If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
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“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
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An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
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When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
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“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
The post 4 Tricks for Budgeting on a Fluctuating Income appeared first on Discover Bank – Banking Topics Blog.
Source: discover.com
Financial Lessons Learned During the Pandemic
2020 has shaped all of us in some way or another financially. Whether it is being reminded of the importance of living within our means or saving for a rainy day, these positive financial habits and lessons are timeless and ones we can take into the new year.Â
While everyone is on a very unique financial journey, we can still learn from each other. As we wrap up this year, it’s important to reflect on some of these positive financial habits and lessons and take the ones we need into 2021. Here are some of the top financial lessons:
Living Within Your Means
Itâs been said for years, centuries even, that one should live within one’s means. Well, I think a lot of people were reminded of this financial principle given the year weâve had. Living within your means is another way of saying donât spend more than you earn. I would take it one step further to say, set up your financial budget so you pay yourself first. Then only spend what is leftover on all the fun or variable items.
Setting up your budget in the Mint app or updating your budget in Mint to reflect the changes in your income or expenses is a great activity to do before the year ends. Follow the 50/20/30Â rule of thumb and ask yourself these questions:
- Are you spending more than you earn?
- Are there fixed bills you can reduce so you can save more for your financial goals?Â
- Can you reduce your variable spending and save that money instead?
The idea is to find a balance that allows you to pay for your fixed bills, save automatically every month and then only spend what is left over. If you donât have the money, then you cannot use debt to buy something. This is a great way to get back in touch with reality and also appreciate your money more.Â
Have a Cash Cushion
Having a cash cushion gives you peace of mind since you know that if anything unexpected comes up, which of course always happens in life, you have money that is easy to liquidate to pay for it versus paying it with debt or taking from long-term investments. Having an adequate cash cushion this year offered some people a huge sigh of relief when they lost their job or perhaps had reduced income for a few months. With a cash cushion or rainy day fund, they were still able to cover their bills with their savings.
Many people are making it their 2021 goal to build, replenish, or maintain their cash cushion. Typically, you want a cash cushion of about 3- 6 months of your core expenses. Your cash cushion is usually held in a high-yield saving account that you can access immediately if needed. However, you want to think of it almost as out of sight out of mind so it’s really there for bigger emergencies or opportunities that come up.
Asset AllocationÂ
Having the right asset allocation and understanding your risk tolerance and timeframe of your investments is always important. With a lot of uncertainty and volatility in the stock market this year, more and more people are paying attention to their portfolio allocation and learning what that really means when it comes to risk and returns. Learning more about which investments you actually hold within your 401(k) or IRA is always important. I think the lesson this year reminded everybody that itâs your money and it’s up to you to know.
Even if you have an investment manager helping you, you still need to understand how your portfolio is allocated and what that means in terms of risk and what you can expect in portfolio volatility (ups and downs) versus the overall stock market. A lot of people watch the news and hear the stock market is going up or down, but fail to realize that may not be how your portfolio is actually performing. So get clear. Make sure that your portfolio matches your long term goal of retirement and risk tolerance and donât make any irrational short term decisions with your long-term money based on the stock market volatility or what the news and media are showcasing.
Right Insurance Coverage
We have all been reminded of the importance of health this year. Our own health and the health of our loved ones should be a top priority. It’s also an extremely important part of financial success over time. It is said, insurance is the glue that can hold everything together in your financial life if something catastrophic happens. Insurances such as health, auto, home, disability, life, long-term care, business, etc. are really important but having the right insurance policy and coverage in place for each is the most important part.
Take time and review all the insurance coverage you have and make sure it is up to date and still accurate given your life circumstances and wishes. Sometimes you may have a life insurance policy in place for years but fail to realize there is now a better product in the marketplace with more coverage or better terms. With any insurance, it is wise to never cancel a policy before you a full review and new policy to replace it already in place. The last thing you want is to be uninsured. Make sure you also have an adequate estate plan whether itâs a trust or will that showcases your wishes very clearly. This way, you can communicate that with your trust/will executorâs, beneficiaries, family members, etc. so they are clear on everything as well.Â
Financial lessons will always be there. Year after year, life throws us challenges and successes to remind us of what is most important. Take time, reflect, and get a game plan in place for 2021 that takes everything you have learned up until now into account. This will help you set the tone for an abundant and thriving new financial year.Â
The post Financial Lessons Learned During the Pandemic appeared first on MintLife Blog.
