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How much income do you need in retirement?
It’s one of the most important questions in financial planning. Given its importance, it gets relatively little attention. The standard way to determine how much income you need in retirement is called the replacement ratio. The replacement ratio tells you how much of your income you need to replace in retirement relative to your current income.
Replacement ratio= Retirement income ÷ Current income
If you currently make $100,000 per year and you wanted to have a $70,000 income during retirement, your income replacement ratio would be 70%. This is the standard rule of thumb used in the financial services industry.
How to determine your income replacement ratio
While a 70% income replacement ratio is the industry standard, it’s important to determine how much of your income you need to save in retirement. There are two major questions you need to answer:
- What costs will go away during retirement?
- What costs will increase during retirement?
If you can accurately forecast how your cost of living will change during your golden years, you can more accurately determine your income replacement ratio.
Investors nearing retirement have different needs than investors with many years remaining in the workforce. Retiring means losing the regular paycheck from work, and as a result, replacing that income is a key consideration. There are many investments that appeal to retirement investors, such as purchasing quality dividend stocks like the dividend aristocrats. But there are also many investments that retirement investors should stay away from. Retirement investors should avoid the following 16 investments.
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“Cash is king” is a well-known phrase, but when it comes to retirement investing, cash is hardly king. Cash should be avoided by retirement investors because it earns no return. In stark contrast to bonds which pay interest or stocks that pay dividends, cash earns no interest. As a result, cash loses value over time due to the steady erosion of inflation.
While retirees have a number of pressing challenges to pay for expenses without a paycheck from working, keeping a great deal of cash on the sidelines is not the best idea. Ideally, retirees can generate enough income from their investments, in combination with other sources of income such as Social Security so that they do not need to hold a large amount in cash.
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Sometimes referred to as junk bonds, high yield bonds are fixed income securities issued by companies with sub-investment grade credit ratings.
With interest rates still near historic lows, fixed-income yields have plunged over the past several years. As an example, the 10-year Treasury yields just 1.3% right now. With inflation running significantly above this level, retirees will see their purchasing power erode with low-yielding bonds.
Because of this, high yield bonds are appealing due to their higher yields. But investors may be reaching for significantly elevated risk in their search for yield. Bonds with below-investment grade credit ratings have a higher likelihood of default.
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Cryptocurrencies like bitcoin are all the rage these days. The massive rise in the value of bitcoin and other cryptocurrencies over the past few years is enticing for any investor. And cryptocurrency gets a lot of coverage in the financial media.
But retirees need to remember that volatility is a two-way street. The price of bitcoin has declined by nearly 50% from its 52-week high, a reminder that any investment can lose value. Bitcoin also does not pay interest or dividends, meaning investors will not generate income from their investment. And another reason retirees should avoid Bitcoin is simply the higher level of risk involved in buying cryptocurrencies.
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Oil and gas royalty trusts are niche securities within the stock market. These are companies that own oil and gas-producing properties. Investors receive distributions depending on how much income the trusts generate from these properties. Some well-known oil and gas royalty trusts include BP Prudhoe Bay Royalty Trust (BPH) and Permian Basin Royalty Trust (PBT).
As with any group, not all royalty trusts are bad investments. But the risks are high across the board—royalty trusts are essentially a bet on underlying commodity prices. Investors also have to face the prospect that reserves will decline faster than the trust had originally anticipated.
If oil and gas prices fall, share prices of the royalty trusts collapse, and their distributions decline, often to zero as occurred in 2020 during the coronavirus pandemic.
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Real Estate Investment Trusts, also referred to as REITs, are a great way for retirees to earn higher levels of investment income. Many REITs have strong yields of 4% or more. Retirees might be tempted to buy mortgage REITs, a subset of the asset class that typically offers even higher yields.
Indeed, many REITs have double-digit yields in excess of 10%. But in many cases, sky-high yields are an indication of elevated risks, and mortgage REITs are no different. Mortgage REITs are extremely complex business models that are not easy to understand, making them relatively poor choices for most retirees. In addition, mortgage REIT share prices and their dividend payouts can swing wildly based on changes in the yield curve.
