Author Archives: Claire Harrison

Claire Harrison
Claire Harrison is a Campaign Manager at blooom. A high-fiver, thinker, and coffee drinker, Claire loves the Oxford comma and clean design. She’s werkin’ hard to help people learn about their retirement savings and how easy blooom is to use.

3 Ways the Next Generation is Saving More For Their 401k

Retirement always seems so far away until it isn’t. Putting off saving will make it much harder to have enough so you can comfortably live and pay your bills in your golden years.

One of the best ways to save for retirement is through tax-advantaged plans sponsored by your employer. Putting cash away now will help you set yourself up for financial success down the road.

Here are three ways that the next generation is saving more for retirement and using their 401(k) plans to build wealth.

1. Maxing Out Company Benefits

One of the best ways to save money for retirement is by taking advantage of your company’s benefits. Many employers offer a way to save for retirement, such as a 401(k) plan. Setting up an automatic deposit from your paycheck is one of the fastest ways to increase your balance.

When the money is taken out of your paycheck, you don’t see it in the first place so you don’t miss it. It’s a great way to trick yourself into saving and make it painless. Make sure you’re contributing enough to take full advantage of your company’s match – you don’t want to miss out on any free money.

This is one of the best ways the next generation is saving more for retirement. Tapping into your company’s retirement matching is a quick way to boost your savings rate by taking advantage of the free money.

Many companies offer to match your retirement dollar for dollar up to a certain amount. For example, they may offer to match the first five percent you put into your 401(k) every paycheck. This means you’re saving 10 percent from every paycheck for retirement, but only 5 percent is coming out of your actual compensation.

The free money continues to grow in your account with the rest of your contributions, earning interest and getting you that much closer to retirement. There is usually a vesting period until you fully own all matching contributions free and clear. For most companies, it’s in the 4-5 year range.

Check with Human Resources or your plan’s administrator on the vesting rules so you don’t miss out on getting the full amount.

 

2. Making Extra Money

Another way the next generation is saving more is by making more money. The rise in popularity of the gig economy offers new ways for people to make extra money outside of their regular paycheck.

The cash can be used to pay off debt, save for a big goal or possibly, pad a retirement account. Since contributions to traditional retirement accounts come with tax benefits, this is a great way to shelter some of the extra income and lower your tax burden.

There are many options for making extra from driving for Uber and Lyft to consulting or freelancing gigs. Every dollar counts and finding something that fits with your schedule and skills is key.

Other ways to make money include selling things on Facebook Marketplace or via eBay. Many people find good deals at yard sales or second-hand stores and resell them online. If you know what to look for, you can find some gems in the rough and flip them for a tidy profit.

If you’re good with animals, you can start a dog walking and sitting business. This works especially well in big cities with busy professionals who don’t have time to take their furry friends for a walk.

Another way to make money is by renting out a room in your home. Popular sites such as Airbnb make it easy to list your place for a few nights a month and make money. If you’re willing to take on a full-time tenant, you can consider a longer-term rental.

Other gigs you can try include grocery delivery, teaching English online and even tutoring. Companies such as VIP Kid will pay you to help others learn a new language.

The key is making sure the money gets put toward paying down debt and padding your 401(k).

3. Cutting Expenses

Last but not least, cutting back on expenses is a powerful way to save more for your 401(k). If you don’t have a budget, setting one up is the first step toward taking charge of your finances.

Already have a budget? Review your monthly spending and pinpoint areas where you think you can spend less. Some line items to consider slashing include dining out, grocery shopping, entertainment, utilities, gas, and more.

There are many ways you can slash your expenses without compromising your quality of life. One way to cut back on groceries is to make a meal plan for the week, shop with a list, and buy what’s on sale.

To cut back on dining out and entertainment, consider hosting a potluck or a game night. This way you still get to hang out with your friends and have fun for a fraction of the cost. You can also go out and pre-game by having some food and drinks before heading out.

If you’re looking to cut back on your commuting costs, consider carpooling or taking public transit. If you live close to your work, biking or walking may also be good options. In densely populated areas, heading out on foot or a bike can save you time sitting in traffic.

Consider cutting back on things you don’t use or finding a more affordable alternative. If you don’t watch cable, consider canceling it and going with Netflix or Amazon Prime Video. Both offer great entertainment options at a fraction of the price of cable.

Regardless of how you cut expenses, make sure you put the money you save to good use. As you make more money and cut back on expenses, increase your 401(k) contributions. Most plans will let you change your contribution amount as much as you want. The more you can contribute to your 401(k) the sooner you can get to your retirement – now that’s not a bad tradeoff.