Source: mint.intuit.com
10 Financial Steps to Take Before Having Kids
According to the U.S. Department of Agriculture (USDA), raising a child to the age of 18 sets families back an average of $233,610, and thatâs for each child. This figure doesnât even include the cost of college, which is growing faster than inflation.
CollegeBoard data found that for the 2019-2020 school year, the average in-state, four-year school costs $21,950 per year including tuition, fees, and room and board.
Kids can add meaning to your life, and most parents would say theyâre well worth the cost. But having your financial ducks in a row â before having kids â can help you spend more time with your new family instead of worrying about paying the bills.
10 Financial Moves to Make Before Having Kids
If you want to have kids and reach your long-term financial goals, youâll need to make some strategic moves early on. There are plenty of ways to set yourself up for success, but here are the most important ones.
1. Start Using a Monthly Budget
When youâre young and child-free, itâs easy to spend more than you planned on fun activities and nonessentials. But having kids has a way of ruining your carefree spending habits, and thatâs especially true if youâve spent most of your adult life buying whatever catches your eye.
Thatâs why itâs smart to start using a monthly budget before having kids. It helps you prioritize each dollar you earn every month so youâre tracking your familyâs short- and long-term goals.
You can create a simple budget with a pen and paper. Each month, list your income and recurring monthly expenses in separate columns, and then log your purchases throughout the month. This gives you a high-level perspective about money going in and out of your budget. You can also use a digital budgeting tool, like Mint, Qube Money, or You Need a Budget (YNAB) to get a handle on your finances.
Regardless of which budgeting tool you choose, create categories for savings (e.g. an emergency fund, vacation fund, etc.) and investments. Treat these expense categories just like regular bills as a way to commit to your familyâs money goals. Your budget should provide a rough guide that helps you cover household expenses and save for the future while leaving some money for fun.
2. Build an Emergency Fund
Most experts suggest keeping three- to six-months of expenses in an emergency fund. Having an emergency fund is even more crucial when you have kids. You never know when youâll face a broken arm, requiring you to cover your entire health care deductible in one fell swoop.
Itâs also possible your child could be born with a critical medical condition that requires you to take time away from work. And donât forget about the other emergencies you can face, from a roof that needs replacing to a job loss or income reduction.
Your best bet is opening a high-yield savings account and saving up at least three months of expenses before becoming a parent. Youâll never regret having this money set aside, but youâll easily regret not having savings in an emergency.
3. Boost Your Retirement Savings Percentage
Your retirement might be decades away, but making retirement savings a priority is a lot easier when you donât have kids. And with the magic of compound interest that lets your money grow exponentially over time, youâll want to get started ASAP.
By boosting your retirement savings percentage before having kids, youâll also learn how to live on a lower amount of take-home pay. Try boosting your retirement savings percentage a little each year until you have kids.
Go from 6% to 7%, then from 8% to 9%, for example. Ideally, youâll get to the point where youâre saving 15% of your income or more before becoming a parent. If youâre already enrolled in an employer-sponsored retirement plan, this change can be done with a simple form. Ask your employer or your HR department for more information.
If youâre self-employed, you can still open a retirement account like a SEP IRA or Solo 401(k) and begin saving on your own. You can also consider a traditional IRA or a Roth IRA, both of which let you contribute up to $6,000 per year, or $7,000 if youâre ages 50 or older.
4. Start a Parental Leave Fund
Since the U.S. doesnât mandate paid leave for new parents, check with your employer to find out how much paid time off you might receive. The average amount of paid leave in the U.S. is 4.1 weeks, according to a study by WorldatWork, which means you might face partial pay or no pay for some weeks of your parental leave period. It all depends on your employerâs policy and how flexible it is.
