Money Management

Not everyone can afford to max out an IRA. Read on for ways to still grow your fair share of retirement wealth. 

It’s important to save for retirement so you have funds available to pay your living expenses later in life. Relying on Social Security alone could mean taking a major pay cut, since those benefits only replace about 40% of income for average wage-earners.

If you have a 401(k) plan through work, contributing to it is a great way to build up a retirement nest egg. But maxing out a 401(k) is a tough thing, since these plans top out at $22,500 for workers under age 50 and $30,000 for those 50 and over.

Maxing out an IRA, on the other hand, may be more doable. IRAs max out at $6,500 this year for workers under 50 and $7,500 for those 50 and older, which is a more reasonable sum of money to part with.

But what if you can’t max out your IRA? Maybe you can’t swing the aforementioned numbers due to having car payments, mortgage payments, and a host of bills to grapple with.

Not being able to max out your IRA doesn’t mean you’re doomed to a cash-strapped retirement, so don’t get too down on yourself. And if you can’t max your IRA right now, there’s something else you can do instead.

Some retirement savings is better than none

Some people don’t manage to save anything for retirement. So if you’re contributing some amount of money to an IRA, you’re in far better shape than those folks.

If money is tight, your best bet is to save as much as you can for the time being, and then try to save any raise or bonus you get in the coming year. And then, save your raise the year after that. Over time, increasing your IRA contributions slowly could make a big difference.

Perhaps you’re only able to put $50 a month into your IRA this year. Maybe by next year, you’ll be able to put $80 a month in. And so forth. And even if you can’t increase your contributions year after year, you may be able to get pretty far with what you’re saving already.

Let’s say you just started putting $50 a month into an IRA and you’re 24 years old with the goal of retiring at age 65. The stock market’s average return over the past 50 years has been 10%. If you invest $50 a month over 21 years at that return, you’ll be looking at almost $300,000 in savings. That’s more than the typical American of retirement age has right now, according to data from Northwestern Mutual.

It’s not all or nothing

Funding an IRA to the best of your ability is better than not making contributions at all. So don’t be bummed if you can’t max out right now. You might be able to someday, and until then, try to increase your contributions from year to year. And even if you can’t do that, if you keep funding your account at your current pace, you might end up with a pretty large sum of money at the end of your career.

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Personal loans and credit cards both allow you to borrow money. Here are the key differences you need to know. 

If you want to borrow money for something, you could potentially charge it on a credit card. Or you could get a personal loan to pay for it. Both forms of borrowing are flexible, as you can choose to charge almost anything on a credit card or can use your personal loan funds for just about anything you want.

But while there are similarities between personal loans and credit cards, there are also some important differences to know. Here are three of them.

1. The interest rate

The interest rate is one of the biggest differences between credit cards and personal loans. Personal loans tend to have a much lower interest rate. In fact, the average credit card interest rate as of August 2023 is 21.19% while the average personal loan rate is 12.17%.

However, there is one situation where a credit card could provide a lower rate — when you qualify for a 0% introductory APR on purchases. Some card issuers offer this, although you’ll have a limited time when the 0% rate applies, so this would be an option only if you were borrowing over a short period (generally less than 21 months).

To make sure you are making the right choice between a credit card and personal loan, always compare the rates available to you so you don’t end up getting hit with more financing charges unnecessarily.

2. The payoff schedule

The payoff schedule is also a huge difference between personal loans and credit cards. When you take out a personal loan, it has a set payoff timeline (such as two or five or seven years). You find out upfront how much you’ll be paying in total and when you’ll be done sending money to your lender.

With credit cards, that’s not the case. You will have a minimum payment due, and if you only pay the minimum, it could take you decades to become free of your credit card debt.

Your statement will usually specify total costs if you pay only the minimum. However, since you’ll have to decide how much extra (if any) to send in each month, it’s not always immediately clear when you will really be done with repayment or how much you’ll spend in total. And if you charge more on your credit cards as you’re still working on paying off your current debt, this only complicates things further.

If you want to know exactly when you’ll be free of the debt, a personal loan is the way to go. If you want more flexibility in how much you pay each month (above a small minimum), a credit card may be your preferred choice.

3. The distribution of funds

When you borrow with a personal loan, you have to decide right away how much money you will need from your lender. You’ll receive that entire amount in a lump sum after approval and start paying interest on the whole amount right away.

If you use a credit card, you get a credit limit, such as $500 or $2,000 or $20,000. You can charge up to that limit. You can charge it all at once or a little at a time. And if you pay back some or all of what you charged, you free up the credit and can borrow again.

If you are borrowing for a fixed expense, such as a home improvement project, and you know exactly how much you want and when, a personal loan could be a smart choice. You’ll apply and receive that cash in your checking account upon approval.

But if you want to borrow over time, and you want to swipe your credit card for purchases rather than receiving funds into your bank account, a credit card is the smart choice.

Ultimately, there are times when you should use a personal loan and other times when you should use a credit card. Now that you know these three big differences, you can make an informed choice in each situation about which option is right for you.

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My 20s weren’t perfect. But read on to learn about three financial things I got right. 

My 20s were an interesting time. They took me through college graduation, single life in a big city, marriage, and moving to suburbia. And along the way, I definitely made my fair share of mistakes. But here are a few smart moves I made in my 20s that have served me well since.

