Saving

Save for the Days It Rains

An emergency by its very nature will strike at the most inopportune of moments. And the greatest fear that tags along with an emergency are the lack of funds. It is to overcome and be prepared for such unforeseen challenges that one should have a substantial amount of savings in place.

Warren Buffet had once famously quoted: “Savings in not what is left after you spent on your needs but it is the first investment you make before you spend on anything else.”

In today’s time of financial uncertainty and extreme competition, health and wealth are both victims. And after a point in time, there comes a situation where falling back on reserves, however unwise that would be, become a necessity. Let us list a few of them to see why people need and emergency fund or in other words, a saving.

  1. A loss of a job is a reality. Companies will restructure, downsize or maybe right size and the first casualty will be you. What would you do in that case? Jobs will never come on a platter and hence expecting one soon after you have lost one is simply wishful thinking. Also, even if you get one, there is no guarantee the salary currently drawn will be as attractive as the previous one.
  2. You or a family member has an illness. A debilitating one at that too. Where do you think you will have the funds to help you or the member get treatment? Also being too sick can make you lose your job. You would then be in a situation explained in point number 1. In addition to which the cost of treatment will add up.
  3. That property tax which you knew was under control for a long time has suddenly been raised. While previously budgeting for the taxes, you had never ensured some extra buffer for the future and now the future strikes back. It is again the savings which will come handy.
  4. You have been downsized and your hours rolled back. You are now a part time employee with very little cash in hand.
  5. An accident is a rude shock. Can happen to anyone of us at any time. Hence we call it an accident. The money needed for treatment needs to be saved from the beginning.

There is a myriad of reasons for people to start saving. The list is long and exhaustive.

If you haven’t started saving, this is the time.

Start now.

Saving Now Saves You Tomorrow

At 22 you are the king of the world. Nothing seems to bother you. You are invincible, raring to go and virtually unstoppable. Now pause and take a few steps back. This age, rage, and energy will not last forever. A few years down the line, when you slow down a bit, wisdom will suggest that the future holds no surprises, except old age and financial insecurity.

At 22, your effort to financial security begins.

At first, this might seem to be a scary proposition with too much information floating around, but there is enough reason

  1. Don’t get flustered with all that has been told to you in the form advice. Take an informed decision based on research. All those numbers around mean nothing if looked into properly.
  2. Start saving a little and more often. Start putting that in 401(k) and see it slowly rise.
  3. If you think the social security net will be good enough for you, think again. It is estimated that by 2037, social security benefit requirements will outstrip contributions. As a result of which, it would get difficult for you to sustain after retirement.
  4. The 401(k) is a reliable ally at this age. Start using it wisely. The money that is invested here is absolutely tax-free. The tax will only be deducted when you take it out. So this instrument is quite handy for a 22-year-old and needs to be made use to its fullest.
  5. The IRAs too have loads of benefits to make use of. It is an Individual Retirement Arrangement and is virtually tax-free, both on federal taxes, state and local ones. Of course, there are riders involved, but at this age, that should be bothersome.
  6. Now is the time to be aggressive. At 22, worrying about your retirement, investment becomes an art. Remember, you still have another 20 years or 30 years to go before you hang your boots up. You can take a risk now. Look out for stocks and bonds. With age, you can slowly change tracks and become conservative. Now is not the time.
  7. There are nontraditional ways to invest too. Heard about ETF (Exchange Traded Funds). They can be bought and sold at any time and is just a regular stock in disguise.
  8. Last but not the least. Stop worrying, start saving. That is the only way forward.

Employee Stock Options: Do I Invest With A 10% Discount

In other words, this would mean that you have an attractive piece of cake placed right I front of you. It is laden with all the sweetness, you ever wanted have. However, the catch is, one piece of that and you can forget the rest of the dinner because your hunger can only take in that much.

The same analogy goes in for investments. You start investing in stocks and end up putting too many eggs in one basket, the risk automatically rises. Going by the current trend among organizations is to provide a discount to employees who buy their stocks. Now understandably this is done to make things more attractive for the buyer. However, there is a certain thing one needs to keep in mind before indulging in that cake. Even before that let me tell how this thing actually works.

