how-to-make-your-money-go-further
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April 22, 2022

5 Ways to Make Your Money Go Further

 

  1. Put together a financial savings plan
  2. Refine your spending plan
  3. Invest in stocks, ETFs, and other investment vehicles
  4. Consolidate debts, pay off credit cards
  5. Review your tax savings & planning opportunities

Put together a financial savings plan

This is one of the most overlooked components of stretching your money. For example, imagine you earn $5,000 per month. How much are you setting aside each month for your retirement or children’s college? Are you paying yourself first (before spending money)?
By simply having a gameplan will increase your likeliness of success. Take the above example. Rather than taking your $5,000 and spending $4,500 leaving $500 at the end of the month, you should consider instead saving $500 at the beginning of the month, and spending the $4,500 after you’ve saved. This will help ensure you don’t overspend prior to saving.

Refine your spending plan

Similar to the above point about savings, you may need to refine your spending and budget. Assume the individual with $4,500 spends $900 per month eating out. Maybe the $4,500 with $900 going to dining each month is too much. More realistically, maybe instead they should cut that in half to $450 per month. Now that could still be high, depending on your circumstance, however, by cutting your dining in half, this individual now has an additional $5,400 per year to save. Compound that $5,400 over 20 years at 7% and you’ll have $242,272. Little changes can make big differences over the long-term.

Invest in Stocks, ETFs, and other investment vehicles

Investing your money outside of CDs and other low-yield savings accounts is a must. In today’s environment, typical savings accounts at places like Wells Fargo, Bank of America, and other big banks may have interest rate yields as low as 0.05%. There is not much wiggle room here. So the question becomes, where to allocate your capital?

One idea would be determining your risk tolerance and time horizon and investing in low-cost ETFs and stocks. There are so many options to select from that often times it can feel overwhelming deciding where to start. This is where we come into the picture. Depending on what you are trying to achieve, there are low-risk/low-growth, high-risk/high-growth investments, and everything in between that you can put your money in, such as ETFs, stocks, bonds, etc. We are not speculators and invest for the long-term of 5+ years.

Consolidate debts, pay off credit cards

This is an idea for individuals that have student loan debt, credit card debt, high-interest debt, etc. An idea would be to consolidate these toxic debts into one, lower cost loan that you pay down. Not only will this lower the amount of work required (thus saving your time) for you to pay debts, but if done intelligently, you can also save money on interest expenses.

At the minimum, paying down credit card debt, while it may seem trivial is huge. The average credit card from Wells Fargo, Bank of America, JP Morgan, and others charged around 25% APR. Credit cards are quite literally robbing your future wealth, one monthly payment at a time. Now, granted, if your credit card balance is $100, then this is not the same case. I’m referring to individuals with high credit card debt, over 5% of their net worth.

Review your Tax Savings & Planning Opportunities

Another very overlooked component is tax planning. I often ask the question to our own staff, what do the wealthy do to get wealthy? They figure out how to make their wealth go a little further than that of the ordinary individual. Take the following example:

John Smith has a job that pays him $150,000 in wages. John also earns $40,000 in a self employed business he started that sells computer parts. John’s wife does not work. They have 2 children, ages 6 and 8.

Depending on John’s circumstance, he may qualify and decide to open an HSA account under a family plan. HSAs are pre-tax and roth all in one when used for medical. John may also determine that he can add money to his wife’s IRA under the spousal IRA provision, thus saving them even more on taxes. If eligible, John could also add money into a backdoor Roth IRA for himself, and lastly, he may determine that he is eligible to max out his employer 401k, and also open up a self-employed 401k for his other income. All in all, John could shelter up to $62,000 from tax. Assuming he is in the 32% bracket, this would indicate savings of $19,840. John, being the disciplined saver he is, decides that if he puts the $19,840 into a taxable brokerage account, just his tax-saving alone compounded for 20 years at 7% will be worth $813,350. Add that $19,840 to the $62,000 per year in retirement that John is contributing and now after 20 years, he will have a grand total of $3,355,000. By maxing out retirement and taking advantage of the already given tax rules, John can amass a very nice retirement for himself and his wife.

 

There are many moving parts with taxes and investing, and that’s why we are here. Determining if you qualify for an HSA, a backdoor Roth, or whether or not you have an opportunity to shelter money is critical. Every $1 is worth $4 in 20 years (assuming a 7% rate of return). So take advantage of the tax rules for your situation. Every little step will help.

 

Call us today! 817-238-6300 We know money matters!
Matt Ward, CFP®

 

Financial Planning