomes or more)—or who have already done so and have already achieved FIRE—in order to be financially independent early in life so that they can quit their jobs and retire in order to design their life on their own terms. 

How Can You Achieve FIRE?

If the FIRE movement has piqued your interest, then here are four steps you can take to work toward FIRE yourself.

 

1. You have to be willing to spend less than you earn.

In order to achieve FIRE, you have to be willing and able to spend less than you make (a lot less). The only way to retire early is to be able to save a lot of money. And the only way to do that, of course, is to spend far less than you earn.

 

2. You have to have a high income or be very intentional with your money.

In order to retire early, you have to earn a high income or else be very frugal or intentional with your spending—and most FIRE members do both.

Obviously, the more money you make and the more you tighten down your spending, the sooner you can achieve FIRE.

Both sides of this equation are super important if you want to FIRE. But even though I frequently emphasize on this website how to spend less money, and I honestly feel that learning to control your spending is the more important of the two factors when it comes to gaining financial stability and building wealth, I feel that earning more income has the greater potential impact. And let’s be honest—it’s just more interesting and more fun to try to earn more money than it is to try and continually spend less money.

The reason that earning more money has the greater potential impact is that there are only so many things that you can do to reduce your spending (but check out this article to learn more than 20 ways that you can reduce your spending in pretty much every budget category), but the opportunities to increase your income are nearly limitless! Check out this section of the blog to discover ways to earn more income.

 

3. You have to be content with what you have.

In order to retire early, you have to be content with what you have and not want to spend everything you make in an endless cycle of always buying more and more and more stuff.

 

4. You need to invest wisely.

In order to retire early, unless you make a ton of money and so you don’t need the money to grow in order to achieve and then maintain FIRE status, you generally need your money to be able to grow substantially by making good investments. Read this article to learn my best tips for investing for retirement.

 

Are you interested in retiring early? Especially once you start investing for retirement (or get serious about doing so), I recommend that you check out a great free app called Personal Capital in order to track your progress toward reaching your retirement and other financial goals. With Personal Capital, you can see not only all of your bank checking and savings accounts and even your credit cards and other finance accounts, but you can also link your retirement and regular nonretirement brokerage accounts.

This app allows you to have a complete, overall picture of your current financial situation. And you can also view your account history to see how your accounts and overall portfolio have done over time. I love this very helpful tool and use it regularly! Sign up for your free Personal Capital account here.

 

Conclusion

In summary, the FIRE acronym stands for Financial Independence, Retire Early. And the FIRE movement is the group of people who are working to achieve FIRE.

The FIRE movement is gaining some momentum—which is totally understandable. Of course the idea of being able to quit their jobs and be masters of their own time and their own lives would hold an awesome allure for most people.

In an age where most people are dissatisfied or at least not overly satisfied with their jobs (a sad reality of our time), that just makes sense. (But read this article to learn how you can quit the job you hate and transition to a job you love!)

If you are interested in knowing what it takes financially to retire in a certain number of years, check out this article by Mr. Money Mustache where he explains the surprisingly simple math behind early retirement.

 

Have you ever considered retiring early? Would you be willing to sacrifice to be able to retire early—potentially decades early? And what would you do if you achieved FIRE—what life goals would you pursue? Leave a comment below and let me know!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

9 Simple Ways to Fully Fund a Roth IRA

fund a Roth IRA

Fund a Roth IRA

In this article I’m going to share ideas you can use to fund a Roth IRA. With these 9 awesome ideas, you can fund a Roth IRA easily so that you can max out your Roth IRA and work toward reaching your awesome retirement and other financial goals!

 

9 Steps to Fully Fund a Roth IRA

One of the best ways that most people can work to build long-term wealth—in order to, among other things, retire in comfort and dignity—is to fund a Roth IRA every year. And by that, I mean to fully fund a Roth IRA.

As soon as you have contributed enough money to your company retirement plan (if you have one available to you) to receive the full company match , then you should also set up a Roth IRA and max it out or invest enough in your Roth IRA and 401(k) together to save 10 to 15 percent of your income (work toward 15 percent as you are able if you feel you can’t afford to contribute that much right now).