Read more: Diversify Your Portfolio With These Top 10 International ETFs
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Every few years or so, gold gets a lot of attention in the media, usually because the price of gold has risen over a certain period of time. But for retirees interested in generating sustainable income from their investments, gold should be avoided.
Gold pays no dividends or interest, which is why it is not attractive for many retirees. To quote legendary investor Warren Buffett on gold: “The idea of digging something up out of the ground, in South Africa or someplace and then transporting it to the United States and putting it into the ground, in the Federal Reserve of New York, does not strike me as a terrific asset.”
Some gold stocks like Barrick Gold (GOLD) do pay dividends, but their dividend track records are highly inconsistent. Many gold stocks have cut their dividends when precious metals prices decline.
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Momentum stocks are those that have captured investors’ attention, most often due to a rapid rise in their share price. This causes other investors to jump in, perhaps because of a fear of missing out, which can push share prices even higher. But in many cases, momentum stocks fall back down to Earth, as their underlying fundamentals may not justify the rallying share price.
Momentum stocks that have gotten a lot of attention in the financial media in recent months include GameStop (GME), AMC (AMC), and more. In all cases, their share prices skyrocketed in a relatively short period of time. But retirees should resist the urge to buy momentum stocks, as they can be highly volatile and almost never pay dividends.
Read more: 15 Dividend Kings With 50+ Years Of Dividend Growth
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Stocks can be classified according to their market capitalizations, which is simply the current share price multiplied by the number of shares outstanding. Large-cap stocks have market caps above $10 billion, while small-cap stocks have market caps below $2 billion, with midcaps in between these ranges.
The smallest group of stocks is known as microcaps. These are stocks with market caps below $100 million. Microcaps are very small businesses, their stocks generally have low liquidity, and many are in questionable financial condition. As a result, retirees should stick to midcaps and large caps.
Read more: How To Invest In The S&P500
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Tesla is a blue chip stock with a market cap above $600 billion. But just because Tesla is a mega-cap, does not imply a higher level of safety. Tesla still struggles with maintaining consistent profitability; the company reported a net loss of $862 million in 2019 and $976 million in 2018.
Tesla generated a profit of $721 million in 2020, but even so, earnings on a per-share basis came to just $0.64 for the year.
With such a low level of profits, Tesla has never paid a dividend and possibly never will. And while shareholders have earned massive returns from owning Tesla, whether retirees should invest today is a different question.
Based on Tesla’s $31 billion in 2020 revenue, the stock trades for a trailing price-to-sales ratio near 20.
Read more: Don’t Miss These 12 Stocks Paying Monthly Dividends
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Netflix is a major tech stock and a streaming giant. The company has grown its revenue at a very high rate over the past decade, as it has come to dominate the streaming industry. And while Netflix is a top growth stock and a beneficiary of the ongoing cord-cutting trend, retirees should avoid it simply due to its high volatility and lack of a dividend.
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Debt is a big concern for income investors such as retirees. Stocks with bloated balance sheets and too much debt are at high risk of cutting or suspending their dividends during recessions. Profits may decline substantially when the economy enters a downturn, but debt still needs to be repaid.
Stocks with excessive debt have high-interest expenses that may force them to cut their dividends. This is of particular concern when it comes to high-yield Master Limited Partnerships, many of which have leverage ratios above 5x.
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USA Compression Partners is an example of an MLP flashing warning signs that the high distribution may not be sustainable. USAC is one of the largest independent providers of gas compression services to the oil and gas industry, with annual revenues of $668 million in 2020.
The partnership is active in several shale plays throughout the U.S., including the Utica, Marcellus, and Permian Basin. They focus primarily on infrastructure applications, including centralized high-volume natural gas gathering systems and processing facilities.
The company has struggled to recover from the pandemic, which has squeezed its financial position. First-quarter revenue fell 12% year-over-year, while its distribution coverage declined to 1.03x, meaning the current payout is barely covered by distributable cash flow. If DCF declines further, the payout may be reduced.
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Great Elm Capital is a Business Development Company, otherwise known as a BDC. These stocks are popular among income investors because they generally have very high dividend yields. But many BDCs are highly risky due to their eroding fundamentals and lack of dividend safety.