 

The Bottom Line

Saving more money for your 401(k) takes some planning but you can definitely do it. Set a goal of when you would like to be maxing out your 401(k) and then craft a plan to get there with some of the tips we gave you today. Best of luck and happy saving!

 

 

About the Author

This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at his website NextGen Wealth and on the NextGen Wealth Facebook Page.

 

The information is provided for discussion purposes only and should not be considered as advice for your investments. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

 

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3 Ways to FIRE Without a Six-Figure Salary

A few years ago, I achieved FIRE (Financial Independence, Retire Early) at 33 years old. My goal wasn’t to stop working altogether. Rather, it was to have the freedom to do the things I wanted — like travel for six months out of the year — and pursue passions instead of worrying about how I could pay the bills. 

You may think I had a huge salary, but that wasn’t the case. Neither I nor my wife earned six figures at our day jobs — but we didn’t reach FIRE on our salaries alone. 

I did three simple things — earned more, spent less, and saved more. 

Want to know how you can FIRE, too? Here are the three steps I took in more detail.

1. Earn more

Thanks to a treasure trove of side hustles — you name it, I’ve probably tried it —  I was able to earn a lot more money and put it into savings, real estate, and investments, helping me reach FIRE. Believe me, I’ve been involved in lots of side hustles. Some of them included being a mystery shopper, participating in focus groups, and reselling items. 

Buying and reselling items helped me earn a ton of money — I bought things from garage or estate sales as well as new items if I found them at a deep discount (often using coupons). Items I’ve sold include electronics, gift cards, wooden furniture, and even daily essentials like toilet paper and shampoo.

At times, I also took second and third jobs. I did everything from working odd jobs as a handyman, dealing cards for a local event company, and even social media consulting. 

Earning more doesn’t have to be hard, either — my easiest gigs were focus groups where I made up to $125 an hour. Plus, I typically was given free stuff. 

To find different types of side hustles, join communities online or do a quick online search to see what’s available in your area. You’d be surprised at how much money there is to be made with side gigs.

2. Spend less

I have a confession to make: I was really bad with money in my early twenties. Like, the perfect example of what not to do. I bought anything and everything I wanted with no regard for my budget. I ended up broke and $25,000 in debt when I was 22 years old. 

Thanks to my now-wife, who gave me an ultimatum — figure out my financial situation or she’d break up with me — I became debt-free. How? I sold my cars (yes, I owned multiple vehicles) and stopped buying stuff I didn’t need, which included an expensive cell phone plan, cable, clothes, meals out at restaurants, and even haircuts. 

Getting out of debt can help you funnel your money into savings and investments, which is what I did. Being responsible with money is necessary if you want to FIRE. Take a careful look at your expenses and see where you can cut back. Be honest — are the things you’re spending on really necessary?

Taking advantage of credit cards is another way to save money. When I was buying and reselling items, I used rewards credit cards to rack up points. The points and miles I earned were used for travel — most recently, I cashed them in to buy a rental property

We built up our rewards points from different credit cards by earning sign-up bonuses, using cards for everyday spending, and getting referral bonuses. I also stacked my rewards-earning potential by using shopping portals and cashback apps to earn even more points and miles. We then redeemed our points for checks (aka cold, hard cash), which we used toward the down payment of a rental property.

There is so much opportunity to earn rewards points and miles using credit cards. It depends on the card, but you can score free travel, merchandise, gift cards, or cash back, like we did. 

I will say, be responsible with how you use credit cards. Only spend what you have and never carry a balance — or else you’ll negate all the rewards you earn. 

3. Save more

Saving is an important component to FIRE, but it’s not enough to stash money away in any ol’ account. For long-term savings, I chose a brokerage account that offers low fees, a solid track record, and many options. 

If you have a 401(k) through your workplace and your employer offers to match a certain percentage of your contributions, don’t leave free money on the table. Contribute as much as you can to your 401(k) account, at least up to the point of your employer’s match. Start with a small percentage of your paycheck if you have to and work toward increasing that amount. 

For short-term savings, consider using high-yield savings accounts. Many online banks offer high rates that can help you earn a decent return and still provide the liquidity you need, like for an emergency fund or when you’re saving for a large purchase. Many of these accounts don’t charge monthly fees like big banks, so you can save even more. 