A set amount is of your monthly income is debited off and put into an escrow account. Twice a year, and this may vary from company to company, the money set aside in that escrow account, will be used to buy stocks, either at their lowest prices at buy in or during close, whichever is deemed cheaper. Add to it the employee discount that can vary from 10% to 15%.

Now, you can go ahead and immediately sell it if you want to and earn a 15% bonus, but again these numbers do keep changing.

Now, the thing which you need to keep in mind regarding stock options and the way to hold it. The first one, which we discussed, is for immediate selling and is called an ESOP (Employee Stock Options) and the other one is called RSP (Restricted Stock Purchase). Now what happens in the latter is akin to what one will do to the usual stock and shares i.e. hold on to it for a period in time. Now, chances are that the value of your stock may fall below your discounted price and that you may be facing a loss. If you are willing to sell it within a year, then you do act a short term investor, which may always be a bright idea, especially with company stocks. You may want to hold on to it for a longer period, which again has its risks, but has benefits too. The idea is to keep on checking the prices and the profits you would make.

As for starting a dinner with a cake and missing out on the rest of the food, investment to needs to be diversified. Having a little of most is a much better idea than stuffing oneself with only very few.

Emergency Savings Saves the Day During Financial Crisis

Savings in any form is good and better if you have an emergency fund stashed away to be used only during dire emergencies. Not many of us understand the importance of emergency savings till we actually encounter a crisis. Your personal finances can be shambles if you don’t have savings to fall back on during financial emergencies like a car breakdown, critical health problem of a family member, sudden death in the family etc. You will need to do some financial planning to allow yourself the wriggle room during crisis situations.

emergency savings

 

What does one need to do to enjoy financial freedom even during emergencies? Well, nothing much apart from creating a fund that can take care of unforeseen expenses. You can’t borrow from friends or family members – no one actually saves for friends or extended family members! You can’t even avail payday loans as they will drill a bigger hole in your pocket because of the insane interest rates. Financial planning is the only proper way of dealing with unplanned or unforeseen expenses.

 

All financial experts or market gurus harp on the need for robust financial planning in order to lead a tension-free life. No one wants to see their family members or friends struggling for money during an emergency. What’s the harm in planning ahead and creating an emergency fund that you can use when the need arises?

 

You can keep away some amount every month towards your emergency fund. This can be either in the form of a simple savings account or you can keep the cash at home only. Either way you will be able to make a substantial savings to take care of unplanned expenses. Medical emergencies, house repair, unplanned travels etc. can eat into your earnings if you don’t have an emergency fund to deal with such expenses.

 

If you are an impulsive buyer or a shopaholic then you might find it extremely difficult to save money at the end of the month. Start preparing early and make it a habit to set aside funds at the beginning of the month so that you spend only from the money you are left after saving. Emergency savings can be the best way to deal with the financial crisis and it is an important part of a robust financial plan. In order to enjoy total financial freedom, plan early and create an emergency fund to which you contribute on a regular basis.

10 Awesome Tips to Save Money on Groceries

We often don’t realize that we are spending a larger chunk of our income on groceries and end up stocking our refrigerators with unnecessary items. Before your food and grocery spending burn irreparable holes in your pocket, it is time to save some on your groceries.

save money on groceries

 

Here is a list of 10 awesome tips to save money on groceries:

  1. Prepare a menu – Planning what you want to eat before running to your nearest store might sound a drab activity but is extremely important if you want to save money on your groceries. Why do you want to end up buying items that you are not going to eat? Prepare a detailed menu so that you know the items you will have to buy.
  2. List standard items – Besides preparing a menu, there are some standard items that you will always require to rustle up a quick meal, breakfast, lunch and dinner. You will never forget the items that are a part of almost all meals or common to several dishes.
  3. Look for sales – There is no better way to save money than buying grocery items during sales. Often the stores put up items for sale and you can get your daily food items at discounted rates.
  4. Buy in-season fruits and vegetables – For staying healthy, we all need to eat fresh vegetables and fruits. However, these are expensive items, especially if you are buying fruits or vegetables that are usually not the season’s produce. Buy only in-season produce as that’s the best way to get your regular dose of fruits and vegetables while not spending a lot of money.
  5. Collect Coupons – There are several online resources to get the best deals on grocery items; you can always collect the coupons to save a lot of money on your grocery purchases. Alternatively, you can also collect the coupons available with magazines and newspapers.
  6. Learn the store policies – Not all stores accept competitor coupons, so you will have to learn about the store policy where you usually purchase your grocery items.
  7. Cut down on the number of monthly store visits – This actually helps you to collect your coupons and visit the store during sales, so you will be able to make a killing. However, you can’t expect such outings more than once or twice in a month, so you will have to cut down on the number of monthly store visits.
  8. Choose your store wisely – Choose the store that offers maximum sales and discounts; a surefire way to save a lot of money on your groceries.
  9. Buy only necessary items – You should always buy the items that you need and nothing more than that. Even though you will be tempted but try to restrict yourselves to the necessary items only.
  10. Don’t take your kids to the store – They are not going to help you in shopping and instead compel you to buy a few items more; leave the kids at home while visiting a store and you will be able to save a few more dollars.

Never Too Young to Start an IRA

You are never too young for an IRA and the earlier you start preparing for retirement, the better it is for your financial freedom. Investing for retirement should never be put in the backburner till you turn 25 or 30 or settle down with a permanent job. IRAs are a great option to start investing your money as they are really easy to open and operate while requiring small investment only.

There’s no point fence-sitting till everything falls into perfect alignment because even a $400 dollar annual contribution towards your IRA account is enough to start with. Young investors focused on long term gains have numerous choices in front of them but the most preferred among them is Roth IRA.

Roth IRA – Perfect choice for young investors

Roth IRA makes perfect sense for young investors as it is one of the most straightforward investments that anyone can think of. You will be taxed on the money you contribute towards your Roth IRA and as long as you adhere to the guidelines, you will never be taxed on your withdrawals after you retire. Younger individuals can benefit for Roths by investing on the businesses that offer long term gains through capitalization on the market’s movement. Leveraging the market to make good gains while not having to pay any tax on withdrawals is simply awesome.

3 Stellar Advantages offered by Roth IRA

  • Simplicity

It is really simple to avail tax free withdrawals after retirement instead of just calculating what you will need after the taxes and sending off the estimated payments to IRS.

  • Easy Withdrawal

You will be able to withdraw your contributions at any time from your Roth without paying any penalty. Even the early-withdrawal penalty of 10% can be avoided if you are buying a home for the first time or you are disabled. This benefit is available in case of deaths as well.

  • Lower Tax Rates

The federal income tax rates are extremely low. Your present tax might be higher than what you will be paying at 59 ½, so that’s a much easier option.

The maximum permissible limit of investing in a Roth is $5500 every year and for people above the age of 60 can deposit $6000. You can walk into your nearest bank any day of the week and open your IRA certificate of deposit. The primary aim of IRA is to encourage investment, so invest whatever you can, even when you are in your early 20s.

Work 401K Offers Tradition & Roth Options: How Does it Work and Where Should I Contribute?

If you are not eligible for a Roth IRA but considered as high wage earner, there is an opportunity for you to create your own Roth IRA. You can invest in 401k taxable investment account that can offer you to build your own Roth contributions that will become beneficial for you upon your retirement.

Considering the 401k you should learn its two types so you can choose which option is the best for you. Here are the two plans you can choose from:

  • Roth contributions. In this kind of option, it is good combination of traditional contributions that offers maximum limit on your 401k. Choosing this kind of contribution will allow you to pay your tax but there is no longer a need for you to pay your tax once you have decided to withdraw your contributions.
  • After – tax contributions. This option will provide you higher limit that can reach $53k for your total contributions. If you decide to roll your contribution to your Roth IRA on your retirement, you will achieve similar Roth benefits.
  • Roth 401k. In this option, you will have the opportunity to achieve big amount of money from your Roth IRA as you expect. Thus, if you have employer that has good 401k options, you can roll in your own account of IRA into your 401k that makes it easier for you to roll them back and then out play the backdoor contributions of your Roth in the near future.