Imagine with me for a minute what a comfortable retirement will look like for you and your spouse. Maybe it’s owning a vacation home at the beach or in the mountains. Maybe it’s being able to travel regularly. Maybe it’s being able to buy the fancy car you’ve always dreamed of owning. Maybe it’s being able to fund college educations for your grandchildren. Maybe it’s being able to give large amounts of money to causes you really care about.

So what is it going to take to be able to achieve those dreams? Here are 9 ways that you can reduce your spending so that you will have at least $5,500 more in your budget to be able to fund a Roth IRA and get you closer to retiring with a big pile of cash saved up! So what are you waiting for? Let’s get started saving in your Roth IRA! 🙂



 

 

1. Save money on your grocery spending.

The first place you should look for extra money to fund a Roth IRA is your grocery budget.

That is because one area that most families can cut back on is grocery spending. According to the December 2017 USDA guidelines for food plans for making meals at home, our family is way more than thrifty when it comes to our grocery spending. We normally spend about $350 a month on groceries. But I also acknowledge that this, like many areas, is one where we consciously work to keep our spending down.

In my mind, it just doesn’t seem worth it to spend hundreds of dollars more on something that you will consume in a matter of minutes and then have only a faint memory of the taste of. (Even if it was the most tender, best-tasting steak or the sweetest, most indulgent dessert!) Personally, I would much rather spend money on things that have more concrete, lasting value, like saving for retirement or kids’ college or paying for my car with cash or paying off the mortgage early! 😊

For the thrifty plan, for our family of five (three young children and two adults), the suggested amount that we spend was (rounded to the nearest dollar) $660 a month. They do say that this is for a nutritious meal plan, and I admit that we don’t eat as healthy as we could—we could definitely eat more vegetables—if I could get the kids (especially the oldest kid!) to eat them.

Of course we could spend more on groceries—we could buy steaks and salmon and shrimp and fruit out of season and all those kinds of things more, but again, there are so many other things I would rather spend my money on than fleeting food, which is consumed and then gone. I think most families could save at least $100 a month in this area without too much effort. Read this article to find more than 70 ideas for how to save money on groceries.

Savings = $1,200 per year+

 

2. Spend less money eating out.

The average American family spends about $300 per month eating out. That seems so high to me, because we spend less than $350 per year eating out (see my comments above about the fleeting nature of food). If you could limit yourself to eating out at a pretty good restaurant twice a month, at $75 each time for your family, you could cut that $300 to $150, and invest the rest into your Roth IRA. Or spend $40 a week at a less expensive restaurant and get the same result. Or spend just $50 a month at an inexpensive restaurant, and have $250 a month to invest for retirement!

So turn eating out as a family and going out to lunch or buying fast food for lunch while at work back to what it once used to be (and what it is in our household)—a rare treat.

Read this article for more information on how to spend less money eating out.

Savings = $1,800 per year+

 

These first two items show that as Americans we spend an inordinate amount of money feeding ourselves. The way I look at it is this: When you eat even the tastiest meal you’ve ever had, even 10 minutes later you can only vaguely remember the taste of it, if you are able even to do that. That’s one of the reasons that I feel strongly that the area of groceries and eating out are great places to cut your budget and invest and spend money on things that often have more lasting value.

 

 Note: Once you begin investing for retirement, I recommend that you check out a great free app called Personal Capital in order to track your progress toward reaching your retirement and other financial goals. With Personal Capital, you can see not only all of your bank checking and savings accounts and even your credit cards and other finance accounts, but you can also link your retirement and regular nonretirement brokerage accounts.

This allows you to have a complete, overall picture of your current financial situation. And you can also view your account history to see how your accounts and overall portfolio have done over time. I love this very helpful tool and use it regularly! You can sign up for your free Personal Capital account here.

 

3. Cut your cable or satellite.

Another great way to fully fund a Roth IRA is to look at cutting your cable or satellite service.