Your best bet is figuring out how much time you can take off with pay, and then creating a plan to save up the income youâll need to cover the rest of your leave. Letâs say you have four weeks of paid time off, but plan on taking 10 weeks of parental leave, for example. Open a new savings account and save weekly or monthly until you have six weeks of pay saved up.
If you have six months to wait for the baby to arrive and you need $6,000 saved for parental leave, you could strive to set aside $1,000 per month for those ten weeks off. If youâre able to plan earlier, up to 12 months before the baby arrives, then you can cut your monthly savings amount and set aside just $500 per month.
5. Open a Health Savings Account (HSA)
A health savings account (HSA) is a tax-advantaged way to save up for health care expenses, including the cost of a hospital stay. This type of account is available to Americans who have a designated high-deductible health insurance plan (HDHP), meaning a deductible of at least $1,400 for individuals and at least $2,800 for families. HDHPs must also have maximum out-of-pocket limits below $6,900 for individuals and $13,800 for families.
In 2020, individuals can contribute up to $3,550 to an HSA while families can save up to $7,100. This money is tax-advantaged in that it grows tax-free until youâre ready to use it. Moreover, youâll never pay taxes or a penalty on your HSA funds if you use your distributions for qualified health care expenses. At the age of 65, you can even deduct money from your HSA and use it however you want without a penalty.
6. Start Saving for College
The price of college will only get worse over time. To get a handle on it early and plan for your future childâs college tuition, start saving for their education in a separate account. Once your child is born, you can open a 529 college savings account and list your child as its beneficiary.
Some states offer tax benefits for those who contribute to a 529 account. For example, Indiana offers a 20% tax credit on up to $5,000 in 529 contributions each year, which gets you up to $1,000 back from the state at tax time. Many plans also let you invest in underlying investments to help your money grow faster than a traditional savings account.
7. Pay Off Unsecured Debt
If you have credit card debt, pay it off before having kids. Youâre not helping yourself by spending years lugging high-interest debt around. Paying off debt can free-up cash and save you thousands of dollars in interest every year.
If youâre struggling to pay off your unsecured debt, there are several strategies to consider. Here are a few approaches:
Debt Snowball
This debt repayment approach requires you to make a large payment on your smallest account balance and only the minimum amount thatâs due on other debt. As the months tick by, youâll focus on paying off your smallest debt first, only to âsnowballâ the payments from fully paid accounts toward the next smallest debt. Eventually, the debt snowball should leave you with only your largest debts, then one debt, and then none.
Debt Avalanche
The debt avalanche is the opposite of the debt snowball, asking you to pay off the debt with the highest interest rate first, while paying the minimum payment on other debt. Once that account is fully paid, youâll âavalancheâ those payments to the next highest-rate debt. Eventually, youâll only be left with your lowest-interest account until youâve paid off all of your debt.
Balance Transfer Credit Card
Another popular strategy involves transferring high-interest balances to a balance transfer credit card that offers 0% APR for a limited time. You might have to pay a balance transfer fee (often 3% to 5%), but the interest savings can make this strategy worth it.
If you try this strategy, make sure you have a plan to pay off your debt before your introductory offer ends. If you have 15 months at 0% APR, for example, calculate how much you need to pay each month for 15 months to repay your entire balance during that time. Any debt remaining after your introductory APR period ends will start accruing interest at the regular, variable interest rate.
8. Consider Refinancing Other Debt
Ditching credit card debt is a no-brainer, but debt like student loans or your home mortgage can also weigh on your future familyâs budget.
If you have student loan debt, look into refinancing your student loans with a private lender. A student loan refinance can help you lower the interest rate on your loans, find a manageable monthly payment, and simplify your repayment into one loan.
Private student loan rates are often considerably lower than rates you can get with federal loans â sometimes by half. The caveat with refinancing federal loans is that youâll lose out on government protections, like deferment and forbearance, and loan forgiveness programs. Before refinancing your student loans, make sure you wonât need these benefits in the future.
Also look into the prospect of refinancing your mortgage to secure a shorter repayment timeline, a lower monthly payment, or both. Todayâs low interest rates have made mortgage refinancing a good deal for anyone who took out a mortgage several years ago. Compare todayâs mortgage refinancing rates to see how much you can save.
