Last weekend, I was at a friend’s house for dinner and we started talking about saving for retirement. We were discussing the different types of plans we use for our personal retirement savings – 401k, 403b, IRA, and Roth IRA. We knew there were contribution limits for each retirement tool, but we weren’t sure about retirement limits among similar tools. Our question was: can we contribute the maximum amount to a traditional IRA plus the maximum amount to a Roth IRA?
I decided to answer this burning question so I looked it up on the IRS website!
Disclaimer: This post is not intended to be retirement or financial advice. Please consult your tax professional regarding your specific circumstances before making any changes to your retirement and other accounts.
How do you feel when you hear the word “budget”? Does it feel limiting and no fun? Do you want to tap into your inner child and say “budget, don’t tell me what to do!”…and then you defiantly visit Amazon.com and buy 3 CDs you didn’t need, just because you can? Do you think you can just kinda “wing it” instead of really looking at the numbers on paper? Maybe you don’t want to admit it, but perhaps it feels a little scary?
If you’re nodding “yes” to any of these descriptions, consider this quote I recently found:
“When I made the shift from seeing decreasing my expenses as deprivation to seeing it as keeping money for myself and taking great care of myself, everything changed.” ~Kate Northrop
When I read that quote, I thought: oh my goodness, she’s totally right! A budget isn’t supposed to be some sort of straight jacket, there to make your life unpleasant…it’s just the opposite! A budget will free you to live a fuller, more expansive life!
So what do you think about trying out this new tweak in attitude? Take it out for a spin and see how you like it!
A big part of this process is to think of the overall picture. What do you want your money to help you achieve? You work hard to earn this money, so make it work hard for you.
Consider your hopes and dreams. Budgeting is a way of funneling your money into things that matter to you – a way to make your hopes and dreams come true. For instance, you may want to save up for a beautiful new house, bringing a baby into the world, excellent educations for your kids, travel to lovely and relaxing destinations with your family, comfortable retirement, or whatever else you daydream about. Remember to work saving for these occasions into your budget. In this way, your money can help you live the life of your dreams.
Here’s a place to start: instead of thinking of a budget as this big, intimidating project, commit to keeping your receipts for one month. Either as you go along or at the end of the month, enter the amount of each receipt in the general category where it belongs in the resource I’ve created for you (request it using the form below). Then take a step back and evaluate what you see.
You may be surprised to find that you eat out a lot more often than you thought. For example, if you find that you’re spending $60 each week in eating out and you think you should only be spending $40, make $40 your spending goal for next week and see how you do. Or maybe you’re not spending enough in the “FUN!” category. Regardless of what you find, take note and tweak where necessary.
It make take a few tries, but I’ll bet you know what’s reasonable to expect that you spend in each category. Keep in mind that “reasonable” may end up between what you’re actually spending and what you’d ideally like to spend. For example, you may prefer to only spend $20 each week in gas, but the reality is your commute is really long, so it’s more realistic to expect to spend $40. That’s a bummer, but not the end of the world.
So, try tweaking your attitude about budgeting to focus on how it will help you live the life of your dreams. Good luck, have fun, and let me know how it goes in the comment section below.
First of all, let me thank you for your patience in my absence from writing this blog. My beloved grandfather passed away the same day I posted my last entry, October 18th. I found that I needed to take a break from posting for a while, and I appreciate your understanding.
Now, I’d like to talk about your Financial Goals for 2015. When the clock turned over to 1/1/15, perhaps you made some resolutions – eat healthier, go to the gym, or get a new job. Did you make any financial resolutions or goals, too?
A few examples of financial goals could be: get out of debt, increase your emergency fund, pay off your car or school loans, or create a realistic budget that you’ll stick to this year. Of course there are many other financial goals you could choose, but it’s important to choose at least one. You might even consider choosing two – one short term goal that can be achieved within the year, and one long term goal that may take a year or more to achieve. As in other areas in your life, having financial goals will help you focus your energy.
My husband and I have gotten into the habit of saving a little bit each month toward our financial goals. This year, our short term goal is saving for a new bed, and our long term goal is saving for a down payment on our first home. We will easily save enough money to buy a new bed long before we have enough money saved for a down payment on a home. But it’s important to recognize that saving a little money each month toward your financial goals is very helpful, no matter how big or small the goals may be.
What are your financial goals for 2015? Please share them in the comment section below!
Fun fact for today – “You can hold a Ferris wheel in the palm of your hand. How? It’s easier than you might think. So is turning cartwheels with your fingers. Both “Ferris wheel” and “cartwheel” are nicknames for silver dollars!” (Source: http://www.usmint.gov/kids/coinnews/funfacts.cfm?group=1)
PS I know I usually post on Saturdays, but I decided to post today in honor of Grandpa’s birthday, when he would’ve turned 88. Happy Birthday, Grandpa! Thanks for all the wonderful advice on money and life you gave me throughout the years. I love you!