Great Elm Capital is an example of a BDC that should be avoided. Great Elm Capital is a BDC that specializes in loan and mezzanine, middle-market investments.
Net investment income decreased by 6% in the first quarter, a warning sign as the company can barely afford to maintain the current dividend. Furthermore, it has seen book value erode rapidly since going public in 2016.
While shares currently yield over 12%, investors should be wary of extreme high-yielding BDCs like Great Elm.
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International stocks are a great way for investors to gain diversification by geographic market, but not all international stocks are attractive for income investors.
Retirees should avoid GlaxoSmithKline in particular because the company has had a great deal of difficulty generating growth in recent years. GlaxoSmithKline reaffirmed its expectation that its earnings-per-share will decline by a high single-digit percentage in 2021, due to low expected growth in pharmaceuticals and vaccines.
As a result, the company is likely to have a very high dividend payout ratio, which could jeopardize its ability to maintain the dividend. GSK is relatively unappealing with so many better health care stocks for retirees such as Dividend King Johnson & Johnson (JNJ).
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Anheuser-Busch InBev is the largest beer company in the world. The company produces, markets and sells over 500 different beer brands around the world. Major global brands include Budweiser, Stella Artois, and Corona, generating nearly $50 billion in annual revenue.
But retirees typically want stable dividends and steady dividend growth over time, and AB-InBev is not an attractive stock for either. AB-InBev cut its dividend significantly over the past few years in an attempt to fix its balance sheet which had become bloated with debt after multiple huge acquisitions.
The company has stated that deleveraging is a priority for 2021 and beyond until a leverage ratio of 2x is attained, but AB InBev remains far from this goal with a current leverage ratio of 4.8x. With a very low dividend yield near 1% and a low likelihood of dividend growth, retirees should avoid this stock.
Anheuser-Busch
Amazon has been one of the best growth stocks in the entire market over the past decade—but for retirees who might want consistent portfolio income, Amazon is not an appealing stock. Amazon continues to grow its revenue at a high rate, and the company has become profitable.
In the 2021 first quarter, Amazon’s revenue increased 44% to $108.5 billion. Earnings-per-share of $15.79 more than tripled from $5.01 per share in the year-ago quarter. And yet, Amazon does not pay a dividend, as the company needs to reinvest as much cash flow as possible back into the business for growth.
Therefore, retirees could generate dividend income with other tech stocks like Apple (AAPL), Microsoft (MSFT) or Cisco (CSCO).
This article originally appeared on TheFinanciallyIndependentMillennial.com and was syndicated by MediaFeed.org.
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What costs will go away during retirement?
- Mortgage payment: If your mortgage is fully paid off by the time you retire, your housing costs will drop by the amount of your mortgage. You’ll still have to pay for property taxes and maintenance which both tend to be around 1% of the value of your house per year. If you retire with no mortgage and a house worth $500,000 you would still need to budget for at least $10,000 per year plus your heating and utility costs.
- Saving: Once you retire, you no longer need to save for retirement. Ironically, the more you save during your working years, the smaller your income replacement needs to be during retirement. That is because there is an inverse relationship between your saving rate and your income replacement ratio. If you were saving 20% of your income during your working years, that is 20% of your income that does not need to be replaced during retirement. I should make clear this is referring specifically to your retirement savings. You’ll still need to save for specific purposes like vacations during retirement.
- Childcare costs: If you currently have children under the age of 18, the cost of raising that child is likely to be the largest expense that will go away during retirement. It’s no secret that having children is expensive.
The USDA breaks down the cost of raising a child as follows:
- Age 0-2: $12,680
- Age 3-5: $12,730
- Age 9+: $13,180
- Age 15-17: $13,900
What costs will increase during retirement?
This is much more difficult to forecast as it depends entirely upon your lifestyle. However, here are three expenses that generally increase during retirement:
- Travel: This is the obvious one. When you have nothing but free time, many people decide to spend more money on travel. The more you value travel, the more this cost will increase in retirement.