9. Buy Life Insurance
You should also buy life insurance before having kids. Donât worry about picking up an expensive whole life policy. All you need is a term life insurance policy that covers at least 10 years of your salary, and hopefully more.
Term life insurance is extremely affordable and easy to buy. Many providers donât even require a medical exam if youâre young and healthy.
Once you start comparing life insurance quotes, youâll be shocked at how affordable term coverage can be. With Bestow, for example, a thirty-year-old woman in good health can buy a 20-year term policy for $500,000 for as little as $20.41 per month.
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10. Create a Will
A last will and testament lets you write down what should happen to your major assets upon your death. You can also state personal requests in writing, like whether you want to be kept on life support, and how you want your final arrangements handled.
A will can also formally define who youâd like to take over custody of your kids, if both parents die. If you donât formally make this decision ahead of time, these deeply personal decisions might be left to the courts.
Fortunately, itâs not overly expensive to create a last will and testament. You can meet with a lawyer who can draw one up, or you can create your own using a platform like LegalZoom.
The Bottom Line
Having kids can be the most rewarding part of your life, but parenthood is far from cheap. Youâll need money for expenses you mightâve never considered before â and the cost of raising a family only goes up over time.
Thatâs why getting your money straightened out is essential before kids enter the picture. With a financial plan and savings built up, you can experience the joys of parenthood without financial stress.
The post 10 Financial Steps to Take Before Having Kids appeared first on Good Financial Cents®.
Source: goodfinancialcents.com
Charming Estate With Ties to The Beatles On the Market in Connecticut
A gorgeous, sprawling Connecticut estate with ties to The Beatles, Prudence Farrow, and the Gershwin brothers is up for sale in Westport for $9 million.
The seven-bedroom, eight-bathroom, 9,360-square-foot property at 157 Easton Road, also known as River Run Estate, is being marketed by Compassâ Susan Vanech. It was originally built in 1955, and completely renovated in 2020, pairing old-school charm with modern-day amenities.
The marketing for the resort-style estate is inspired by John Lennonâs âImagine,â as a reflection of the home being restored and getting a new lease on life. But there is also another, far more fascinating connection to The Beatles.
Their song âDear Prudenceâ was based on Mia Farrowâs sister Prudence Farrow, who fell into a deep depression during her teenage years after her fatherâs sudden passing. John Lennon and George Harrison, who were in the same social circles as Prudence, wrote the song to help lift her spirits — and it ended up becoming a massive hit.
At the time, Prudence Farrow was living at the River Run Estate, and in her memoir, she describes hiking in the woods near the property, canoeing, skating on the pond, and playing with the neighborhood kids.
Back when Prudence resided at 157 Easton Road, the property was owned by violinist and photographer Leopold Godowsky Jr., and his wife Frankie Gershwin, younger sister to George and Ira Gershwin (the songwriting team whose songs were synonymous with the sounds and style of the Jazz Age). The frequent parties and gatherings at River Run Estate are said to have maybe inspired some of the Gershwinsâ most popular compositions.
The estate is the epitome of relaxed, outdoorsy Connecticut living, featuring personal tennis courts, a home gym, and access to the river waterfront with waterfalls to canoe, paddle, or swim.
There are also plenty of walking and hiking trails, as well as a pool and spa with a steam room. The outdoor area also includes a river house and a greenhouse, so the property would be an ideal fit for someone who loves the outdoors and enjoys being in nature year-round.
Inside the property, there is an exquisite ownerâs suite, as well as separate guest quarters for when friends or family come to visit. The home incorporates quiet offices, perfect for a work-from-home setup, a spacious dining room, multiple fireplaces, and fantastic views.
Keep reading
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The post Charming Estate With Ties to The Beatles On the Market in Connecticut appeared first on Fancy Pants Homes.