As I’ve mentioned before, Financial Literacy is my passion and has been for several years now. With some encouragement from my mom and my husband, it was on my birthday this year that I started this blog. This past week, I posted all of my blog posts on the Facebook page that I recently created for Decoding Your Dollars (you can find it here).
Both starting this blog and posting my blog posts on Facebook have been steps along the way to following my dreams. Can I just tell you how fantastic this feels?! Soon after starting my blog, and then again after sharing all my blog posts on my new Facebook page, I have felt like I am on cloud nine!
This reinforces the importance of following your dreams! Doing so will make you feel amazing! Putting yourself out there may seem risky or scary, but it’s not life threatening, and it’s usually pretty exciting. And it could improve your life – quickly, drastically, and in ways you never imagined!
Some common dreams that people have are dream houses, cars, jobs, and spouses, to name a few. These pieces all come together to create your dream life. So how do we apply “following your dreams” to finances? Let’s look at one of these goals – buying your dream house.
You might have an image in your mind of your dream house, which is a great start. Build a vision board for yourself, which includes all the details about this house and what will be inside it (read more about vision boards in this post). Doing this will get you even more excited about your dream!
Next, hop on the internet and search for house prices in the area where you’d like to live. From there, you can determine the amount you need to come up with in order to put a down payment on your dream house. I recommend aiming for a 20% down payment (I’ll talk more about different types of mortgages in a future post). Break that calculated down payment amount into monthly pieces to be able to determine how much you should save toward your goal. As you see your account balance increasing, you’ll feel encouraged to find more money to put in your bank account.
The down payment amount that you calculated might sound like a lot of money, but don’t get discouraged! If you think creatively, you can come up with ideas to come up with the down payment even quicker than you expected. For example, look for a home that’s priced under market value because the sellers really need to sell, look for a rent to own situation, look for a fixer-upper that only needs cosmetic fixes, to name a few thoughts. You can also come up with a list of things you can do for a fee – running errands for people, cooking meals for busy families, yard work, etc. Before you know it, you’ll have the keys to your dream house in your hand! You can do it!
If you find that you need a little extra encouragement, have I got a blog suggestion for you! When you sign up to follow the blog, it’s like a pep rally in your inbox each day. The posts will get you really energized to follow your dreams! Enjoy! www.dailypeptalks.wordpress.com
So, get out there and dream big! Then break those dreams into attainable goals that you can achieve along the way. As you start to achieve those mini-goals, you’ll get even more excited about the overall dream and that will help you make it there faster! Following your dreams will get your creative juices flowing, which will make the journey seem easier and exhilarating. Have fun with it!
Thank you for your support while I follow my dreams – I really appreciate it!
Fun fact for today – Did you know that $1 bills last in circulation ~18 months, $5 bills are in circulation for ~15 months, $20 bills are in circulation for ~2 years, and $50 and $100 bills are in circulation for up to 8 years? From that information, it seems like $5 bills are the most popular form of paper currency! (Source: http://blog.lendingclub.com/the-us-dollar-bill-50-fascinating-facts/)
With the unofficial end of summer behind us, and the change in seasons imminent, it made me think about change in general. Change can be an exciting and sometimes scary thing. However, you can take steps in order to put yourself in a good financial position so that you don’t have to worry about any change that may come your way.
So what kind of a change am I referring to here? Well, sometimes the company you work for may go through a merger, consolidation, move, or reduction in workforce, to name a few options. Or you may decide to move to a new area or to take some time off to stay home with your kids or re-think the direction of your career. And sometimes the pipes burst and you need to pay the plumber to come over to fix the issue.
An emergency fund can be the perfect parachute for you in these unexpected times.
You may have heard of people talking about the importance of an emergency fund. Do you have one? It may be just what you need in order to tide you over for a bit when unexpected expenses or situations arise.
What is an emergency fund? It is simply a savings account where you regularly deposit money for unexpected events. I recommend depositing money to this account each time you receive a paycheck. As they say – pay yourself first! You can also use the coins that you roll toward this emergency fund.
How much should you have in this account? Of course, the more money you have in there, the better. Suze Orman, financial expert, suggests having at least 8 month’s worth of expenses in your emergency fund. I don’t think it would hurt to have at least a year’s worth of money in there.
How do you figure out how much to put away? Let’s say you want to have one year’s worth of savings in your savings account. That means, if you spend $500 each month on housing, $100 on cable/phone/internet, and $400 on groceries, then you know that your monthly expenses are $1,000. To have one year’s worth of expenses in your emergency fund, then you need $12,000 in your account.
