Money Management

Saving in a Roth IRA from a young age is a good thing to do. But read on to see if you need to be a certain age to open one of these accounts. 

It’s not so uncommon for teenagers to hold down a job, whether it’s scooping ice cream at a local shop over the summer or working for a small business in town after school. If you’re a teen earning money, you should definitely take the opportunity to put some of that cash into a savings account so you have a rainy day fund at your disposal. But it also pays to save some of that money for retirement.

Of course, when you’re a teen, retirement may not exactly be on your radar. But the longer an investment window you give yourself for retirement, the more wealth you stand to accumulate over time. And so if you’re a teenager with a job, you may want to consider putting some of your earnings into a Roth IRA.

Not only can a Roth IRA serve as a retirement account, but you can tap a Roth IRA penalty-free to pay for higher education. So if you put your earnings into a Roth IRA, it could double as a retirement fund as well as a college fund.

But while you can fund a Roth IRA if you’re under 18 as long as you have earned income, you generally can’t open one on your own. So you’ll need to enlist the help of an adult to get that account set up.

An option worth exploring

Roth IRA contribution limits change from year to year. In 2023, you can contribute up to $6,500 to a Roth IRA if you’re under the age of 50. But to be clear, you can’t contribute more than what you earn.

So let’s say you earn $5,500 at a job this year, but you’re also gifted $1,000 for the holidays from your generous relatives. Even though you’re allowed to contribute up to $6,500 to a Roth IRA, all of that has to come from earnings. So in your case, your 2023 contribution would max out at $5,500.

Meanwhile, minors generally cannot open any sort of account on their own that allows investments to be bought and sold. So if you want to open a Roth IRA, you’ll most likely need an adult to serve as a custodian. That adult could be a parent, older sibling, uncle, or grandparent — there are many options.

To be clear, though, your custodian won’t have the right to the money in your Roth IRA. Rather, that money is yours.

Now, you may not love the idea of tying your money up in a Roth IRA. But let’s say you contribute $5,500 at age 17 and end up retiring at age 67.

The stock market, over the past 50 years, has delivered an average annual 10% return, as measured by the performance of the S&P 500 index. If your $5,500 investment generates that same 10% return, in 50 years, it will be worth around $645,000. Now that’s a lot of money.

Fund that IRA while you can

Working during your teenage years may not always be a given. You might reach a point where your studies get more intense and you need to focus on school. Or, you may decide to spend a summer taking classes rather than working.

As such, if you have earned income now, it pays to consider putting it into a Roth IRA. And while you’ll need help to do so if you’re under 18, the option is very much on the table.

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Being a homeowner isn’t cheap. Keep reading to learn how one writer dislikes paying to make repairs to her home — just to end up in the same position as before. 

I’ve owned a home for most of my adult life and it’s been well over a decade since buying our first house. There are some things I absolutely love about having my own space, like being able to decorate it as I want to and having a lot of privacy.

But, there’s one thing I really don’t like about homeownership. Here’s what my least favorite part of having my own place is.

This aspect of being a homeowner isn’t fun

The one aspect of homeownership I dislike above all others is having to pay money to repair things that break when the repairs or replacement don’t actually improve anything about my user experience.

For example, if I have to pay for a new water heater, but I manage to get a more efficient one, then I don’t mind that as much — even though there are still plenty of things I’d rather spend the money on. But, if I have to replace something and there’s no upgrade or improvement that improves my life in any way, then I really dislike this type of spending.

This kind of spending happens a lot, unfortunately — especially as my house is a little over 10 years old, so more things are starting to break. Just recently, for example, my garbage disposal broke and I had to spend a few hundred dollars to buy a new one and have a plumber install it.

My new disposal is absolutely not one bit better than my old one — so it feels to me like I just wasted that money because I spent a lot to get back into the position I would have been in had my disposal not broken in the first place.

Are you ready to cope with these unpleasant costs of homeownership?

The disposal incident was just one of many examples of a situation where I had to spend money — and sometimes a lot of money — getting back into the same position I would have been in because something was repaired and had to be replaced with an equivalent model.

The reality is, this is just an unavoidable part of being a homeowner. And I will continue to face these types of pointless expenses long after I have paid off my mortgage loan. While I can try to take care of my belongings and make them last as long as possible, most consumer products have a shorter shelf life than the time I’ll spend in the house. So I just have to accept this as part of the price of owning my own place.