So if you are high wage earner, it is best for you to opt with the traditional contributions that only ask for $18k. But if you are expecting to pay higher rates upon your retirement then you can choose the after – tax contributions. However, your decision about which plan is best option for you will still depends to the current situation you have right now.

On the other hand, many people find the after – tax contributions attractive in some other ways. It is because it has IRS regulations that make it enjoyable and at the same time allow all the retiree to segregate effectively after your tax assets from pretax monies once you decide to rollover it into IRA. As you opt for pretax 401k assets, both of your investment earnings and pretax contributions will be rolled in a traditional IRA wherein you can convert it into your Roth IRA.

Meanwhile, for you to ensure that you will get the effective return from your pre-tax  contributions on your current marginal rate and can lessen your average tax rate for your retirement, you should ensure that you are high wage earner. It is because the marginal rates are always higher than the average rates that create sense to build your Roth.

Overall speaking, having high income will allow you to choose traditional 401k that reduces the taxes you pay that seems higher during your retirement. Once you are done with this process you can now proceed with after-tax Roth then reach the 401k and IRA that makes it beneficial in your account.

 

Examples of Passive Income

A lot of people wonder about what is passive income and how they too can start earning it. Passive income come’s in all shapes and sizes and if you have a normal portfolio today you most likely are already privy to some.

examples of passive income

Check out the most common examples of passive income below:

1. Stocks that pay dividends and, every quarter, send you a dividend payment.

2. A real estate investment through a partnership. The general partners manage the properties and you, as a limited partner, just collect the rent and any capital gains from property sales.

3. Savings account that accrues interest. Every year or monthly your account will be sent interest payments.

4. Patents or copyrighted material such as songs. Entities that license this intellectual property pay out fees or royalties on a quarterly basis.

There are plenty other types of passive income but the above four are some of the most common examples of passive income and one’s you might already be utilizing today. People’s most common income though is earned income, which is what you get from working a job.

The 46 Best Ways to Save Money

Check out the below list of the 46 best ways to save money.

Best tips on saving money

1. Open a saving account and actually save money in it. Start small just $20 a month but slowly up that to $100 a month to make a nice rainy day fund.

2. Don’t waste money on things you don’t need. Always wait a day before making a big purchase and sleep on it. If you come across an expensive item that you want, write up a report about why you want it, how it will impact your life, etc. Act like you are asking your boss to buy an expensive piece of equipment or something. Then file the report away to be reviewed in a weeks time. After the week is up, re-read the report with the mindset that someone else is asking to borrow money for that reason. If it passes this review, then begin to allocate funds from future paychecks toward it, which could take weeks. By the time all is said and done, if you do buy it, you definitely won’t regret it.

3. Don’t invest in penny stocks or cheap cryptocurrency. They are cheap for a reason and can lose value at any time for no reason.

4. Look at a compound interest tables. Think of it as giving your future self money at a huge discount.

5. Cook your own meals, don’t eat out.

6. Couponing. Clipping coupons works and the savings add up. Just $5 saved a week is $260 a year in extra money.

7. Recycle beer bottles and other cans. If you recycle 20 cans a week that is $1 a week in extra none or $52 a year extra.

8. This is a little risky but try buying limited edition products (games, consoles) and sell when they are sold out. Some fans are hell set on products and will pay a lot for them. Just watch out for the next beanie babies.

9. Print double-sided. Easy way to make your paper last twice as long.

10. Use recycled paper for scrap. When you are done with a sheet save it to write notes on — no need to do anything else.

