I’m not a financial advisor now, nor do I know much about investing. In fact, I’m terrible at it, and have rarely had access to a 401K from the employers I have worked for. I have scrimped and saved here and there only to blow it. Now that I am sort of getting older, (but still look fabulous), I start taking this saving thing seriously. I have relied solely on advice from friends, employers, financial advisors, investment books and free articles on the Internet. Most say, “diversify”. How do you diversify if you have no money?
First, since I do not have a 401K (the ability to save like crazy tax free and earn free money from your employer’s match) I started a Roth IRA. I contribute after-tax money every month. Even a small amount adds up. I do this with an online account for free. And I am taking advantage of time and embarking on investing in overseas companies (except Toyota)!
Second, because of sky rocketing (I mean into another atmosphere) cost of health insurance, I got a high deductible health plan with a Health Savings Account. I had to research it, but several banks have separate Health Savings Accounts, like “HSA Bank” or “Bank of America”. The account is similar to an IRA. You can deposit or rollover up to $3,000 a year into this tax free savings vehicle. You are not taxed on the deposits. The bank will send you a credit card just for your health care expenses. You can even use it on therapeutic massages, medications, dental, homeopathic remedies and vitamins, as long as it is within your defined plan. If you have out-of-pocket expenses for medical, you can repay yourself from your HSA. Or, you can be healthy, not spend the money and leave it in there to earn interest. Just be sure to watch the bank fee, which is usually a monthly maintenance fee. Maybe you are lucky and your employer offers this as well, if so, take advantage of it.
Third, I rolled over an old 401K I had into a free, no-load mutual fund with Vanguard. http://www.vanguard.com/. They have lots of mutual funds from low to high risk. It is a traditional IRA, so right now I am not making contributions to it since I would end up taxed twice, once before deposit my earnings, and twice when I withdraw the money at retirement. I have put it in a stock index fund that has grown over the years (except when Bush was President). If I roll it over to a Roth IRA, I will have to pay taxes on it, so I might consider eventually rolling it over to a Roth little by little so all of my taxes are paid on it before I retire. Definitely get advise on this before you proceed – yikes!
Fourth, if you have a 401K, figure out how much you need to live on, and try and put the maximum into your 401K, even if your employer doesn’t contribute. You are not taxed on the money that goes into your 401K, therefore, you are paying less tax on your gross receipts, saving, and potentially getting free money from your employer. Wow. I know, you can’t afford it, BS, give up the lattes, cigarrettes, buying three pairs of shoes every month, 500 channels on satellite (what’s wrong with 120?) and lunch out every day, yeah you know who you are?
Fifth, I have a small savings account connected to my checking account. I try to keep a month’s salary in there, but that is hard. It never fails that you have taxes to pay, emergencies, car repairs – ugghh, or you just have to have that . . . . . . . If you are tapping into emergency savings for things you “want” as opposed to things you “need” then you should re-think it by 48 hours. You will find that you can live without it for a little while. I also have that savings connected to my checking in case I get overdrawn. There are lots of fees related to overdraws now that the banks are suffering financially. Don’t give them any reason to charge you extra.
Sixth, get down to one credit card. I have no annual fee and my interest is fairly low. I do not get points or awards because those are the cards that have a $25 to $75 annual fee. Since I do not spend that much money every month to earn points, it is not worth it. So reevaluate whether all those costs for a credit card with points is worth it.
Seventh, budget. I have tried this over and over, and hope to get it eventually. But if you are willing to attempt it, Microsoft Excel has a great template that will set you up and show you immediately whether you are in the red or not. I am going to utilize Mint from Intuit for free. If you file with TurboTax, it will give you the option to download Mint for free as well. You can also link to it on your “MyYahoo” page and see your budget every day.
Eighth, stash some cash away here and there for something just for you, like vacation. Somewhere that you do not look or think about every day. A shoe you never wear, a bra (like my cuz Debbie), or a sock with holes in it. (I wouldn’t stash it in your car, bad idea). That’s your play money. Maybe gamble with it, go on a vacation, buy something frivilous, or get some plastic surgery with it. I said “frivilous.”
Last, I wanted to share an article from a blog I like to read “Get Rich Slowly.” Lots of good articles and thought provoking posts. http://www.getrichslowly.org/blog/2010/03/03/the-problem-with-prognostication-why-you-shouldnt-invest-based-on-expert-predictions/
GOOD LUCK AND WISH ME LUCK!