Fortunately, I was aware of these costs of homeownership before I purchased a property, and I made sure I could easily afford them on top of my other bills. Anyone who is considering a home should do the same, as these costs will be a part of your life from the time you buy until the time you finally sell. You don’t want them to be a source of financial stress on top of feeling like a waste of money.

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Financing a home purchase? Read on to see why one specific type of mortgage might save you money. 

Most people cannot afford to pay for a home in cash. If you’re in that boat, you’ll need to finance your home purchase with a mortgage. But you have choices in that regard.

Mortgages come with terms of differing lengths. And while 30-year mortgages tend to be the most popular among home buyers, there’s also the option to take out a 15-year loan.

Financial guru Dave Ramsey says, “The only type of mortgage you should consider is a 15-year, fixed-rate conventional mortgage.” He also says, “Going with a 15-year instead of a 30-year will save you tens of thousands in interest.”

He’s right about that last part. But whether you can actually swing a 15-year mortgage is a different story.

The savings could be huge

Taking out a 15-year mortgage rather than a 30-year one could save you a lot of money on interest for two reasons. First, you’re paying off that loan in a shorter period of time, so you’re not paying as much interest by virtue of that alone. You might also snag a lower mortgage rate to begin with by signing a 15-year loan instead of a 30-year loan.

In fact, let’s say you’re buying a $400,000 home and are putting down 20%, or $80,000, at closing. Let’s also say you sign a 30-year mortgage at 6.39%, which is the average rate for that loan product as of late April 2023, per Freddie Mac. In that case, you’ll end up spending about $400,000 on interest in the course of paying off your home. (Yes, you read that correctly.)

Meanwhile, the average rate today on a 15-year loan is 5.76%. If you borrow the same $320,000 at that rate over 15 years instead, you’ll end up spending more like $159,000 on interest all in. That’s a savings of around $241,000.

Now, think about the things you can do with $241,000. You could put your kids through college, or take a really nice vacation every year for well over a decade. So it’s easy to see why a 15-year mortgage might be a tempting prospect.

Can you afford a 15-year mortgage?

Clearly, there are savings to be reaped on interest when you opt for a 15-year mortgage over one that’ll take you double the time to pay off. But before you rush to sign a 15-year mortgage, consider whether the higher payments that come with it will work for your budget.

In the above example, your monthly payment of principal and interest for a 30-year loan comes to $1,998. For a 15-year loan, it’s $2,659. That’s a $661 difference per month, and you may not be able to swing that higher amount.

That’s why Ramsey’s advice, although spot-on, won’t apply to everyone. If you can handle the higher monthly payments of a 15-year loan, then you might as well save yourself money on interest — especially at a time like this, when mortgage rates are just plain up across the board. But if those higher payments are a stretch for you, then you may be better off sticking to a longer-term loan — even if that means having to spend more money on interest over time.

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Retiring on $200,000 per year is no easy feat, but it is possible if you manage your finances wisely during your working years. Read on to find out how. 

Retiring with a $200,000 yearly income is a dream for many Americans. While it may seem like a lot of money, it is possible to achieve this goal with proper planning and discipline. The expected median retirement age for current workers is 65. If that’s the number for you, how do you manage your finances leading up to retirement so that you can enjoy an income of $200,000 per year? Here are some tips and strategies that you can take regardless of your current age.

Save early, save often!

Saving early is a no-brainer when it comes to having enough money in retirement. But it’s just as important to save smart.

Using the 4% retirement rule

The 4% retirement rule has become a trusted tool for many retirees to help determine how much they should spend in retirement. It’s a simple and easy way to estimate how much you can withdraw from your retirement savings each year without running out of money. The rule states that you can withdraw 4% of your total retirement savings in the first year of retirement, and adjust that amount for inflation each year after that.

For example, if you have $500,000 in retirement savings, you can withdraw $20,000 in the first year of retirement. It’s important to note that the 4% rule is just a guideline and may not work for everyone’s individual situation. Using this rule as a starting point, if you want to withdraw $200,000 a year, you will need at least $5 million in your savings account by the time you retire. That may seem like a lot, but the earlier you start saving, the more time your money has to grow.