Wherever you choose to park your money, automating your savings ensures that you’re setting aside money each month toward your goals. You can easily do this by setting up a recurring transfer to your savings account that automatically happens on your paydays. You can increase the amount you save over time, which can help you reach FIRE faster.  

Final thoughts

I don’t blame you if you think reaching FIRE means you need to have a high salary to succeed. But you now know that’s not the case. With some careful planning, hard work, and shifts in your budget, you can get closer to having the freedom you crave without worrying about how you’ll pay the bills. 

 

Author Bio: Brandon Neth is a credit card and reward travel expert. He runs social media and audience growth for FinanceBuzz, including the FBZ Elite Facebook travel group. He’s spent the last 11 years using credit card points and miles to travel the world, taking him to 600 cities in 76 countries and counting. Through side hustling and starting small businesses, maintaining a frugal lifestyle, and careful budgeting, Brandon achieved leanFIRE at age 33 and is on his way toward fatFIRE. Brandon also owns real estate investment properties, most recently purchased with the help of credit card points.

The information is provided for discussion purposes only and should not be considered as advice for your investments. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed. Investors should consider their ability to continue investing through periods of fluctuating market conditions. Please consult an investment advisor before you invest.

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Top 3 Ways to Put Your Tax Refund to Good Use 

Here are smart & safe investment ideas to use with your tax refund

After receiving tax refunds, people fall in either two categories: spenders or winners. Spenders are those who think of nothing but taking a vacation in the Caribbean, or buy a new tub for the home, or maybe use the money as a down payment for a new car. 

There’s nothing wrong with being a spender, but you might be missing the point. Your tax refund was yours all along. It’s NOT a free cash windfall from the government and should be treated with the same mindset as your normal income.

On the other hand, we have what I like to call the winners. These are people who use their tax refund wisely. In some cases, winners end up with more money than they started. It can either be a job promotion after pursuing advanced courses or professional certifications or investing in new equipment and software for your business. 

When it comes to your tax refunds, be a winner

Here are the top 3 ways on how to put your tax refund to good use and become a winner.

1. Invest in a retirement account

Investing in a retirement account or IRA is one of the wisest and easiest ways to use your tax refunds. It doesn’t matter if you’re already contributing to an employer-sponsored 401(k) since you can easily open a traditional or Roth IRA in addition. 

Of course if you are contributing to a 401(k), make sure you’re using an optimization service such as blooom to get the most out of your contributions. They also offer a free no-obligations analysis of your existing 401(k) account.

Roth IRAs give you the ability to take tax-free distributions after retirement. Meanwhile, Traditional IRAs allow you to contribute pre-tax dollars so you can deduct them later on.

However, this move is not ideal if you don’t have an emergency fund or have high-interest debt. If you belong in this category, it’s better to use your tax refund to pay off existing debt or create an emergency fund in a high-interest savings account. 

2. Invest with a Robo Advisor

Nowadays, you can start investing money online with minimal effort, and you don’t need a lot of money to do so. Most robo advisors have very low minimum deposits and low annual fees, which makes them easily accessible to normal folks like you and me. And since their fees are a fraction of that of a human financial advisor with access to similar features, it makes them even more accessible and attractive.

Robo advisors are like humans; each one has a different set of features or personalities. Some of them focus on optimizing your existing investment or retirement accounts, some of them focus on specific investment strategies or verticals (such as hedging, socially-responsible investing or real estate for example), while many are a great place to put an additional investment (such as a tax refund!) This is how a traditional robo advisor works.

While many robo advisors do have a minimum deposit, they’re usually very low, which make them a wise place to put your average tax refund each year. The low fees and automated features make them the perfect place to “set it and forget it”. 

Read more about how to invest your tax refund into a robo advisor here.

3. Invest in Self-Improvement

This comes in many forms. If you’re a freelancer, buying a new laptop or computer is a good investment strategy. If you’re a professional, using tax refunds for continuing education is a surefire way to get better job security. 

Want to switch careers into something more lucrative and future-proof? There are hundreds of free or cheap online courses for learning computer programming or thousands of other subjects. 

How about opening a small business? Maybe your tax refund is the key for that kick-start of capital or MBA.

Anything that has the potential to improve your quality of life is better than blowing all your money on a cool new LED TV.

Conclusion

It’s easier to spend the money outright than think of ways on how to put your tax refund to good use, I’ll give you that. But the biggest difference between a spender and winner is the latter always ends up with more of everything – be it money, job security, or sanity.

In some ways, you can be both a spender and winner. You can splurge every once in a while, but don’t forget to think of you and your family’s future while you’re at it. 

