Inside this edition: Are ways to make your money work for you.
Hey y’all. It’s me your girl Rainey always looking out for YOU – my tribe – the Rainey Crew. This post is for YOU. For all of YOU young or old, male or female, married or single. If you don’t read any other posts I have out there I need you to read this one. As I write this it is the during the COVID 19 pandemic, and I am thinking about what I can share with you to help you understand how important it is to plan for the long term and the immediate future.
As of today, I and my husband are not working. While we are still able to keep the lights on for now, I would not have been able to do that without some previous planning on our part. We never thought we would ever see anything like this, but luckily we were prepared for it. The next time we don’t know what it will be, another pandemic, a natural disaster, or maybe just lose our jobs. Whatever it is I want to help you be financially prepared when an event occurs, and teach you how to make your money work for you.
Start a Savings Account
I know, you are thinking start a savings account. That’s your plan? And I will tell you that you have to start somewhere. Maybe you already have a savings account already so this doesn’t apply to you. I am not making any assumptions. If you have one, great! How is it being funded? The money needs to go into the account after you get paid automatically. If it is not, that should be your next step. I cannot say this enough, you cannot spend what you cannot see. Set up automatic deductions with your bank or your job.
The purpose of the savings account is two-fold. First, it is an emergency fund for job loss, or an event that no one expected like… a pandemic. I personally know people who have no job and absolutely no savings during this period and are hurting. Put money aside when times are good is imperative and should not be taken lightly.
Second, the savings account is for those unexpected expenses that would otherwise send you back into debt. In my blog about improving our backyard with a pond that all happened because our backyard caved in. That was expensive venture to get fixed. Luckily because of years of saving we were able to repair something that seemed insurmountable. Honestly, if that rainy-day fund was not there we would still be paying off a credit card.
Saving While in Debt
If you are paying off a credit card or debt in general you can still save. Save 10% of whatever you make. Then work with what you have left to survive for day to day expenses. Another rule of thumb is to save enough that is equal to three months of current monthly expenses if you are in a two-earner household or six months if you are the only wage earner.
Meet the emergency fund goal . Use that money you were saving to pay off debts. When debts are paid off resume saving. I have lived this and walked the walk.
Start a Retirement Account
Not everyone works in a job that offers a 401K plan, or for the government, or for an employer that has a pension plan. Today you have to look out for yourself. With that being said, I want you all to think long term and whether you are in your twenties or your fifties. It is never too early or too late to save for your retirement. If your job has a 401K plan as soon as you are eligible you need to start participating. Most employers match your contributions to the plan as much as 10% or more. If you do not participate that is free money you are missing out on.
So you are not working in a job that offers a 401K, that’s okay. You can open an Individual Retirement Account (IRA) or a Roth IRA. Places like Charles Schwab or T. Rowe Price are investment firms which offer individuals the opportunity to open these types of retirement accounts. You can start an investment account for as little as $50.00 a month and your money can grow at a much higher rate of percent than it ever would in a regular savings account.
Let me be clear that is NOT an emergency fund. This is your future. As a result, if you try withdraw that money before the stipulated age you will incur penalties and taxes. There is also nothing that stops you from having a 401k and an IRA. In fact, the more you can save the better and not having all your eggs in one basket is food for thought. This is where you really see the benefits and make your money work for you.
Save for Big Purchases
If at all possible, save for big purchases. We are all very quick to reach for the credit card when it comes to spending. What we don’t do is spend enough time to figure out if we can even afford it. Let’s assume you want to make a major appliance purchase. You can see the writing on the wall the dishwasher is showing signs that it will fail in the coming months.
Do the math. How much will the new one cost, and how much will that cost you per month? If you can, save that monthly payment in your savings account for a few months. One out of two things can happen. One, you will realize you are able to make the monthly payment comfortably. When you are ready, take the saved money and use it as a down payment. Two, just keep saving and buy the item in cash. There is nothing better than paying no interest.
Buy Insurance
I honestly always thought of insurance as a rip off. There I said it! When I became a parent I had to rethink that mindset. Insurance is there to cover the “what ifs” of life. If you are a parent consider what will happen to your spouse if that single or second income is no longer there. Will they be able to afford the house payments, will they be able to afford a funeral, will the kids be able to go to college. I recommend that you look closely at Term Life insurance which is less expensive than Whole Life insurance. Think about it especially if you can afford it.
Make sure you also have health insurance and disability insurance. Most employers usually have both if you get benefits with your job. Car and homeowners insurance is required by law in my state. If it is not required by law where you live you should look into it sooner than later. Accidents do happen, and having insurance can deter you from touching the dreaded credit card to rescue you.
Buy Your Own Home
When you own your own home you are no longer paying to live in someone else’s house or apartment. My husband and I like so many Americans, and so many of you around the world were paying rent to a landlord. That was (back then for us) $700 a month just out the window never to be seen again. We had nothing to show for it except noisy neighbors, and a rent increase whenever they felt like it. One of the best decisions we ever made was buying our own home. Home ownership is one of the best ways to make your money work for you.
After the mortgage payments are done we will own it. By paying rent we own nothing. Also, at tax time mortgage interest and property taxes are deductible so there is another pro for you there.
Final thoughts
Oh I have so many thoughts, but I will make this brief. It is all well and good to live in the moment, spending like there is no tomorrow, but there is a tomorrow. Unless you can tell me exactly when the world will stop spinning, or exactly when the next disaster will hit then we have to plan accordingly. I recognize that we all do not make the same, so some of these things will not work for everyone. However, do not think that any of these things are out of your reach. The worst thing you can do is not try to prepare or plan.