Easy money moves for Millenials
It’s a hard life as a Millennial. Boomers think we’re entitled, and Gen Z thinks we’re lame. As a Millennial, I am happy to report that our future is not so bleak. Read on for some actions you can take to get ahead! (note that these might not be suitable for your specific situation)
1.) Use a credit card. If you are responsible enough to pay your credit card off every month then you have unlocked the path to “free money”. Most credit cards offer you a percentage of the money you spend as cash back. This could be 3% for example. Let’s say you spend $1000 per month in discretionary purchases. As you spend your credit card company will give you $30 back each month. It’s not massive, but there are a lot of fun things you can do with $30 (I like to think about money in terms of burritos. That's three burritos). Lastly, you will build your credit score if you keep your credit usage under 30%, which will save you money on loans in the future. (credit usage= credit balance/credit limit)
2.) Use 529 plans. If you have children and they plan to go to college: invest in a 529 plan. A 529 plan is a state administered college savings program. These accounts have amazing tax benefits. The money in the account grows tax-deferred and withdrawals are tax-free if used for education purposes. Most states also offer an additional incentive. For example, my home state of Indiana offers to Indiana taxpayers a state income tax credit of 20% of the contribution up to $1000 per year. open a 529
3.) Consider using Series I Savings bonds for mid term goals. These bonds currently have a rate of 7.12%, which includes a base rate and an inflation rate that is calculated twice per year based on a consumer price index. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest. learn more about I bonds
4.) invest in a Roth IRA and Roth 401(k) if it’s available! Assuming you have earned income below the income limits, you can put $6k a year into a Roth IRA. It grows tax-free and you can take distributions after 59.5 years of age tax-free. Who knows what the tax rate will be when we’re older? It is smart to diversify just in case taxes rates are higher. Also, the Roth gives you the flexibility to withdraw your contributions without any penalty. So, if you have put $100k cash into a Roth for example, you can take those contributions out and do whatever you want with it!
Although you don’t get the same deduction from Roth 401(k) contributions as traditional 401(k) contributions… maybe you really value the versatility of tax-free income in retirement (I sure do). If your employer sponsored retirement plan allows a Roth 401(k) you could stuff up to $20,500 more per year into that account. This will really prepare you for retirement.
5.) One thing that is unfortunate about many retirement income streams is that they are not very accessible until after 59.5 years of age. Social security isn’t available until 62, IRA earnings aren’t available penalty free until 59.5… if you want to retire early how do you bridge the gap? One of the best ways is simply having investments in a taxable brokerage account. You will be taxed every year on income and capital gains, but you can access the funds penalty free whenever you need them. This is great for mid-term goals and bridging that gap between retirement and 59.5.