 

About the Author

Will Bronstein is a software engineer, investor, and entrepreneur from Boston currently living in New York. After getting interested in the technology behind robo advisors and automated investment tools, Will and his friend Jim started BestRoboAdvisors.org to help potential investors navigate the new world of automated investing.

 

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TSP Plan Changes are Just Around the Corner

Since 1986, the Thrift Savings Plan (TSP) has been a staple for civilian and armed forces members employed by the United States Federal Government to save for retirement. This plan was designed from the start to be the envy of retirement savers everywhere. 

Here are some key features of the TSP plan:

  • There are five extremely low cost index funds that provide broad market exposure, in addition to the “L Funds” that tailor the investment directive towards a particular retirement date. 
  • There are no additional administrative expenses for participants, regardless of whether a current or former employee. 
  • The plan allows for both pre-tax and Roth contributions.

Despite these great plan features, many service members were choosing to move their retirement funds elsewhere once presented with the option—either when their service ended or upon starting a new, non-federal position. The reason? TSP was lagging behind with options surrounding how withdrawals can occur and a lot of retirees could have more control at other institutions. Luckily for plan participants, the TSP Modernization Act will soon make this an extremely attractive retirement plan for active workers, past employees, and retirees alike.

There are new TSP options on the horizon!

On September 15th, 2019, new withdrawal options are slated to be released to plan participants in an attempt to curb rollovers and address many of the initial shortfalls of the plan. Below are some of the items worth highlighting:

In-Service Withdrawals

  • If you’re 59½ and still an active employee under the plan, you can now take up to four in-service withdrawals annually. Prior to these upcoming changes, active plan participants could only make one partial withdrawal annually. This gives plan participants more flexibility to plan their withdrawals rather than making a single “guestimate” annually.

Picking Withdrawal Sources:

  • Savers can now choose the source type of withdrawals being made—Roth, pre-tax, or a combination of both. As it stands now, withdrawals are made proportionally from all sources. While this may seem like a small item, it isn’t—this change allows participants to have more control over their taxable income.

Hardship Suspension

  • Individuals who take hardship withdrawals won’t be temporarily penalized from making future salary deferrals. This is significant because it removes the six month period where active employees would be ineligible to contribute to their plan, preventing them from getting their employer match. This isn’t intended to make the option more appealing as much as it is to make it less punitive. Having taxes and penalties assessed are bad enough.

Forced Plan Exit

  • Individuals no longer employed with the U.S. Federal Government are no longer forced to make a full-withdrawal election after turning 70½. IRS mandated required minimum distributions (RMD’s) still apply, but participants can now elect monthly, quarterly, or annual payments and have the ability to change them through the online portal at any point, rather than strictly in the open season.  

In summary

The TSP Modernization Act on whole is larger than what is outlined above, but we’re happy to say that the changes seem positive and should benefit current and future TSP participants. We’ve included a link to the latest TSP update notice from May 2019. This notice is available on the TSP website and within your plan portal. Additional information will be coming out in coming weeks. Please take the time to familiarize yourself with these changes and reach out to the TSP helpline (1-877-968-3778) if you have questions or concerns. 

As always, we’re here as a resource for you for any questions.

-blooom 

 

The information is provided for discussion purposes only and should not be considered as advice for your investments. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

 

Sources:

 

 

 

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Recessions happen. Stocks fall. And other reasons NOT to worry.

Last week marked what seems like the 800th time in the last decade that an imminent recession has been identified by (choose your favorite economist or market forecaster). Only this time, we apparently have to accept it as a certainty, thanks to something called an inverted yield curve.

As you may have heard by now, this phenomena has preceded every US recession dating back to 1955 (there have been 9). This fact is understandably causing quite a bit of anxiety for investors. 

The inverted yield curve really deserves a write-up of its own, so we’ll set that aside and focus on what you really care about – the potential for an upcoming recession and what you can do. 

 

Recession you say?!

Hearing the word recession likely drums up some rough memories, most recently related to the Great Recession of 2007-2009. But let’s remember that the last recession was one of the worst the country has ever experienced. The worst since the Great Depression. It was the exception, not the rule. And there were some very unique problems at the root of it all, like a historical concoction of a massive housing bubble, super sketchy lending practices, and corporate greed and corruption that reached an all-time high, even for Wall Street standards. We are far from any of that today, thanks to many of the steps taken during, and in the aftermath of the crisis. 