I don’t know how many times friends or family have mentioned to me that with hundreds of channels available, they can never find anything good to watch. So why do we pay so much for the privilege to watch TV? Basic cable costs the average U.S. family about $60 per month—over $700 per year. If you cut your cable and went with Netflix or a similar option (or just got movies and shows from the library for free, like we do!), you could save about $50 per month.

Savings = $600 per year

 

4. Find ways to save on your cell phone bill.

Another place where you can find money to fund a Roth IRA is to look at reducing your cell phone bill.

The average family in the U.S. spends over $1,000 a year (about $90 a month) on their cell phone bill. But you can save a considerable amount if you’re willing to reduce the amount of data you use (or research new data plans with your carrier in case prices have dropped) or switch carriers.

For example, I have been with Republic Wireless for the last two years. They have been a great company, and they are so much cheaper than having service with one of the Big Four carriers. I spend about $13 a month for my smartphone data plan. Isn’t that amazing? Check out their website to learn about their plans and pricing, and start saving today!

If you use more that 1 or 2 GBs of data, also consider Mint Mobile, which offers plans starting with 2 GB of 4G data and then unlimited LTE data for just $15 per month. That’s an incredible deal. Visit their website to learn more.

*IMPORTANT UPDATE*: As of September 2018, we’ve switched to Xfinity Mobile! If you’re in an area with Xfinity high-speed internet and mobile, you’ve got to check them out! We’re paying an introductory price of $40 per month for our internet (same price as the much slower internet that we used to have from a different provider), and the cell phone plan is potentially virtually free.

Since we’re such light data users (especially given the fact that Xfinity Mobile has free hotspots it seems almost everywhere!), we pay only $3.16 a month for taxes and fees for each line. (That’s the price if you use less than 100 MB of data per month, which we do; then it’s $12 per GB per month after that, or $45 per month for unlimited.) It’s such an awesome deal!

And Xfinity Mobile has the same coverage as Verizon, which reportedly has the best cell phone coverage in the U.S. You do need to sign up for Xfinity internet in order to use Xfinity Mobile, at least initially. You can then drop the internet service if you want, but then you’ll pay an extra $10 per month per line for the mobile service. Interested in learning more or signing up? Use this referral code to save up to $100 when you sign up: 1RQ4SP

Ready to start saving on your smartphone? If you shaved even $40 a month off your cell phone bill, that would be about $500 per year. For more ideas on how to reduce your cell phone bill, read this article.

Savings = $500 per year

 

5. Save money on clothing and shoes for your family.

Another option for finding money to fund a Roth IRA is to spend less money on clothes.

According to the Bureau of Labor Statistics, the average American family spent $1,803 on clothing and shoes in 2016 (the most recent year available). If you are willing to shop at yard sales and thrift stores (and just not have so many items of clothes and pairs of shoes!), you could pretty easily shave that down to $100 per month, or $1,200 per year. For us, financial freedom is worth wearing some gently used clothing and shoes.

See this article for more information on saving money on clothing and shoes.

Savings = $600 per year

 

Related articles:

How to Start Investing for Retirement: 5 Simple Steps
The Amazing Power of Compound Interest
IRA or 401(k): Which Is Better?

6. Reduce your Christmas spending.

Last year, the average U.S. family spent just over $900 on Christmas. But you can have a great Christmas and spend a lot less than that! If you were able to reduce your spending by $400 you would still spend $500, and if you have a family of five that’s still an average of $100 per person (but of course you need to include a little money out of that amount for gift wrap and Christmas decorations and things like that, as well, so it wouldn’t be quite $100 per person). But that should still be very doable. For ideas on ways to reduce your Christmas spending, read this article.

Total savings = $400 per year

 

7. Cut your entertainment spending.

You can also save money to fund your Roth IRA by reducing the amount you spend every month on entertainment and vacations.

