Another rule of thumb that people use is the rule of 8x. This rule of thumb recommends that you save 8 times the salary you have by the time you retire. By this yardstick, you’d do well to have 1x your salary saved by age 35, 3x your salary saved by 3X by 45, and 5X by 55. If you want to retire early, aim to put aside 75% of your annual income.
Employers sometimes match 401(k) plans. This means that for every dollar of your salary that you put into your 401(k) plan, your employer will put in another dollar from their pocket. Hypothetically, if you contribute $2,500 to your 401(k) and your employer matches, they’ll also pay out $2,500 for a total of $5,000. That’s the closest thing to “free” money you’ll probably ever get. Take advantage of it. [2] X Research source [3] X Research source If you want to learn more about 401(k) plans, click here. A 401(k) plan is retirement account where the money you put into it is tax deferred, meaning it’s not taxed until a later date or possibly not at all.
Here’s how effectively a Roth IRA can help you build wealth. If a 20-year-old person contributes the maximum $5,000 to their IRA every year for 45 years at 8% annual growth, magic things happen. By the time they retire, they’ll have a portfolio of over $1. 93 million. [4] X Research source That’s $1. 7 million more than if you’d just stuck that money into a regular savings account. How do Roth IRAs produce such wonderful wealth? Through compound interest. This is how compound interest works. A bank or other institution gives you interest on your IRA, but instead of pocketing that interest, you put it back into your pool. Then, the next time you get interest, you’re not only gaining interest, but interest from your interest as well. As with all savings vehicles, the earlier you start, the better. If you make a one-time contribution of $5,000 at age 20 and then let it sit for 45 years at 8% growth, you’d have a whopping $160,000. If, on the other hand, you make a one-time contribution of $5,000 at age 39, by retirement age that $5,000 would only be about $40,000. So start early!
Not only this, scientists have discovered that the human brain thinks about credit and real money very differently. One study found that credit card users outspent cash users by an average of 12% to 18%, while McDonald’s found that people who pay with plastic spend an average of $2. 50 more in their stores than their cash counterparts. Why is this? We don’t know for sure, but we think that cold, hard cash feels a lot more like “money” than credit cards do, perhaps because the money isn’t physically present when you swipe the card. In short, credit can feel like Monopoly money — fake — in the primitive part of our brains.
Whenever you make a bigger purchase, divide the cost of the item into your hourly wage. [5] X Research source So if you’re eyeing those $300 pair of shoes, but you only make $12/hour, that’s 25 hours of work, or more than half a work week. Are the shoes worth that much to you? Sometimes, they will be. Cut your savings goals into smaller chunks. Instead of setting a goal of saving $5,500 per year, think in terms of months, weeks, or even days. Think, “Today I’m going to try to save $15 and put it away. " If you do that for every day of the year, that will turn into $5,500.
A good financial planner does a whole lot more than manage your money. She teaches you about investment strategies, explains short- and long-term goals, helps you develop a healthy emotional and rational relationship with wealth, and tells you when to spend some of your hard-earned shekels.
Think about investing in an index. If you invest in the S&P 500, for example, or the Dow Jones, what you’re doing is betting on the American economy to succeed. Many investors think that dumping money into an index is a relatively safe and smart bet. Think about investing in a mutual fund. A mutual fund is a collection stocks or bonds that are bundled together to pool risk. While they tend not to make as much money as dumping all your money into one or two stocks, it’s much less risky.
A mountain of academic research has found that day trading is not profitable. Not only are you incurring big transaction fees each and every day, but you’re usually only seeing 25% and 50% increases — if you’re lucky. It’s very hard to time the stock market correctly. The people who simply choose good stocks and leave their money invested for long periods of time usually make far more money than people who flit back and forth buying and selling.
Consider buying a home you can afford and building equity in it instead of paying rent. Buying a mortgage is probably one of the single most expensive purchases you’ll make in your life, but that shouldn’t dissuade you from buying a home you can afford if the financials make sense. Because why pay hundreds or thousands of dollars in rent to a landlord with no property to show instead of building equity in something that you can one day fully call your own? If you’re financially ready to own a home (they cost a lot of money to upkeep), this can be a sound move. Flip homes with caution. Be wary about flipping. Flipping is when you buy a house, quickly upgrade it for as little money as possible, and then put the upgraded house on the market so that you can make a profit. Houses can be flipped, and some have done so profitably, but houses can also founder on the market for a long time, become money pits, or simply cost more than someone is willing to pay for them.
Institute a mandatory waiting period. Wait at least a week, possibly even to the end of the month when you have a better idea of what your finances will be. If you still want to buy the item after a week or longer, it’s probably not an impulse buy anymore. [7] X Research source
The tuition and fees are usually less expensive and the training consumes less time than traditional degrees because you don’t have to take basic courses like math, English and history to get a technology or skills degree! As a bonus you can take many required courses for a two year degree online. Also, it’s worth noting, you shouldn’t underestimate the power of an associate degree. After all many employers just want to see that you can finish your program and be self-motivated to improve yourself, while others just want “the paper. "