The generally accepted definition of a recession is two or more consecutive quarters of negative economic growth. Recessions are an expected and unavoidable stage of every economic cycle. It’s the length of each cycle that is impossible to predict. Economies grow and eventually need to take a breather. Going back all the way to 1854, the average economic expansion has lasted about 39 months, while the average recession has lasted about 17 months. As I write this, we are currently 122 months into what is now the longest economic expansion in US history. This only adds to the argument that we are overdue for a slowdown at any moment. Or does it?

Recessions don’t just happen because they are “overdue”. The economy has no mind of its own. It doesn’t know it’s been partying too hard for too long and that at some point it’s going to have to suffer through the hangover. That said, it’s understandable to expect the likelihood of a recession to rise the longer this current expansion goes on. And the worry now is that the more Americans and their employers begin to worry about the increased possibility of an upcoming recession, the more likely it becomes a self-fulfilling prophecy.

 

So, as an investor, what do I do? 

Let’s assume for a moment that a recession really is imminent, or already underway. We often don’t actually know we’re in a recession until months or even a year or more into the recession, since economic data is gathered after the fact, and often revised later. Because of this, the stock market doesn’t necessarily react in the way you would expect. 

The stock market has been known to decline significantly as data begins to point to a slowdown and then often begins recovering well before the actual economy starts to grow again. But per usual, there is nothing predictable about it. 

In fact, during 4 of the last 9 recessions we’ve experienced, stocks actually averaged positive returns of over 14%. And if we look at every single one-year period following the official end of all 9 previous recessions, the average annual return was just over 15%, which happens to be well above the annual average return for US stocks across all years dating back to 1929, recession or not. Just remember this – the performance of the stock market and the economy are not one-in-the-same. 

As they say, hindsight is 20/20. So of course, it’s easy to look back at these numbers or any chart of US stocks over the last 70+ years and see that recessions actually have historically offered investors some of the best opportunities to either stay the course or invest MORE money in the market, not panic and run to the sidelines. But in real time, recessions can feel very different. And that’s important to realize. There are typically days, weeks, months, and longer, where you may look at your portfolio and see red. Sometimes a lot of red. 

The trick to staying sane and keeping your cool as an investor during a recession, is to always make sure that both your mind and your portfolio are prepared to follow a disciplined strategy that allows you to take advantage when prices drop (or as I prefer to look at it, when the stock market goes on sale), rather than panic. The best way for long-term investors to view any market decline should be as an opportunity to stock up and take advantage of a sale, since your money is able to buy more shares than it could last week, last month, or last year. Sales are a GOOD thing. Yes, even (and especially) for stocks.

 

Make sure your portfolio is designed to survive and thrive.

If you’re investing for retirement on a regular basis, like through your employer’s 401k or even an IRA or Roth IRA, those regularly scheduled investments allow you to automatically take advantage of these market “sales”. And if you can count your time until retirement in decades instead of years, your portfolio should be heavily invested in stocks. Sure, the ride through the dips can feel more painful for younger, more aggressive investors, but that bumpy ride is exactly why stock investors tend to earn so much more over time. Market dips are not losses unless you sell. In the entire history of the stock market, 100% of market declines have been temporary. Patience is key.  

If you’re someone nearing retirement, I know what you’re thinking. Waiting it out is all fine and dandy, but I can’t afford to see my balance drop right as I’m about to retire. This is exactly why YOUR portfolio should ideally include enough bond and cash exposure to help preserve that income portion of your account when times get rough for stocks. This is especially important for those already drawing on their investments for income. Viewing your portfolio as two separate buckets, one for growth (stocks) and one for income and preservation (bonds/cash), can help you stay comfortable riding out any storm the market may or may not have on the horizon.

Wondering if your 401k is properly invested? Blooom is here to help.

 

The bottom line

To be clear, we’re not predicting an imminent recession. We’re not in that business. But as advisors, it’s our job to remind you that it’s not a matter of IF a recession or a stock market decline will happen again, but WHEN. Every recession is different, but every recession thus far has ended. Just as every market crash, of any amount, has ended in a recovery. Don’t run from a good sale when it comes your way. If you stay focused on the long-term, your future self will thank you.

 

  Source:

1https://www.investopedia.com/ask/answers/071315/what-average-length-boom-and-bust-cycle-us-economy.asp

2 https://awealthofcommonsense.com/2015/03/stock-performance-before-during-after-recessions/

 

The information is provided for discussion purposes only and should not be considered as advice for your investments. Investing involves risk. Your investments will go up and down in value based on what happens in the markets. We do not make any guarantees your investments will grow.

 

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