Try to save as much as possible, even if it means sacrificing a little bit now for a comfortable retirement in the future. Consider opening a 401(k) or IRA and contribute the maximum amount allowed per year. Take advantage of any employer matching contributions. You can invest even more by opening up a brokerage account.

How much do you need to save?

Now that you know how much you need by age 65, the next step is to calculate how much you need to save right now. Using a savings goal calculator and the desired savings of $5,000,000, $1,000 in your retirement accounts, and a 10% annual interest rate compounded daily, here is how much you need to save per month, depending on when you start.

Age 20: $460 per monthAge 25: $770 per monthAge 30: $1,290 per monthAge 35: $2,175 per monthAge 40: $3,718 per monthAge 45: $6,514 per month

If you are young, it is much easier to meet your retirement savings goal. This would likely involve setting up a budget and living below your means. It may mean downsizing your living space, driving a used car instead of a new one, or cutting back on unnecessary expenses. The more you can save and invest, the faster you can reach your retirement goals.

Start a business

Saving a couple of thousand dollars a month may not be realistic for many people, especially if you are starting later in life. Sixty percent of the world’s billionaires are self-made; only 10% inherited their wealth. While we hear of many young entrepreneurs hitting it big, there are many who had their career breakthrough later in life. For example Jack Ma, the founder of Alibaba, had his breakthrough at 35, Torstein Hagen of Viking Cruises was 54, and James Dyson of Dyson vacuum cleaners was 44. In fact, according to the Census Bureau, a 35-year-old is three times more likely to start a successful start-up than a 22-year-old.

What kind of business?

Billionaires often make their fortune by inventing something amazing. This might mean starting a new company or coming up with a product or service that people really want and monetizing it. By creating something new, you might change the whole industry and make a ton of cash.

Look for industries that are growing fast. High-growth industries usually have lots of opportunities to make money. Companies within these industries may experience high levels of consumer demand and rapid growth in revenue. Tech may be your best bet, as 93% of the people who became billionaires in the tech industry made their own fortune.

One business strategy that seems to work well for many billionaires is to get involved in the investment banking world, specifically mergers and acquisitions (M&A). The average U.S. billionaire has overseen or been involved in more than 33 M&A transactions, having grown or sold their businesses.

Consider passive income streams

Retiring doesn’t have to mean you stop earning an income. If you don’t have the $5 million in savings, you can look for ways to supplement your retirement income, consider a part-time job, or find ways to generate passive income. Passive income streams can supplement your retirement income without requiring you to work. For example, rental properties, dividend-paying stocks, or creating a blog or YouTube channel can all generate passive income.

Get involved in real estate

One of the best ways to achieve this is by investing in real estate. It can be highly profitable and have countless opportunities for growth. Some real estate investors have made billions. You can start small and gradually add to your portfolio to increase your chances of reaching your $200,000 retirement income goal.

Retiring on $200,000 a year is achievable, but it takes discipline, planning, and making smart financial decisions. Starting early, living below your means, starting a business, and exploring passive income opportunities are all vital strategies to help you reach this financial goal. Remember that every individual’s personal finances are unique, and it is essential to create a personalized retirement plan that aligns with your goals and risk tolerance. Use these tips to help you secure your financial future and have the retirement of your dreams!

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Choosing the right time to open a new travel card can have a big impact on how much use you get out of it. Here are some reasons to open it now. 

When it comes to making the most of your credit cards, choosing the right card is actually only half the battle. In many cases, deciding when to open a new card can be just as important.

If you’re big on summer travel, for instance, then the best time to open a new travel rewards credit card may be right now. Getting your new card before your summer vacation gives you lots of time to make use of all the perks and rewards that can come with it. Here are some examples.

1. Sign-up bonuses

One of the biggest things to consider when timing a new card is how you’ll earn the sign-up bonus. The best bonuses tend to have spending requirements in the four digits, making them hard to earn if you don’t have a large purchase on the horizon. But lo, a big vacation is nigh. Put your summer travel expenses on your new card and you can have a big bonus hit your account just in time to start planning your winter travel.

2. Pricey vacation = lots of points

While sign-up bonuses are undeniably awesome, don’t entirely discount the value of the purchase rewards you’ll be earning at the same time. Travel rewards cards nearly always have some sort of bonus earning category for travel-related purchases. This means your $1,000 vacation could be worth multiple thousands of points.