- Eating out and other social costs: When do you spend most of your money during your working years? For most people, the answer is on weekends and vacation. When we have time to catch up with friends and family, we are more likely to go out to dinner, for drinks or to other social events. You need to ask yourself: If every day was a Saturday, how would your social life change and how much would that cost?
- Healthcare: This is likely the largest increased expense for retirees, especially in the U.S. How much your healthcare costs increase will vary based on where you live and your health during retirement. It is something you should start researching more closely as you plan for retirement.
Two-thirds of workers across three generations – millennials, Generation X and baby boomers – are confident they’ll be able to retire with a comfortable lifestyle, according to “What is ‘Retirement?’ Three Generations Prepare for Old Age,” a 2019 survey of workers published by Transamerica Center for Retirement Studies, a nonprofit foundation based in Los Angeles.
You may think you’ve got retirement covered with savings in retirement and other accounts. However, whether you’re nearing retirement age or already enjoying retirement, unexpected expenses due to aging, along with shifting economic and cultural factors, can derail, or at least curtail, your financial plans for retirement.
Continue on to learn 6 surprise costs that can strike a disabling blow to retirement savings.
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Even if you’re healthy now, someone turning 65 today has nearly a 70% chance of needing long-term care services or supports in their lifetime, according to the U.S. Department of Health and Human Services. Around 20% will need long-term care support for longer than five years.
How long would it take for national annual median costs (according to the 2019 Genworth Cost of Care Survey) for a home health aide ($52,624), assisted living facility ($48,612) or a private room in a nursing home ($102,200) to wipe out your retirement savings, especially if your spouse also needs long-term care?
In most cases, Medicare won’t cover those costs for more than a few months. Medicaid may pay for long-term care but usually only if your income or total assets are below state eligibility requirements. If you carry long-term care insurance, retirement savings are more likely to be spared.
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For those looking to retire before age 65 and Medicare eligibility, monthly health insurance premiums could be one of your biggest expenses. The average monthly cost for an Affordable Care Act “silver” policy for someone 60 to 64 years old is between $1,016 and $1,123 per month, according to ValuePenguin.
Approximately 14% of those surveyed in the University of Michigan’s 2019 National Poll on Health Aging survey said they kept a job specifically to have health insurance through an employer. Around 11% delayed or considered delaying retirement to have health insurance through their job.
Unless you have an employer retirement package that includes health insurance, plan on paying high health insurance premiums until you’re eligible for Medicare. You may find that toughing it out for a few more years at your job is worth the savings.
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An aging parent or spouse who needs care or more attention can increase your expenses, possibly for several years. Expenses can include travel costs, helping with caregiver wages, paying for home modifications to accommodate mobility issues, and time away from work if you’re not yet retired.
More than half of family caregivers must take time off from their job, reduce work hours or quit their jobs to accommodate caregiving responsibilities, according to the AARP report Family Caregiving and Out-of-Pocket.
Of those surveyed, around 3 in 10 dipped into personal savings, 1 in 6 reduced the amount set aside for retirement, and more than 1 in 10 withdrew from retirement savings, according to the report.
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When the stock market crashed in 2008, U.S. retirement accounts lost around $2.7 trillion, 31% of their peak value, in the first quarter of 2009, according to the Urban Institute.
The combined peak loss from plummeting stock and home values cost the average U.S. household nearly $100,000, according to The Pew Charitable Trusts. The decline in stock values alone cost around $66,000 on average per U.S. household, according to that organization’s findings.
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Years after adult children leave their parents’ home to pursue a career, find love or just get away from Mom and Dad, some return, decades later, jobless, divorced and/or deeply in debt.
A life events survey by Fidelity Investments found that 1 in 9 baby boomer parents surveyed said their “boomerang” kids moved back home in the past year. Around 76% of those parents said they faced higher expenses because of the familial tenant.
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Many millennials live with their parents well beyond high school and college, delaying moving out for years, if they ever move at all. Roughly 1 in 3 adults aged 21 to 37 don’t gain financial independence from their parents until they’re 25 or older, according to a survey by Country Financial Security Index.
More than one-third of millennials still live with their parents, the survey found. According to the survey, other expenses parents may foot for grown millennial children include cell phone (41%), groceries and gas (32%), rent (40%) and health insurance (32%).