Source: fancypantshomes.com
How to Save for Retirement Without Your Employer’s Help
Saving for retirement is easy to put off, but delaying ultimately can make your life harder. Even if your work does not provide any retirement savings plan, you can still make it happen. It may seem frustrating to watch your friends add up their matching 401(k) contributions, but you do not have to be any further from post-work bliss than they are. Check out these tips on saving for retirement without your employerâs help.
Identify Your Goal
Carefully consider how you plan to live after you leave work so you can calculate how much savings you need for retirement. Once you have an amount in mind, you can figure out a realistic payment plan to reach it. A good rule of thumb is stashing 10% to 15% of your income for retirement. If that isn’t affordable, you can start with a smaller amount and grow your savings from there. One tactic is to just get started with a number you can afford and increasing your savings by 1% every year.
Know Your Options
Even without employer help, there are plenty of ways to save for retirement. An IRA, or individual retirement account, is the most common non-employer plan and opening one should be your first step in most cases. Contributions to a traditional IRA are tax-deductible, while nondeductible Roth IRAs are tax-free on withdrawal so investigate carefully which is best for you. Before investing, consider the risks, timing, fees and your liquidity needs â a financial professional can help you construct a portfolio.
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Put Your Savings on Autopilot
No matter what type of account you use, itâs a good idea to have the amount automatically transferred from your checking account once you get paid. This way you cannot make a decision that something else is more important than retirement saving and you can more easily stick to your commitment. It is also a good idea to increase your monthly deposit with every raise or bonus so you will likely have what you need to retire how and when you want.
The most important part about retirement planning is saving early and often â whether you have help from your employer or not, itâs important to get educated about retirement saving and take control of your finances. You can establish and maximize your retirement fund no matter how difficult or far away it may seem.
More Money-Saving Reads:
- Whatâs a Good Credit Score?
- Whatâs a Bad Credit Score?
- How Credit Impacts Your Day-to-Day Life
Image: iStock
The post How to Save for Retirement Without Your Employer’s Help appeared first on Credit.com.
Source: credit.com
Mint Money Audit: Making the Most of a Side Hustle
This weekâs Mint audit introduces us to Selena, 48, a mom of two living in San Antonio, Texas. She is a community college director and her husband, 51, is a full-time graphic designer who also manages a booming side hustle in the same industry.
Selena and her husband have already achieved some impressive financial accomplishments, thanks to tracking their finances on Mint, leveraging coupons and shopping at thrift stores. Theyâve paid off $52,000 in student loans and invested in a piece of land next door for $26,000, which they believe has appreciated by nearly 40% since purchasing it a few years ago.
But with retirement looming and two children (currently ages 9 and 12) to possibly put through college, Selena wants to learn about additional money moves that could better prepare them for future expenses. She would also love to pay off the familyâs 30-year mortgage before she retires in the next 10 to 12 years. Currently theyâre on track to pay it down by 2030.
First, a breakdown of their finances:
NET INCOME
- Hers: $56,000
- His: $40,000 plus an additional $40,000 in freelance work
- Total: $136,000 per year
DEBT
- Just paid off student loans and a property loan (for the lot next door)
- Credit Card Debt: $0
- Mortgage: $163,000 (Monthly payment, including real estate tax, is $1,985)
- Car note: $5,300 (should be paid off within the year)
RETIREMENT SAVINGS
- Selenaâs teacher pension: Roughly $5,000 per month at retirement if she retires in 12 years ($3,800 if she retires in 6 years).
- Various IRAs between the two of them: $65,000
- Estimated social security payments: $2,500 to $3,000 (combined)
- Husband does not have a 401(k)
RAINY DAY SAVINGS
In an emergency, the family has at least six months of expenses saved up or roughly $35,000.
COLLEGE SAVINGS
Selena and her husband havenât specifically saved for their childrenâs college education. Theyâre concerned that a 529-college savings plan might limit their childrenâs options, if they didnât choose to attend a traditional college program.
Recommendations
Leverage the Side Hustle
All in all, I think the familyâs finances are in solid shape. But if theyâre interested in further securing their future, I would suggest investing the annual side hustle income (which currently sits in a bank account earning no interest) to advance retirement savings and carve out an account for their two children.