According to the Bureau of Labor Statistics, in 2016 (the 2016 report was published at the end of August 2017, so it’s the most recent information available as of this writing), the average American household spent $3,160 for entertainment that year. If you trimmed that back just a little, to $2,500 a year, you would still have over $200 a month to spend on entertainment (I assume that includes vacations, but the report didn’t say), which will still provide your family with some wonderful opportunities for fun.

One of the main areas where many families can save a considerable amount of money is with electronic devices and with toys (of all kinds). I know that it’s fun to have the newest iThing or the latest video game or motorcycle or ATV or game system, but so is financial security! So is watching your debt go away and your net worth grow! And so is doing one of many, many free things (here I list over 90 of them!) that don’t involve gadgets or toys at all.

Even if it’s for your kids, you can refrain. I know for some of us it’s harder saying no to our kids even than saying no to ourselves, but even fairly young children can understand why you can’t buy something if you explain that you’re working toward other important goals instead. In fact, I know of instances where parents have explained their financial situation to their kids, and the kids are sometimes the ones to keep the parents in line and remind them not to buy something because it’s not in the budget or because they’re working toward something more important instead!

To save money on vacations, try staying at places airbnb.com and booking.com. And if you are flying, compare flight prices at websites like kayak.com and set up deal alerts at sites like airfarewatchdog.com.

We’ve been staying at places through Airbnb for the last couple of years, and it’s been great! It’s how we’ve done most of our vacationing during that time—even more than camping (which, as big outdoors people, we also really love). The Airbnb hosts have been wonderful, and so have the places that we’ve stayed! And the prices are awesome! We’ve stayed at fun places with a heated pool and hot tub for less than $40 per night, for example—which is less than the cheap (but too scary to stay in) hotels that were in the same city. (Unfortunately! I wish there had been decent hotels available for a comparable price.)

So if you haven’t tried Airbnb yet, give them a try! Sign up for an Airbnb account here and receive $40 to use toward your first stay. Pretty sweet!

And I just have to include a shameless plug for my angel mother, who has been renting out spare rooms in their beautiful southern Utah home (not an affiliate link :D) for the last couple of years. If you’re in the area to play at Lake Powell or hike in one of the beautiful national parks or other scenic areas nearby, look them up! Or if you’re planning to vacation near the Grand Canyon, check out these rooms they have there, as well.

Read this article to learn more ways to save money on entertainment.

Total savings = $600 per year

 

8. Reduce, or eliminate if you can, your car payment.

Another potential huge monthly savings that could really help you to fully fund a Roth IRA is if you could reduce or even get rid of completely your car payments.

Eventually, I do strongly recommend that you get rid of your car payment altogether. But in the meantime, if you’re able, reduce your car payment by $100 to $200 a month. One of the reasons that the average American has only $95,776 saved for retirement (scary!) is that they spend an average of over $400 on their monthly car payment. That means that, on average, Americans spend nearly $5,000 a year (enough to almost max out your Roth IRA just with that amount alone!) for something that continually goes down in value!

If you instead invest that $400 a month in good mutual funds for 30 years and earn an 11 percent average rate of return over that time, which is very doable, you would have $1,060,383—and if invested in a Roth IRA, that money would be tax free! Millionaire status just by driving paid-for cars! 🙂

But you will need a couple of hundred dollars a month to start making a car payment to yourself, so let’s stick with investing just $100 to $200 a month. of that money

Savings = $1,200 to $2,400 per year

 

9. Find cheaper rent or downsize your home.

And as a last idea for how to fund a Roth IRA, look at your housing expenses.

Consider finding a less expensive place to rent or even possibly selling and downsizing your home if the mortgage payment is too much for your income. You should not have a mortgage payment that is more than about 25% of your take-home pay, because if you do, it likely is preventing you from having adequate money to reach other really important financial goals. If your monthly mortgage payment is considerably more than 25% of your take-home pay, don’t panic, but do consider either finding a less expensive home to own in a reasonable amount of time or else increasing your income (which may be the better option, all the way around, and which you should be looking to do regularly throughout your career, anyway :)).

If you rent, you could pay a little more than 25% of your income in rent if you chose to because you won’t have the costs that come with home ownership such as maintenance and repairs.