This article originally appeared on Debt.com and was syndicated by MediaFeed.org.
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How much you need to save to fund your retirement
To determine how much you need to save each month to fund your retirement, you only need to know the following variables:
- Age
- The year you want to retire
- Current Income
- Your desired Income replacement ratio
- Current savings
- Workplace pension or retirement plan
An Example
Let’s say you are 35 years old making $85,000 per year and want to replace 70% of your income when you retire at 60. Let’s also assume you have $60,000 in retirement savings right now. Finally, I’ll assume your retirement portfolio earns an annual return of 5%.
How much do you need to save?
Scenario 1: No workplace pension or retirement plan.
In this scenario, you are completely on your own when it comes to retirement savings and to reach your retirement by age 60 you would need to save $2,147 per month to reach your retirement goals.
Scenario 2: No workplace pension but a matching retirement plan
If you are lucky enough to have a defined contribution retirement plan or a 401(k), the retirement saving math gets much easier. Let’s say your employer matches up to 5% of your salary into a retirement saving plan. Both you and your employer contribute $4,250 per year for a total of $8,500.
You would still need to save $2,147 per month, but your employer would be paying $354 per month through the matching contribution. You would still be on the hook to save $1,793 per month (including your contribution to the workplace retirement plan)
Scenario 3: Defined Benefit (DB) pension plan
DB pensions are the ultimate retirement planning tool. A DB pension guarantees you a percentage of your income in retirement. If you had a DB pension that would replace 40% of your income at age 60, then your personal savings would only need to replace 30% of your income.
In this scenario, you would only need to save $720 per month to top up your DB pension in retirement.
The Bottom Line
To determine how much you need to save in retirement you need to determine the following:
- How much of your current income do you want to replace in retirement? This will be determined by how you believe your costs will change in retirement.
- Years to retirement
- Current retirement savings
- Whether or not you have a workplace retirement plan and what type of plan it is (matching contributions or DB pension)
If you still have questions, consider hiring a financial advisor who specializes in helping people who are nearing retirement. You might specifically want to consider working with an advisor who has earned their Retirement Income Certified Professional (RICP) designation as these individuals have specialized knowledge to help ensure you don’t outlive your retirement savings.
Related:
This article
originally appeared on WealthTender.com and was
syndicated by MediaFeed.org.
According to the Federal Reserve, fewer than four in 10 Americans feel they are on track with their retirement savings, but some are bolstering their accounts through extreme savings strategies in hopes of retiring early.
FIRE, which stands for financial independence, retire early, is a financial movement based on three principles:
- A significant reduction in spending
- An increase in income
- Smart investing
It’s important to make the right moves if you want to retire early. Most people need to make some sacrifices to their time and budget to achieve FIRE. You may have to pick up one or two of the best side hustles and completely eliminate discretionary spending, or you might take a more laid-back approach.
Whatever your tolerance for financial sacrifice, there are some simple actions you can take now that could add years to your retirement. There’s bound to be something on this list you could start doing today.
Related: 8 simple pieces of advice from Warren Buffett that any investor can use
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To get started with planning for retirement, you’ll need to know where your money’s going. Start by tracking your average expenses for a month, and use that information to create a budget:
- Add up your sources of income.
- Subtract your predictable expenses, such as rent or a mortgage.
- Allocate the leftover income to various spending categories.
Maintaining a budget might be difficult without the right tools, so check out the best budgeting apps and find one that works for you.
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It’s helpful to have a retirement age in mind and set a savings goal that will allow you to live comfortably through your extended retirement. A general rule of thumb is that you’ll need 10 times your annual salary invested to be able to retire at 67.
But if you want to retire early and maintain your current lifestyle, you’ll need to save more than that. Plan to have about 45% of your pre-tax, pre-retirement income saved for each year of retirement. Once you decide how much you’ll need, figure out how much you’ll need to set aside each year to get there.
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You might think your utility costs are fixed, but there are a number of ways you could save money on utilities. You might:
- Install energy-efficient features in your home, such as a smart thermostat.
- Find ways to reduce your usage, like bundling up instead of increasing the heat.
