February: Tips on How to Build Your Savings
In January, we focused on recovering from overspending during the holidays as well as creating a budget to plan more effectively for anticipated monthly expenses and unexpected one-time costs. Now that you have a solid plan in place to reduce and manage expenses, it’s time to begin thinking about how you can begin to build your savings. During the process of creating your budget, you likely identified some areas where you can save a little money, such as extending the length of time between trips to the salon, taking a vacation closer to home to avoid high airline expenses, or cutting back on the number of trips each week to the café for your favorite coffee or latte. With a little extra savings in your account, it’s time to look into how you can begin to put that money to work for YOU. Depending on your personal needs and situation, there are a variety of financial products to consider, such as CDs, money market accounts, Roth IRAs, Traditional IRAs, 401K plans, etc. Which one is best for you?
Here’s some information on each one, so you can begin to build an investment strategy based upon your needs and goals.
|Certificates of Deposit (CD)||Money Market Account (MMA)||Traditional IRA||Roth IRA||401K Plan|
|Are less risky, provide a slightly higher interest rate, and offer a variety of terms and interest rates. CDs are FDIC insured up to $250,000.||Provides a slightly higher interest rate over a savings account, plus the ability to write checks. MMAs combine key attributes of both a savings and checking account. A higher balance is often required to earn a higher interest rate. MMAs are also insured up to $250,000.||This type of account allows for pre-tax dollars to be invested and grow tax-deferred. Traditional IRAs are not subject to tax on capital gains or dividend income until funds are withdrawn. Contributions may be tax deductible depending on your income, fax filing status, and other factors.||Is an individual retirement plan that is funded with after tax dollars. Contributions are not tax deductible and the money invested grows tax free. There are no required minimum distributions during the lifetime of the account. A Roth IRA can be opened at any time by anyone with taxable income.||Is a plan sponsored by an employer that allows employees to make salary deferral contributions on a post- and/or pre-tax basis. Employers offering a 401K plan can elect to make a matching or non-elective contribution to the plan on behalf of eligible employees. Earnings accrue tax-deferred, and limits on salary deferral contributions are established by the IRS as well as the plan.|
Now that you are in a good place with your monthly budget, it’s time to set up a meeting with a financial advisor who can assist you with developing a long-term investment strategy for your future. The professionals at Independence Financial Advisors have over 70 years of combined experience assisting individuals with creating an investment strategy that meets their needs. You can even schedule an appointment with an IFA financial advisor online!
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