But what we did when we were renting before we bought our first house was to rent a place for about as cheap as we could (and still feel safe and all of that, of course) so that we could save up money to buy our first house. (Then we were stupid and did basically no down payment, but we did at least have the money available to do repairs on the home, which was essential since we bought a foreclosure that needed some work.)

And I would recommend you consider renting a place as inexpensively as you can (while still feel reasonably safe and comfortable), too, to invest the difference or save it to purchase a home with a bigger down payment.

Let’s say you are renting a place while you save up a good down payment for your first home, and you are able to shop around and find a comparable apartment or home to rent that is $100 less per month than what you are paying now. That’s another $1,200 you can invest in your Roth IRA. Read this article to find lots of ideas for how to save money on your housing expenses.

Savings = $1,200 per year

 

 

Conclusion

By cutting expenses in the areas identified above, you really can find the money to fund a Roth IRA. And funding a Roth IRA is an excellent way to help ensure that you have a comfortable and enjoyable retirement.

Many people today really do have a great deal of disposable income. We just don’t manage our money very well. And much of the reason for that could be due to a lack of knowledge—and the fact that we just like shiny stuff.

But saving an adequate amount for your retirement is something you’ve simply got to do for the sake of your own well-being and that of your family (so that you won’t be a burden to them later in life). By saving adequately for your retirement, little by little you are buying your financial freedom. And isn’t your freedom worth it?

The Roth IRA is an excellent tool for investing for retirement. By investing consistently each month in your Roth IRA, you will be well on your way to building long-term wealth so that you can live in comfort throughout your retirement.

By saving as much money as you can to fund your Roth IRA (a good rule of thumb is 15 percent of your income) as soon as you can, you will have much more money (because of the awesome power of compound interest) available to travel, take care of your medical needs, spoil grandchildren, give to causes you care deeply about, and more.

Are you ready to get serious about saving for your future? You can find more helpful information about investing for retirement here.

 

Want to Track Your Financial Progress?

Check out the free app Personal Capital, which allows you to track how your investments as well as checking and savings accounts are doing and also view your account history to see how your accounts and overall portfolio have done over time. It’s a great tool! Sign up for your free Personal Capital account here.

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

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401K vs IRA: Which Is Better?

401k vs IRA

401K vs IRA

In this article I’m going to compare the 401k vs IRA. Learn which option is better for your situation when comparing the 401k vs IRA.

 

Note: Photo above courtesy of Stock Unlimited.

 

 

401K vs IRA: Which Is Better to Save for Retirement?

When it comes to comparing the 401(k) vs the IRA, the answer for many people is not to invest in just one or the other—it’s to invest in both. But if you receive a company match for your retirement fund such as a 401(k), then that is where you should invest first. You can’t beat free money. 🙂

So start saving for retirement by investing whatever percentage or amount gets you to the full company match in your 401(k). If you have a Roth 401(k) and intend to be in a higher tax bracket when you retire than you are in now (which I hope that you do!), it is probably a good idea to invest in the Roth 401(k).

That means, for example, that if you receive a 50 percent company match on money invested up to 6 percent of your paycheck (a fairly common matched amount), then save that much (6 percent) in your company 401(k).

 


Related articles:

How to Start Investing for Retirement: 5 Simple Steps
The Amazing Power of Compound Interest
9 Easy Ways to Fully Fund Your Roth IRA This Year!

 

Where should I invest for retirement once I have reached the full company match with my 401(k)?

Once you have contributed enough to your company 401(k) or other company retirement plan to receive the full match, then you should strongly consider investing the rest of your money allocated for retirement in Roth IRAs. (Or if you’re a very high income earner and you feel like you’ll be in a lower tax bracket during retirement, you could invest instead in traditional IRAs—or you could hedge your bets, and invest in both.)

The reason that you might want to invest in a Roth IRA once you reach the full company match instead of investing all of your money with your company 401(k) is that you will generally have many more mutual funds to choose from and therefore the possibility for higher returns with a brokerage firm than with your company retirement plan administrator.