- Check to see whether you can switch electric companies or switch to a renewable energy plan, either of which might lower your bills.
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Although the FIRE movement focuses on investing money, you’ll also need liquid cash stashed in a savings account that you can access in an emergency. This will help you avoid needing to withdraw from your retirement account or borrow money that will cost you in interest charges.
Experts generally recommend keeping three to six months’ worth of expenses in a savings account, but you might feel more comfortable with more than that during the current economic downturn. At a minimum, economists suggest having $2,467 saved in an emergency fund.
And if you open one of the best savings accounts, then your money can still earn some interest even though you’re not investing it.
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If you monitor your credit card statements, you might find charges you didn’t expect. Maybe you never have canceled that free trial of a streaming service you only intended to try out.
If you don’t want to analyze your statements, you can use a free app such as Truebill to cancel unused subscriptions on your behalf. Truebill’s team of experts can also help you negotiate your telecommunications bills and request refunds from your bank when you’re charged an overdraft or late fee.
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Have you ever purchased an item only to watch the price drop later? Many retailers have policies in place to refund you the difference when that happens. And retailers such as Amazon will even refund your order if your delivery is late.
But keeping track of these policies, while also tracking prices on items you already bought, can be quite a headache. Try using a free service like Paribus or Waldo to more easily find potential refunds. Both work by scanning your email for receipts and monitoring prices on items you’ve purchased.
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The more money you contribute to your retirement plans early on, the more your money will grow by the time you’re ready to retire. When saving for retirement, experts generally recommend stashing away 15% of your pre-tax income annually. But if you want to retire early, you’ll need to contribute even more.
You might consider going beyond just matching your employer contribution and trying to contribute up to the 401(k) limit. If you still have money to save, open an IRA in addition. If you’re self-employed, you can use a SEP IRA, which has much higher contribution limits.
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Every dollar you spend provides an opportunity to earn cashback and rewards, which can help you save more of your income for retirement. There’s no reason not to use a rewards card for all your purchases. There are plenty of annual fee-free cards to choose from, but you might also consider premium cards if you know the benefits, perks and rewards can offset the annual fee.
Which card will be the best rewards credit card for you will depend on your lifestyle and spending habits. And don’t be afraid to have multiple credit cards to make the most of different spending categories. Just make sure you pay your balance off each month to avoid any interest charges.
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If you have fair or bad credit, you may not be able to get a low enough rate on a personal loan to consolidate your debt, and you won’t qualify for a balance transfer card, either. But you can use a debt repayment strategy to get out of debt faster and start saving more.
The debt avalanche method involves prioritizing your highest-interest debt while keeping up with the minimum payments on all your other bills. Once you’ve paid off your highest-interest debt, whether that’s a credit card or a payday loan, you’ll move to the next highest-interest debt on the list.
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Why not get paid for the shopping you already do? With Ibotta, you can get automatic cash back for your online shopping when you use the browser extension or mobile app, and there are a few in-store options as well:
- Purchase a gift card to use in-store and receive cashback instantly.
- Link your store loyalty card to your Ibotta account for automatic cashback.
- Select offers in the app prior to shopping, then submit your receipts for cashback.
Ibotta partners with more than 1,500 retailers, so you’ll be able to collect on most, if not all, of your purchases. Ibotta has dished out $600 million to Ibotta users since 2012.
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Find out how your salary compares to the average for your industry in your city. You may be able to find a new position at a company that pays better, especially if you’re currently earning below average. Even if you love your job, getting an offer at another company could give you some leverage to negotiate a raise.
You might even invest in some continuing education, such as professional certificates, to make yourself more marketable to future employers. Or you could train for a different career entirely if there are limits to how much you can earn in your industry.
There are plenty of affordable technology boot camps and professional certificates, and there are even paid apprenticeships for certain careers. Just be sure to evaluate the program thoroughly and calculate whether you’ll earn enough incremental income to offset the cost.
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If you’re paying high APRs on your credit cards or other debt, you might be able to save money and get out of debt faster by getting a low-interest personal loan to pay off what you owe. It’ll leave you with just one bill to worry about every month, and you’ll pay less over the life of the loan.