11. Use old newspapers/ads for food waste (bones, inedible foods).

12. Use three toilet paper tiles and fold it in half to get thickness of six tiles. It feels just like Charmin.

13. When toothpaste/lotion tube is nearly done, cut it open to get everything out,

14. Go to random public events for free pens, post-it notes, and candy.

15. Always check payphones, vending machines (and surrounding area) for left over coins.

16. Use shopping bags as garbage bags.

17. Seal windows with tape or something to prevent heat loss in the winter time.

18. Freeze bread immediately and toast when you need it to prevent mold and early spoilage,

19. Charge your cell phone, tablet, handheld device at work/school,

20. Use credit card with cash-back option and don’t use debit for purchasing. Most cash back programs give you 1% at least back a year plus you are building your credit score.

21. Disassemble old hard drives and take out the magnets for whatever.

22. Exercise without getting gym memberships. Running is great here and you can do it for most of the year.

23. Cancel cable and watch your shows online for free.

24. Cut phone service and get VoIP, find independent service providers and not the mainstream providers.

25. Use your old toothbrushes to scrubbing stuff.

26. Water down juices to get a little more to drink (90% juice, 10% water). Same taste and you save yourself 10% a year.

27. Do your own taxes. Turbotax or similar online programs are only $30 a year and take minimal time to do.

28. Take office supplies from work/school.

29. Ask for bandages/gauze at the doctors.

30. Replace all incandescent light bulbs with CFLs.

31. Flush your toilet only once a day. As they say “If it’s yellow let it mellow, if it’s brown flush it down.”

32. Register all your products, games, electronics, etc. They usually send you promotions for sales, or extended warranty.

33. Sign up for demos and free trails, they might give you a gift on the side, and you can send back the product without the gift. For any of these use a fake email address so they don’t spam your main account.

34. Register for memberships that ask for your birthday, they usually give you free stuff on your birthday, like bagels, coffee, popcorn, etc. Some restaurants let you eat free if you eat with a group of people, just need to show ID. Again always use a fake email address.

35. If you have a kid and need something to do bring them to McDonald’s and ask for the treat of the week. It’s usually cookies or a ruler. If you can, get yourself napkins and salt/pepper/vinegar/ketchup/mayonnaise packages while there.

36. Use the free Wifi at Starbucks and other restaurants if you don’t have internet at home.

37. Buy the generic “no name brand” alternative where possible, including medicine.

38. Keep all receipts for tax purposes, or for surveys that can win you prizes or a discount the next time you visit. Both Dunkin Doughnuts and McDonalds have surveys on most of their receipts which give you free food as a return.

39. If you have “dead” batteries, you can probably use them to power a clock for at least a week. Throw “dead” batteries in the freezer for a few hours, they might work for another hour or so.

40. Save power by setting computer to Power Saving mode instead of Balanced/High Performance, set screen to power off after 5 minutes or whatever, set hard drive to sleep after 5 minutes or whatever, turn down monitor brightness as much as you can. This probably won’t help much but depending on your setup could save you a couple of dollars a month and prolong your monitors life.

41. Borrow books from libraries or view them on Google Books (or download them somewhere), read books at your local bookstore and leave without buying it, and of course don’t buy bookmarks, use something like a receipt or something.

42. Shop at early morning or late at night to save time waiting in line or avoid crowds.

43. Hand wash your clothes and air-dry them. This will save you money and lower your electricity bill.

44. Never borrow money to buy something. If you want something save up to buy it first.

45. Never buy junk food. It is bad for health, has no nutritional value, and is often over priced especially if brand name.

46. Save as much as you can. And you can always save more. Go ahead right now and up your 401k contribution by another percentage point. You won’t even notice the difference in your paycheck but you will see the growth in your retirement account.

Six Money Saving Tips from Warren Buffett

Check out the graphic below with six of the best money saving tips from Warren Buffett.

6 Money Saving Tips from Warren Buffet
Image via Knowlarity

On earnings: “Never depend on single income. Make investment to create a second source.”

On spending: “If you buy things you do not need, soon you will have to sell things you need.”

On savings: “Do not save what is left after spending, but spend what is left after saving.”

On taking risks
: “Never test the depth of a river with both feet.”

On investment: “Do not put all your eggs in one basket.”

On expectation: “Honesty is a very expensive gift. Do not expect it from cheap people.”