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Earning Easy Money on Your Extra Funds

Earning Easy Money on Your Extra Funds

Everyone knows that one of the most important principles of personal finance is to build up your savings in order to have extra money on hand. However, they don’t always tell you what to do with those funds once you have them. For that reason, all too many of us let our checking accounts get fat when our funds could be better used elsewhere.

Don’t let your money just sit there—put it to good use! Here are a few ways you can make some extra money from your savings:

Online bank accounts, CDs, and money markets

If you’re like many people, odds are you simply keep your extra money in a traditional savings account. That’s a good start, but unfortunately the interest rates that most big banks offer are minuscule at best. In fact, several major intuitions pay as little as .01%. Luckily there are other options, and one of the best places to start looking is the Internet.

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Since online banks don’t have to deal with many of the costs associated with brick and mortar branches, they typically offer much higher interest rates to their customers. For example, online institutions such as Discover Bank, Ally, Synchrony and others offer savings accounts with interest rates as high as 1%. Additionally, many online banks provide other options like certificates of deposit (CDs) and money markets that can also earn you a return on your money. Both products are somewhat similar to savings accounts but have their own pros and cons.

Starting with CDs, the biggest difference between this option and a regular savings account is how accessible your money is. CDs allow you to deposit money for a set period of time—ranging from one month to 10 years—in order to earn what is typically a higher interest rate. In most cases, the longer the terms, the better the rate. Of course, if you absolutely need the money you’ve deposited, there is a way to get it out. However, you will typically be assessed a penalty for doing so, amounting to a few months worth of the interest you’d collected.

As for money market accounts, they could almost be compared to a savings/checking hybrid. That’s because some banks will allow you to write checks against your money market balance, or perhaps even use a debit card for the account. The downside is that these types of accounts typically require a much higher initial deposit, as well as daily balance requirements you’ll need to maintain in order to avoid penalty. With that in mind, this is really only an option for those with a large chunk of extra cash to stash.

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While it might seem odd to put your money into a bank you can’t actually visit, technology is making it easier to live without physical banks. Many of the aforementioned online banks offer mobile apps and other conveniences—such as partnerships with ATM providers—to make accessing your money easier. However, it’s important to note that there are usually limitations on online accounts, including the number of transactions you can make per month. Lastly, be sure to check that the online bank you go with is FDIC-insured just in case.

Dabbling in investing with FinTech

In terms of passively earning on your money, the 1%+ you can get from online savings accounts, CDs, and money markets is pretty great. On the other hand, if you want a potentially bigger reward and are willing to take a few risks, there are a number of ways to get started in the world of investing. Although that might sound intimidating to many, today there are several tools and platforms from financial technology (mashed together to form the incredibly cool sounding term “FinTech”) companies that not only make investing easier, but also offer new ways to make money.

One prime example of this trend is the mobile app Acorns. Basically, this application links to your debit and credit cards to “round up” your purchases to the nearest dollar and invest the change. What’s also cool is that you can adjust your settings to choose whether you want to be more conservative or aggressive with your investments.

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Another growing FinTech invention is peer to peer (P2P) lending. P2P is actually strikingly similar to crowdfunding platforms like Kickstarter and Indiegogo that you’re likely already familiar with, except that sites like Prosper and Lending Club help borrowers in need of loans. Simply put, approved borrowers can have their loans funded by investors, who then earn interest on the loan.

As investing in peer to peer lending has evolved new tools that help to manage the process, such as Lending Robot, which help to automate your loan investments. The peer to peer platforms themselves are also rolling out tools to manage investments. As these tools gain adoption, investing in peer to peer loans will likely become a more mainstream practice to help diversify investment portfolios. That said, you can still get started today with investing as little as $25 in individual loans.

Interestingly, companies, such as Able Lending, are now combining P2P and crowdfunding so that friends and family can lend money more formally for startup businesses. For that reason and others, it’s worth keeping an eye on the FinTech sector for possible investment opportunities in the future.

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When it comes to building your savings, there are many places to put your money. Whether your prefer passively earning from online savings accounts or taking on some risk by trying your hand at investing, it’s often worth exploring your options and ensuring that your money is put to work earning you even more.

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Last Updated on June 6, 2019

The Average Retirement Savings and How to Save Wisely

The Average Retirement Savings and How to Save Wisely

Are you on track for retirement?

If not, don’t worry, I’m not sure either. I save each month and hope for the best.

Fortunately, I’m at an age where most people don’t save so I’m ahead of the curve.

But, what if you aren’t in your 20s? What if you’re near retirement and are looking to gauge where you stand?

If so, keep reading. Here’s how to prepare for retirement and save wisely during the process.

What Does the Average American Have Saved for Retirement?

Saving for retirement is tricky.

Tell someone straight out of college to save $10k a year for retirement and it’ll be next to impossible.

Make the same request to someone decades older and they’d be more likely to be able to save this amount. But, a 20-year old college student can be “financially ahead” of someone saving more than them. Why?

Age matters in your financial journey. The younger you are, the more time you have to save and put compound interest to work. As you get older and have more saving power, you’d have less time to put compound interest to work.

Here are the average savings Americans hold by age bracket:

20’s – $16,000

During this stage, most people are paying loans and moving up the corporate ladder. Your best bet during this stage is to focus on eliminating debt and increasing your income. Don’t focus only on getting a high-paying job neither.