3. Elite status can improve the experience

Elite hotel status is a sweet deal if you can get it, as it often comes with perks like room upgrades and free breakfast. Pick up a good co-branded hotel credit card, and you can get that status for free just in time to wallow in your elite-ness all summer long.

4. Lounge access makes airports better

Although airport lounges have gotten a bit crowded lately, they’re still often better than the crowds at the gate. And either way, if you’re going to deal with crowds, doing so with free food and drinks is better than doing so without them. That’s why lounge access is still one of the most popular perks of travel cards — and a good reason to get said cards well before you hit the tarmac.

5. Free bags save you money

The average cost of your first checked bag is around $30. Multiply that by you, your partner, and your kids, and you could easily spend more than $100 in bag fees alone on a big trip. Instead of forking over for fees, consider picking up an airline credit card before your flight. Most co-branded airline cards offer your first bag free, a perk that can easily make up for any annual fees you might pay.

6. Airport security is a drag

Pretty much every aspect of airport security is a pain in the rump. But there are a few programs that make it better: Global Entry, TSA PreCheck, and CLEAR. If you’re considering joining one (or all) of these programs, then you may want to consider getting a new travel card at the same time. A lot of the top travel rewards cards actually come with a credit for Global Entry and/or PreCheck. Plus, a couple of American Express cards have credits for CLEAR.

7. Travel credits are best when used

Part of what makes a lot of those top-tier travel cards with the high-dollar annual fees worth the cost is that they come with lots of statement credits. Many of these credits reset with the calendar year, so you need to use them up as soon as you can. If you do most of your yearly travel in the summer months, then you’re going to want your new card in hand so you don’t miss out on using up your credits.

Pack your travel cards this summer

Preparing for a summer vacation can be a complicated business. You need to plan your trip, pack your bags, and keep a close eye on your itineraries to ensure everything gets accomplished.

You may also want to consider adding in a new travel rewards card application to your preparations. When timed right, you can turn that new card into a ton of valuable perks and benefits — not to mention rewards — that you can enjoy the summer long.

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Our next recession might not be so bad — but it might also drag on. Read on to learn more. 

Many financial experts spent much of 2022 warning consumers to gear up for a 2023 recession. And a big reason boiled down to the interest rate hikes the Federal Reserve was implementing.

The Fed has been trying to cool inflation for over a year now, since higher living costs have been wreaking havoc on consumers’ budgets and forcing many to rack up debt just to stay afloat. By raising interest rates, the Fed has made it more expensive for consumers to borrow. The logic is that if consumers start to cut their spending in light of that, it should set the stage for a cooling of inflation, since the supply of available goods will have more of a chance to catch up to demand.

Now, the good news is that the Fed itself is not anticipating a deep, intense recession in the near term. Rather, it thinks our next downturn will be mild.

The bad news is that the Fed also thinks it will take two years to recover from our next recession. And that’s less encouraging.

A mild but prolonged period of decline

Economic recessions have the potential to drive unemployment way up. And that’s the fear a lot of Americans are grappling with right now.

The idea of losing a job can be terrifying even during periods of economic stability. But losing a job during a recession could mean struggling to find work for months on end.

Hopefully, our next recession won’t be as intense as some financial experts cautioned about last year. But the idea of a two-year recovery isn’t exactly wonderful. That’s why now’s a good time to gear up for a recession, even though it might be a mild one.

How to prepare for a recession

If you’re worried about a recession hitting and your job landing on the chopping block as a result, one of the best things you can do is boost your emergency fund. If you don’t yet have enough cash in your savings account to cover three full months of essential bills, aim to ramp up. That way, you’ll have a means of paying your bills for a bit of time if your job is yanked away.

Now is also a good time to chip away at high-interest debt. If you owe money on credit cards, try to get those balances paid off. If you lose your job, the last thing you’ll want is debt payments hanging over your head.

Incidentally, a side hustle could be your ticket to growing your cash reserves and paying off debt. And that way, you can set yourself up with a backup income source in case something happens with your main job.

Finally, do what you can to boost your job skills. Being great at what you do won’t guarantee that you won’t be a layoff victim if your employer is forced to make cuts. But if you’re able to add more value at work, you might spare yourself that fate if layoffs come down the pike.

Nobody wants to hear that a two-year recession may be coming. The fact that it’s expected to be mild helps soften the blow, but it’s important to prepare for what could be a prolonged period of general economic unrest.

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