If you have good or excellent credit and can pay off your debt within 18 months, you might also consider one of the best balance transfer credit cards to help you pay off your credit card debt. These credit cards come with a 0% introductory APR, and some of them offer that for up to 18 months. This means you can devote more of your money toward paying down the principal.
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If you move to a city with a lower cost of living, you could potentially put more of your income toward retirement. That’s especially true if you work remotely, as your salary likely won’t change.
But where should you move? Start by checking out the 25 best cities for remote workers, which were chosen based on cost of living, housing affordability, Wi-Fi speeds and various amenities.
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Real estate investments can be lucrative, but they used to require large amounts of cash. These days, you can invest in commercial real estate with as little as a few hundred dollars — and there are ways to invest in real estate without buying property.
Thanks to crowdfunding, real estate investment trusts (REITs) and investing apps, we can now all make moves toward our dream of becoming real estate barons and build income for our early retirement years.
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Every insurance provider weighs your information differently, so you might be able to get a better rate by switching to a new provider. Even if you shopped around before you purchased your policy, it’s a good idea to compare prices across insurance companies every six months, especially if any of your circumstances have changed.
For example, to get the best car insurance, you can get quotes from individual providers’ websites, or you can use an insurance rate comparison tool to get multiple quotes at once.
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If you’ve already maxed out your contributions on your tax-advantaged retirement accounts, you may be ready to invest money in a taxable brokerage account. You’ll pay taxes on your capital gains with these sorts of accounts, but there’s no limit to how much you can invest, and you can withdraw your money at any time.
To find the best brokerage account, compare fees to get the best deal. From there, decide what combination of stocks, bonds, mutual funds, or exchange-traded funds (ETFs) you’d like to purchase. Or you can opt to go with one of the best investment apps, which can make it easy to get started, often with a very small minimum investment.
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Don’t throw away your receipts because those slips of paper could be worth more than you think. With Fetch, you can earn rewards (think gift cards to popular retailers like Amazon and Target) just from scanning your grocery receipts.
You don’t need to pre-select offers, but you can view offers before you shop to maximize your rewards. You’ll earn a minimum of five points for every eligible receipt scanned, but you can rack up way more than that by taking advantage of bonus point offers. You’ll also get 2,000 points for referring a friend. One thousand points are worth $1 toward a gift card.
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It can be a smart idea to diversify your investment portfolio with an alternative asset class, such as blue-chip art. Investments in fine art have been known to outperform the S&P 500, and you no longer need millions to get a foot in the door.
With Masterworks, you can invest in shares of paintings at $20 each, with a minimum investment of $1,000. From there, you can choose to hold onto your investment for three to 10 years until the painting is sold, or sell your shares through the Masterworks secondary market.
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If you have an extra bedroom, a comfortable sofa, or even an attic space you don’t use, you can earn extra money each month by renting out your space. You might choose to get a roommate or use a platform like Airbnb, which can be one of the more lucrative side hustles in the gig economy.
If you don’t have sleeping space but you have storage space to rent out, check out Neighbor.
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Drop is a free app and Chrome extension that rewards you for shopping with hundreds of retailers. In addition to shopping directly from the app, you can link a credit or debit card to automatically get points when you make a purchase at a partner retailer.
Every 1,000 points equal $1, and you can redeem your points for gift cards at top stores like Amazon and Starbucks. Use those gift cards for your everyday purchases, and you’ll have more money left over from your income to contribute to a retirement account.
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As of December 2020, the national average annual percentage yield (APY) on a savings account is just .05%, according to the Federal Deposit Insurance Corp. (FDIC). That’s not much compared to what some high-yield savings accounts offer. For example, a savings account with an online bank could earn you 1%.
Although your money will certainly grow faster in a retirement account, a high-yield savings account is a great place to keep your cash. There are even high-yield savings accounts with no minimum balance requirement, so you can open an account and start building toward retirement even with a small amount today.
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Bad credit can cost you thousands of dollars in interest charges on your auto and home loans, raise your insurance premiums and make it more costly to take out a personal loan or use a credit card.