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Instead, focus on learning via Podcasts, reading books, and taking specialized courses. Doing this will make you more valuable and give you more career options.

30’s – $45,000

At this stage, you’ve hopefully escaped your entry-level salary and work at a career you enjoy. Your earning power has increased but you now have more obligations. For example, marriage, kids, and a mortgage.

Set a plan to pay off all your debt and focus on eliminating unnecessary expenses. Leverage financial tools like Personal Capital to ensure you’re on track for retirement.

40’s – $63,000

This is the stage where you’re at the prime of your career. Top financial institutions recommend you have at least 2 to 4 times your salary saved up. If you’re falling behind, start maxing out your 401K and Roth IRA accounts.

50’s – $115,000

During your fifties, you’re close to retirement but still, have time to save. You may be helping your kids pay college tuition and other expenses. Since you’re at the peak of your earning power, max out all your retirement accounts.

60’s – $172,000

By this point, you should have about eight times your salary saved up. If not, you’ll depend primarily on social security benefits averaging $1400 per month. Max out all your retirement options as much as possible before retiring.

Ways to Save Money on a Tight Budget

The sad reality is that most Americans aren’t saving enough for retirement.

Even high-earning power isn’t enough to secure one’s financial future. You need to have the discipline to save for retirement while time is in your favor. Don’t wait for you to have a high salary to save, start with having a small budget.

First, get a clear picture of where you stand. Write down a list of “needs” and “wants.” For example, Netflix and Amazon Prime are “wants” and a “cell-phone” is a need.

Use tools like Personal Capital to analyze your spending patterns. Personal Capital allows you to add all your financial data in one place–making it a powerful option to gauge where you stand.

Once you know all your expenses, organize them from highest to lowest expense. When you can’t cut more expenses, call your service providers to negotiate a lower price. If you’re not good at negotiating, use services like Trimm to lower your monthly expenses.

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How to Save Money Each Month

By this point, you know the average amount of money you should have saved for retirement based on your age.

But, breaking this down into monthly goals can be challenging. Here are some rule of thumbs to follow:

Aim to contribute 10%–15% of your salary each paycheck. Review your progress each week.

Why so often? The reality is that life gets in our way and you will have many financial setbacks. Your goal isn’t to be perfect but to get back on track instead.

Reviewing your finances weekly lets you know where you stand with your retirement. This doesn’t have to be a long process either. All it takes is login in Personal Capital to view your net worth and check how much you have saved for retirement.

Turn saving into a game and aim to save more each month. It will get challenging but you’ll get creative and find more ways to save.

Top Money Saving Challenge Tips

To prepare for your financial future and not be another statistic you need to be different.

How?

By adopting new habits that’ll help you become a saving machine. Here are some ways you can save more:

Automatically Contribute Towards Retirement

If you’re working for a company, you can automatically contribute towards your 401k. If you’re not currently contributing more than 10%, make this your goal. Contribute 1% more today and automatically increase this amount a year from now.

Odds are that you’re not going to be negatively affected by contributing 1% more. Many times we spend our money on things we don’t need. Contributing more towards retirement is a great way to secure your financial future.

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Use the Right Tools to Know Where You Stand

Once you’re contributing more towards your retirement accounts, gauge your progress. Make use of finance tracking apps to help you view the big picture of your retirement.

When I’d first signed up for the app Personal Capital, I didn’t know I had a negative net worth. Despite saving thousands of dollars, my debt brought my net worth to the negative. Knowing this motivated me to save more and spend less.

Now, I have a positive net worth. But, it was because I was able to view the big picture using the app. Find out what your net worth is using a finance tracking app and you may surprise yourself.

Bring in Experts to View Your Blind Spots

If you have too little or too much money saved, you should consider hiring financial experts.

Why?

You may need someone to hold you accountable to help you reach your financial goals. Or, you may need help managing your money as effective as possible.

Regardless of the reason, getting help may help improve your financial situation.

Before you hire an expert, find out which areas you need help the most. For example, if you’re constantly overspending, find a debt counselor. If you’re struggling with choosing the best investment options, hire a financial advisor.

Speed up Your Retirement Contribution

After learning how to manage your money well, the next best thing is to earn a higher income.

You’re capped at how much you can save but not much you can earn. Even if your employer isn’t giving you a promotion, you can still take charge of your financial future. How?

By starting a side-business.

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This will be something you’d work on after you’ve finished your day job. Once you start earning income from your side-business, you’ll be financially better off.

The best part is the more work you put into your side-business,[1] the more potential it has to earn more money.

So start a side-business in an area you’re familiar with. For example, if you enjoy writing, do freelance writing for small e-commerce businesses.

Once you’re earning a higher income, you can contribute more towards your retirement. Don’t wait for the right opportunity to secure your financial future, create one.

Reach Financial Freedom with Confidence

What if you were able to retire tomorrow with no problem, all because you’d have enough money saved up and little to no debt left to pay off? How would you feel?

My guess is that you’d feel happy and relieved.

Most Americans are falling behind their retirement goals for many reasons. They’re not prepared, they carry bad money-habits and are thinking short-term.

For you to retire successfully, you need to work backward and adopt better habits. Contribute more towards your 401K and focus on growing your income.

If you do, you’ll save money and pay debt faster.

Don’t beat yourself up if you’re behind your retirement goals. Take the first step today towards a brighter financial future. Isn’t retirement worth the hard work and sacrifice to be at peace?

Featured photo credit: Huy Phan via unsplash.com

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