You should invest 10 to 15 percent of you income for retirement. More is better (the more you save now the more options you’ll have later in life), so try to get to contributing 15 percent as soon as you can.

You can easily open a Roth IRA account with Schwab or Vanguard—we have investment accounts with both and both are good brokerage firms. (Note: These are not affiliate links; I just feel they are good companies.)

Which types of mutual funds should I invest in for my 401(k) or IRA?

Another important factor to think about when comparing investing in a 401k vs IRA is the funds that are available to you for investing. If your company has lousy mutual funds to choose from, then that is another great reason to invest as much as possible in an IRA instead.

When investing for retirement, I recommend investing equally in four categories of mutual funds: large cap, mid cap, small cap, and international mutual funds. Choose mutual funds from these categories that have good track records of high overall returns (generally, with average returns of around 10 percent or higher over a 5- or 10-year period; where possible, choose mutual funds that have been open 10 years or longer).

 

Note: Once you begin investing for retirement, I recommend that you check out a great free app called Personal Capital in order to track your progress toward reaching your retirement and other financial goals. With Personal Capital, you can see not only all of your bank checking and savings accounts and even your credit cards and other finance accounts, but you can also link your retirement and regular nonretirement brokerage accounts.

This allows you to have a complete, overall picture of your current financial situation. And you can also view your account history to see how your accounts and overall portfolio have done over time. I love this very helpful tool and use it regularly! You can sign up for your free Personal Capital account here.

 

I know that when I started investing for retirement I really wished there was someone who had my best interests at heart (and not their commission rate) who would just hold my hand and show me the best funds to invest in and why. And that’s why I will share with you exactly how we choose the mutual funds we invest in (for free—no strings attached). Just sign up below to receive the cheat sheet.

Which is better—a Roth IRA or traditional IRA?

After comparing the 401k vs IRA, another crucial thing to consider is whether to invest in a traditional IRA or a Roth IRA.

For many people, if they invest for retirement consistently over a long period of time like I recommend, then a Roth IRA is a better option than a traditional IRA because they will have a larger income in retirement than in their working years and so they will pay less in taxes (by being in a lower tax bracket) by investing in a Roth retirement account.

And that’s what most people should strive for—to accumulate a substantial amount of money in order to retire with dignity and provide for themselves comfortably during retirement. And it’s a worthwhile goal to aim for because having a substantial nest egg gives you more options—more options to travel, more options to care for elderly parents or children, and more options to give significant amounts to worthy causes.

A Roth IRA is also often a better option for many people who have significant tax deductions now for things such as child tax credits, charitable giving deductions, or mortgage interest deductions, for example. This is because those tax-deductible items make their taxable income lower now than it likely will be in retirement.

 

 

Conclusion

When looking at investing in a 401k vs IRA, there are some important things to consider.

As I noted above, in most cases when comparing the 401k vs IRA, you should invest in a company retirement account such as a 401(k) up to the amount that they match on your retirement contributions.

And then you should invest the rest of your money set aside for retirement (10 to 15 percent of you income—15 percent if possible or as soon as you can) in a Roth IRA in good stock mutual funds. By investing in a Roth IRA you will have more options and therefore generally have the potential for better rates of return on your hard-earned money. If you invest consistently each month in your Roth IRA, you will be well on your way to building long-term wealth so that you can live in comfort throughout your retirement.

By saving as much money as you can (again, a good rule of thumb is 15 percent of your income) as soon as you can, you will have much more money (because of the awesome power of compound interest) available to travel, take care of your medical needs, spoil grandchildren, give to causes you care deeply about, and more.

Are you ready to get serious about saving for your future? You can find more helpful information about investing for retirement here.

 

Want to Track Your Financial Progress?

Sign up for Personal Capital to be able to track how your investments as well as checking and savings accounts are doing and also view your account history to see how your accounts and overall portfolio have done over time. It’s a great tool! Sign up for your free Personal Capital account here.

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our new, closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.