PHOENIX — The idea of saving money, especially in our current economic climate, can sometimes feel like an impossible goal for many people. But as we deal with the coronavirus pandemic, maintaining your financial health is just as important as keeping up with your physical and mental health.
There are plenty of things to take into consideration as you get a financial plan in order, so to help you get started, we spoke to an expert.
Darren Kennon is a wealth management advisor for TruWest Credit Union and he has three tips to help people save money and build wealth.
Check out your 401(k) options
If you’re currently employed, many companies offer a 401(k) plan for their employees.
According to the Internal Revenue Service, a 401(k) is an employer-sponsored retirement savings plan that gives employees the ability to invest a portion of their wages before taxes are taken out. Kennon said participating in a 401(k) plan is a no-brainer if you’re looking to build your wealth.
Along with the plan, some companies also offer matching contributions to employees’ 401(k) plans.
“If you have a match, that’s free money,” Kennon said. “You going to get some money from the government and you’re going to get some money from the company.”
If a company match is available at your workplace, Kennon recommends starting off your 401(k) contributions to equal the amount of your company’s matching contribution.
For example, if your company offers 6% matching, then you should set your contributions from your paycheck to 6%.
Make a plan for your budget and debt payments
Another tip to help you save money is planning out your budget. Having a solid understanding of your finances and bills will help you determine where your options are to save on a more consistent basis.
“That first step really is just sitting down, looking at your budget and realize what you have,” Kennon reiterated. “Like Nike says, ‘Just Do it.’”
He added that each person’s situation is different, so everyone’s budget priorities can vary.
One person might have several credit cards with high-interest rates, so paying off those sooner might make more sense to deal with first.
Another person might have low credit card debt but several loans, so paying larger loan payments may be the priority.
When determining what credit cards to try and pay off first, Kennon said to look at the interest rate and card balance of each credit card.
“Credit card debt is something you really need to get after,” Kennon said. “You're going to have a lot of opinions on how to do it out there.”
Kennon said his recommendation is to look at your credit cards with the high-interest rate first. If your cards have a similar balance, go after the high-interest cards with the smaller balances first to pay off.
In the end, Kennon stated that the biggest hurdle is just deciding to get started, so now is as good as any to get your finances in order.
Set up a Roth IRA
According to Vanguard, a Roth IRA is a retirement account offering tax-free growth and tax-free withdrawals in retirement. The rules for these IRAs state that after the account is open for five years and account holders are 59½-years-old or older, they can withdraw money when they want to and they won't owe any federal taxes.
If you’re looking to Roth IRAs, Kennon said there are several advantages to opening an account.
Here are a few advantages:
- The account doesn’t have an age limit. You can add money for as many years as you want, as long as you have qualified earned income.
- There are no required minimum distributions for as long as you live.
- Account-holders can contribute the maximum annual amount to a Roth IRA, as long as they don't exceed the IRS's income limits.
"It's a great little type of an account that you can use for savings and also for saving towards a home," Kennon added. "There are also some benefits for college education as well."
With these tips, you have a solid foundation to develop the best wealth-building strategy that fits your needs. It’s never too late to begin saving money, no matter where you are in life. Kennon said it’s important to just get started.
What other financial topics would you like to learn about? Let us know with an email to firstname.lastname@example.org.
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