1. I built a six-month emergency fund

These days, SecureSave reports that 63% of Americans do not have the cash reserves to cover an unplanned $500 expense. But I never wanted to be in that boat. And one wise move I made in my 20s was to build up an emergency fund with enough cash to cover six months of essential bills.

Granted, my expenses look different today than they did in my 20s. I now have a mortgage and property taxes to contend with, not to mention the many expenses that come with raising kids. But the emergency fund I built in my 20s definitely served as a solid foundation and bailed me out of a potential financial jam.

When I was around 27, I found myself burned out after having worked a demanding finance job for five years. My mental health was suffering, so I quit that role and pursued freelance opportunities, resulting in a huge drop in income. I was able to tap my emergency savings at the time to make sure I didn’t end up falling behind on essential bills. I also used that money to pay for health insurance, which I had lost upon quitting my job.

2. I started building a retirement nest egg

When I was in my 20s, retirement wasn’t exactly on my mind. And I had different goals I was trying to save for, like eventually buying a home.

But still, I made a point to open an IRA when I didn’t have a retirement plan through work, and I contributed to it as best as I could. And then when I was offered a 401(k), I continued to save for retirement even though my employer at the time did not offer any type of match.

One thing that motivated me to save for retirement was reminding myself that I was getting a tax break on my IRA and 401(k) contributions. But also, I knew that giving my money extra time to grow would put less pressure on me to save down the line.

3. I stayed out of credit card debt

I started using a credit card during college, but since I only worked part-time back then, I charged expenses sparingly. Once I got a full-time job in my 20s, my credit card usage increased. But not once did I fail to pay off my balance in full.

Of course, to pull that off, I had to be very careful with my spending. I actually followed a budget where I had my bills mapped out on a spreadsheet and I would track my supermarket spending weekly and so forth. It was sort of a dorky way to exist, but it was worth it, because it allowed me to enjoy the benefits of a credit card without running into financial trouble.

Make the most of your 20s

There are certainly benefits to being in your 20s, like having more energy and not having your bones and joints make sounds every time you move. But it’s important to use your 20s to set yourself up for financial success in your 30s, 40s, and beyond, if you can. Try to save for emergencies and retirement, and aim to pay off your credit cards every month so you don’t get stuck with lingering debt.

Now, I could tell you to set up a budget and follow it to keep your spending in check like I did. But you may not want to go that route. A better bet, however, may be to find a budgeting app that works well for you. Back when I was in my 20s, those didn’t really exist (yup, I guess I’m that old).

Another thing I recommend is putting the savings process on autopilot. Set up an automatic transfer to a savings account and/or IRA so you don’t have to think about getting that account funded. It’s a system I use today, despite no longer being in my 20s, and I have to say that it works quite well.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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Turning to Costco for holiday shopping could be a good idea. But read on to see why you really don’t want to procrastinate. 

Although we’ve barely kicked off the fall season, many retailers are already putting up holiday displays and pushing seasonal items like Christmas lights and candy canes. And Costco has definitely jumped on that bandwagon. Head over to your local warehouse club store, and you’ll see loads of options, from Christmas trees to wrapping paper to gourmet chocolate that makes a great gift for the person you never know what to buy.

You may be of the opinion that it’s too soon to do your holiday shopping. After all, the leaves haven’t even changed color in some parts of the country! Doesn’t that mean it’s too early to be focusing on Christmas?

But actually, if your plan is to do a lot of holiday shopping at Costco, then starting in October is a smart move. Here’s why.

Costco items could sell out or become unavailable

Costco does a great job of rotating its inventory on a seasonal basis. But because of this, you should only expect Costco to carry holiday items for a limited period. And if you wait too long to shop, you might miss out on the things you want.

Also, while Costco’s warehouse club stores are enormous and can hold lots of inventory, many people have a Costco membership. And they’re aware that Costco shopping frees up money for a savings account. So if you wait too long to make your holiday purchases, whether it’s gift wrap, toys, or electronics, you might end up losing the opportunity to scoop up those bargain buys.

Now that said, Costco inventory can vary from store to store. So if your local store runs out of something you want, you can always head to customer service and see if they can track that item down at another location. Or, you can see if it’s available online.

But generally speaking, holiday items can sell out at Costco. So if you have a very specific shopping list, you may want to tackle it in October.

Make sure you can afford your holiday purchases now

Doing your holiday shopping at Costco now could help you avoid a scenario where you’re unable to find the things you want. The pitfall of this plan, though, is that it’s mid-October, which means Christmas is a good two months away. And if you’re someone who was planning to save a lot for holiday purchases from mid-October through mid-December, then you may not have the money now to buy the things on your list.

Now, you might say to yourself, “Well, okay, I’ll just use a credit card and pay it off in a couple of months.” But if you don’t manage to pay off that balance, you could end up accruing a lot of interest. So a better bet is to make sure you’re able to pay for your purchases on the spot. And if you can’t, don’t shop yet. It’s not worth landing in debt.

The idea of a $100 pre-lit Christmas tree might sound appealing. Or maybe you need an eight-count of candy cane walkway lights for $54. Either way, you may want to scoop up those Costco items while they’re still available. But if you can’t afford to be buying things for the holidays yet, don’t sweat it. You’re better off saving up and working with whatever inventory is left by the time you have the money.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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