Starting that side hustle was a very smart money move because it effectively boosted the familyâs net income by 40%. And according to Selena, the business, which they operate out of their living room, is only growing, with profits expected to grow another 30% in the future.
Income from side hustles is how I managed to pay off debt in my 20âs and boost savings. Today, itâs more prevalent among working Americans. More than 44 million Americans have a side revenue stream, according to a recent survey by Bankrate. âHaving a side hustle is fiscally responsible,â says Susie Moore, founder of the program Side Hustle Made Simple and the new book, âWhat If It Does Work Out: How a Side Hustle Can Change Your Life.â âIt’s an economic hedge that mitigates disruption to wealth building and future planning. There is no such thing as a fixed income,â she says.
So, letâs do some math and see how far this $40,000 per year side revenue stream can go using a compound interest calculator.
Retirement
The coupleâs retirement nest egg is not too shabby. Not including their existing IRAs, the couple has about $8,000 a month coming to them in retirement between social security and Selenaâs pension. That amount, alone, basically replaces their current full-time income. (And I do recommend Selena wait 12 years before retiring so that she can take advantage of the maximum pension payment.)
But with all the uncertainty around social security and future health care costs, it canât hurt to save a little more, right? By placing $6,500 in a Roth IRA each year for the next, say, 15 years (Selenaâs husband can qualify for the catch-up contribution since he is 5- years old), theyâll have an additional $142,000 for retirement that wonât be subject to taxes. This assumes an average annual return of 4%. They can open a Roth IRA at any bank.
Future Savings for Children
While a 529 plan may not be the best fit for this family, Selena still would like to carve out savings for her kidsâ future endeavors, be it to start a business or attend an alternative school. For this, Iâd recommend opening a 5-year certificate of deposit or CD and placing $25,000 in it this year. The going yield right now for a 5-year CD at that deposit level is averaging a little more than 2%.
Then, every year, as income rolls in from the side hustle, create a new 5-year CD and deposit $25,000 in it. Do this for the next four or five years. All CDs will have matured by the time her youngest is starting college (or pursuing something else). And theyâll have at least $100,000 plus interest reserved for their kids. If they do choose to go to college, the familyâs prepared to help pay for in-state tuition at one of the fine Texas universities.
Mortgage Payoff
After funding the Roth IRA each year ($6,500) and the annual CD contribution ($25,000), the familyâs left with $8,500. They could choose to put this toward the mortgage principal to knock a few years off their payoff schedule. Or, they may want to just hold onto it for that annual family vacation. And if Iâm being honest, Iâd say, go for the vacation! They deserve it!
The post Mint Money Audit: Making the Most of a Side Hustle appeared first on MintLife Blog.
Source: mint.intuit.com
How To Retire At 50: 10 Easy Steps To Consider
Can you retire at 50? On average, people usually retire at 65. But what if you want to retire 15 years earlier than that like at 50? Is it doable? Below are 10 easy steps to take to retire at 50. Retiring early can be challenging. Therefore, SmartAsset’s free tool can match you with  a financial advisor who can help to work out and implement a retirement income strategy for you to maximize your money.
10 Easy & Simple Steps to Retire at 50:
1. How much you will need in retirement.
The first thing to consider is to determine how much you will need to retire at 50. This will vary depending on the lifestyle you want to have during retirement. If you desire a lavish one, you will certainly need a lot.
But according to a study by SmartAsset, 500k was found to be enough money to retire comfortably. But again that will depends on several factor.
For example, you will need to take into account where you want to live, the cost of living, how long you expect to live, etc.
Read: Can I Retire at 60 With 500k? Is It Enough?
A good way to know if 500k is possible to retire on is to consider the 4% rule. This rule is used to figure out how much a retiree should withdraw from his or her retirement account.
The 4% rule states that the money in your retirement savings account should last you through 30 years of retirement if you take out 4% of your retirement portfolio annually and then adjust each year thereafter for inflation.
So, if you plan on retiring at 50 with 500k for 30 years, using the 4% rule you will need to live on $20,000 a year.Â
Again, this is just an estimation out there. You may need less or more depending on the factors mentioned above. For example, if you’re in good health and expect to live 40+ years after retiring at 50, $500,000 may not be enough to retire on. That’s why it’s crucial to work with a financial advisor.