Take steps to improve your credit score so you can avoid paying unnecessary interest. Set up automatic payments so they’re always on time, and try to lower your credit utilization ratio (the amount of available credit you’re using) by paying down debt, making payments twice per month, and asking for a higher credit limit.
If you have limited credit history, consider using a secured credit card to build credit, or ask to be an authorized user on a creditworthy relative’s account. Monitor your score regularly with a free service that can help you see simple moves to make that can continue building your score.
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It can be tricky to know how much to set aside each month, especially if your income or expenses fluctuate. Digit is an app that analyzes your income, spending and upcoming bills to determine a safe amount to save for you.
Your money is automatically deposited into an FDIC-insured account. Digit can also help you pay off credit card debt and invest to reach your retirement goals.
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A lot of people have unclaimed cash they’re not aware is out there. It could be a security deposit that was never returned or an overtime check you never cashed. Or it might be something more significant, like an unclaimed life insurance payout.
It’s easy to check for this money with the National Association of Unclaimed Property Administrators. You’ll need to search by state, so you should conduct a search for all the states you’ve lived in.
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If you throw away your old clothes, books, home items or used electronics, you’re throwing away money. It’s easy to resell your items online for cash. Check out the following platforms to get started:
- Electronics: eBay, Amazon
- Home items: Letgo, Craigslist, OfferUp
- Clothing: Poshmark, Mercari, thredUP
- Books: BookScouter, Amazon, Half Price Books
You can also use many of these same sites to find money-saving deals on secondhand items for your household, in addition to snagging items at local thrift stores.
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If you don’t use your car that often, you can potentially earn hundreds of dollars per month renting it out with a service like Getaround or Turo. You’ll need to keep your car clean and well-maintained but beyond that, not much effort is required.
Turo offers a contactless check-in process that allows you to do a remote identification of the driver. Getaround uses a device that allows renters to unlock your car from their phone.
If you’re a frequent commuter, you can also earn money from your car by displaying advertisements as you drive. Wrapify or Carvertise will place removable ads on your vehicle, and you’ll get paid according to how often and where you drive.
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The amount you can earn with most side hustles is limited due to time constraints. We all have only so many hours in the day. But passive income opportunities can be a way to earn money while you’re doing other things. Some require effort upfront, but very little ongoing work is needed to keep earning.
For example, ways to earn passive income might include:
- Creating an online course and selling it
- Creating a popular YouTube video
- Becoming a peer-to-peer lender
- Opening a dropshipping business
- Monetizing your blog or social media page with affiliate marketing
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For many careers, there are opportunities to work freelance in addition to your day job. If you’re a writer, designer, web developer, photographer, assistant, accountant or any other job that lends itself to freelance work, try creating a profile advertising your skills on Upwork or Fiverr.
You can also check out freelance opportunities on FlexJobs or other job sites. Eventually, you may want to create a portfolio website showcasing recent work and testimonials from past clients.
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A spending freeze is a planned break from discretionary spending. That means you’ll only put money toward your necessary bills and expenses, such as paying rent and buying groceries.
You’ll cut out all spending on dining out, entertainment, subscription services, clothing and anything else you don’t need to live. It can be hard to keep this up in the long term, but if you plan on doing it for one or two months out of the year, you’ll save a significant chunk of change.
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The FIRE movement isn’t for everyone, but anyone can learn from its principles. When you’re about to make a purchase, think about whether you could divert that money to savings instead. If you value financial independence, frugality will follow. And if you have a savings goal in mind, you’ll be more motivated to earn extra income as well.
Even if you don’t want to retire early, this list of money moves can help you reach other financial goals and will contribute to your overall financial stability. In other words, these are healthy choices, especially during an economic downturn.
Whether you want to retire at 45 or 65, know that you have the potential to reach your goal. It’s going to take effort, and you’ll need to make sacrifices, but you’ll ultimately be rewarded with more time to spend however you wish. And these moves are a great place to start.
More from FinanceBuzz:
- 8 clever moves when you have $1,000 in the bank
- 5 must-have apps that will completely change how we bank
This article originally appeared on FinanceBuzz.com and was syndicated by MediaFeed.org.
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Featured Image Credit: Tinpixels.