That may seem like a lot of money, but remember that you’re working toward this amount a little bit at a time. Each paycheck, you will be putting money away in your savings account. Don’t be discouraged if you save a modest amount each month. Even if you start out only saving $5 each paycheck, that will add up over time. Start saving a comfortable amount, then challenge yourself to increase that amount over time. You will see the balance of your savings account increase faster than you expected! And remember, any amount that you’re able to put in this fund will go a long way toward easing any tension and worry from unexpected events that you may experience.
I wrote about savings accounts in a previous post – click here to read more about types of accounts that I recommend. You’ll earn more interest on your money than you will at a regular bank. I think you’ll like it!
Yes, I know, the title of this post might sound a little funky. If you’re still in school, why would you be thinking about retirement?! My thought is that you can never start saving for retirement too early. Hear me out…
Over the summer, you probably worked really hard at a summer job and earned a bunch of money. I’m sure that you’ll use some of that money for your books for the semester, and for your entertainment – dinner and a movie with friends, etc. These are all important things to use your money for.
Have you also saved some of it? Remember we talked about opening checking and savings accounts last month (revisit that post here). It’s important to put some of the money you earned in a savings account so that it earns money while you’re in school! We’ll talk more about the miracle of compound interest a little later. It’s an interesting subject…trust me!
Also, remember we talked about 401k plans (revisit that post here)? Well, if you’re not eligible for one because your employer doesn’t offer one, you can still save for retirement. When you turn 18, you are eligible to open an Individual Retirement Account (IRA). Consider depositing some of your hard-earned summer savings in a retirement account. When you get to be retirement age, you’ll be happy that you did!
Like a 401k plan, an IRA will allow you to invest in mutual funds and sometimes even stocks. Each plan has its own selection of funds in which to invest. In a later post, we’ll discuss more about the different types of retirement plans and investments.
In honor of July 4th, my great country’s Independence Day, I’ve been trying to figure out how to apply that to finances. Then I thought of it – Financial Independence.
You’ve probably heard people say it (and maybe even said it yourself) – “I need to be financially independent (or independently wealthy) in order to do ___________ (fill in the blank)”.
It’s fine to have financial independence as a goal, but as with any goal, you need to have a plan if you’re serious about achieving it. This is the perfect time for you to sit down and really think about how you want your future to look. Does it include traveling all around the country and even the world? Does it include a big house and fancy cars? Or is the size of your bank account what matters to you? Does it mean sending your kids to the best schools available in the country? Owning a vacation home or two? All of the above?
How ever you picture your perfect life, it is important that you have plenty of money so that you can follow your dreams. That is sometimes easier said than done. How do we get from here to there?
First, it’s vitally important to be doing something for a living that you love. I mean, really LOVE. It makes life so much easier when the way you earn your money makes your heart sing.
Next, take a close look at your finances. Decide if all your current expenses are really necessary. Ask yourself – does this expense make me happy? Will it help me to achieve my goals? Is this really something I want to be spending my money on? If you answer no to any of these questions, cut that expense out. Now I know you’ll likely say no when you examine taxes, let’s say, but there’s not much you can do about that!
Once you have an overall picture of your future, take a piece of that picture and break it down into little parts. This makes working toward your goals more manageable.
For example, if driving a Corvette is part of your dream life, first determine how much they cost. With that information, you can look at your monthly savings and determine how much of it to allocate to buying your new ‘Vette. Then you can figure out how long it will take until you are behind the wheel of your brand new car!
Finally, now that you’ve decided on an idea of what you want your future to look like, set about getting yourself there. Keep these goals in the front of your mind each day. In order to do that, consider building a vision board. Cut out pictures and phrases from magazines that remind you of your goals and paste them on a board that you keep in plain sight. Make it into something fun!
In the Corvette example, I’d certainly cut out a picture of the Corvette I have my eye on. I’d also find a large logo, and maybe even a picture of the steering wheel to add to my poster. Then I’d add pictures of the kind of house I want, places I want to visit, and so on.
Really get into your visualization of your dream life. Wait expectantly for it to come to fruition. This doesn’t mean to sit around and wait for it to show up. This means that you’re working toward your goals in a logical manner and you expect that you’re following the right path that will lead you to your dream life.
What is most important is that you commit to your goals and always work toward them. If you decide in the future that you need to tweak your goals, that’s no big deal – tweak away! There is no shame in realizing that you actually don’t want that goal after all. Feel free to make a complete 180 degree turn and go for a goal that is totally different.
As long as you work toward what you think will make you happy, you’re doing the right thing.
I recently found a great blog. The woman who writes it is passionate about cheering you on toward your goals, whatever they may be. If you need a pick-me-up, or just to feel like someone is on your side, cheering you forward, check out the blog: www.dailypeptalks.wordpress.com. You will be happy that you did!
I wish you success on your road to your own financial independence. I am happy that you have chosen me to help you along the way.