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2. Maximize your tax-advantaged retirement accounts.
Once you have an idea of how much you need in order to retire at 50, your next step is to save as much as possible at a faster rate. If you are employed and you have a 401k plan available to you, you should definitely participate in it. Nothing can grow your retirement savings account faster than a 401k account.
See: How to Become a 401k Millionaire.
That means, you will need to maximize your 401k contributions, for example. In 2020, and for people under 50, the 401k contribution limit is $19,500. Also, take advantage of your company match if your employee offers a match.
In addition to the maximum contribution of $19,500, your employer also contributes. Sometimes, they match dollar for dollar or 50 cents for each dollar the worker pays in.
In addition to a 401k plan, open or maximize your Roth or traditional IRA. For an IRA, it is $6,000. So, by maximizing your retirement accounts every year, your money will grow faster.
3. Invest in mutual or index funds. Apart from your retirement accounts (401k, Roth or Traditional IRA, SEP IRA, etc), you should invest in individual stocks or preferably in mutual funds.Â
4. Cut out unnecessary expenses.
Someone with the goal of retiring at 50 needs to keep an eye on their spending and keep them as low as possible. We all know the phrase, “the best way to save money is to spend less.”
Well, this is true when it comes to retiring 15 years early than the average. So, if you don’t watch TV, cancel Netflix or cable TV. If your cell phone bill is high, change plans or switch to another carrier. Don’t go to lavish vacations.
5. Keep an eye on taxes.
Taxes can eat away your profit. The more you can save from taxes, the more money you will have. Retirement accounts are a good way to save on taxes. Besides your company 401k plan, open a Roth or Traditional IRA.
6. Make more money.
Spending less is a great way to save money. But increasing your income is even better. If you need to retire at 50, you’ll need to be more aggressive. And the more money you earn, the more you will be able to save. And the faster you can reach your early retirement goal.
7. Speak with a financial advisor.
Consulting with a financial advisor can help you create a plan to. More specifically, a financial advisor specializing in retirement planning can help you achieve your goals of retiring at 50. They can help put in a place an investment strategy to put you in the right track to retire at 50. You can easily find one in your local area by using SmartAsset’s free tool. It matches users with financial advisors in just under 5 minutes.
8. Decide how you will spend your time in retirement.
If you will spend a lot of time travelling during retirement, then make sure you do research. Some countries like the Dominican Republic, Mexico, Panama, the Philippines, and so many others are good places to travel to in retirement because the cost of living is relatively cheap.
While other countries in Europe can be very expensive to travel to, which can eat away your retirement money. If you decide to downsize or sell your home, you can free up more money to spend.
9. Financing the first 10 years.
There is a penalty of 10% if you cash out your retirement accounts before you reach the age of 59 1/2. Therefore, if you retire at 50, you’ll need to use money in other accounts like traditional savings or brokerage accounts.
10. Put your Bonus, Raise, & Tax Refunds towards your retirement savings.
If retiring at 50 years old is really your goal, then you should put all extra money towards your retirement savings. That means, if you receive a raise at work, put some of it towards your savings account.
If you get a tax refund or a bonus, use some of that money towards your retirement savings account. They can add up quickly and make retiring at 50 more of a reality than a dream.
Retiring at 50: The Bottom Line:
So can I retire at 50? Retiring at 50 is possible. However, it’s not easy. After all, you’re trying to grow more money in less time. So, it will be challenging and will involve years of sacrifices, years living below your means and making tough financial decisions. However, it will be worth it in the long run.
Read More:
- How Much Is Enough For Retirement
- How to Grow Your 401k Account
- People Who Retire Comfortably Avoid These Financial Advisor Mistakes
- 5 Simple Warning Signs Youâre Definitely Not Ready for Retirement
Speak with the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning to retire at 50, saving, etc). Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post How To Retire At 50: 10 Easy Steps To Consider appeared first on GrowthRapidly.
Source: growthrapidly.com