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Finding the best ways to save while investing

For those interested or worried about saving, this article will help clarify the options available for saving and investing for your future.

As Dave Ramsey recommends, looking ahead is essential to optimize your saving and investing. “What is going out each month no matter what?” or “What is your average discretionary spending after that?” are a few of the many points we will cover in this article.

Living Expenses

When asked about living expenses, you should immediately consider “budgeting.” In theory, budgeting is simple - you record how much is coming in minus how much is going out, and there is your budget. In other words, it’s your allotment of spending each pay period. However, tracking your expenses is how you make budgeting work for you.

Let's use an example to explain how knowing your living expenses allows you to be successful in your financial wellness.

  • Our example brings in an after-tax amount of $2,500 per month.

  • Living expenses are the following:

    • Rent or Mortgage – this is usually a set monthly amount and can range, for this scenario, a monthly payment of $750

    • Utilities – this includes items like gas, internet, electric, etc., totaling around $250

    • Subscriptions – such as Netflix, Amazon Prime, etc., at $50

    • Fuel – on average, about $150

    • Food – this can be broken down for Groceries/household and hygiene items as well as eating out and spending roughly $600

    • Car Payment - this is usually a set monthly amount and can range, for this scenario, a monthly payment of $400

    • Entertainment – this can be anything you do socially or enjoy doing, think going to a ball game, movies, etc., and giving an allowance of $100

  • Altogether, these average costs per pay period total $2,300. When deducted from the $2,500 income, this leaves $200 per month that could be used for the future.

Many times, people feel they are living paycheck to paycheck, and it could certainly feel this way when one does not keep track of what is going out each month. It can be very overwhelming and easy to feel you cannot save for yourself. However, budgeting can show you how and where to save by accurately tracking your expenses and staying within the limits you set for yourself in areas where overspending can frequently happen.

We have a team of Financial coaches available to help ease the stress of that feeling. They will guide you through what should be paid first and walk you through the budgeting process, helping you learn where to save the money you can to invest eventually.

Retirement Accounts

Once Baby Steps 2 & 3 are complete, it is time to focus on saving 15% of your income. There is no better feeling than knowing that the money leaving your bank account is stockpiling in an investment account, helping you to build wealth for your future.

When reviewing your employer-sponsored plans, knowing the plan inside out is essential. What are you going to contribute percentage-wise? What is your employer matching? Does your plan have ROTH options? How soon until you can start to contribute? These are some questions to have answered before you begin investing.

Contributing 15% may be too aggressive to cover your living expenses. If this is the case, other budgetary changes may need to be made elsewhere, such as downsizing a home or selling a vehicle. It is also beneficial to be out of debt (excluding mortgage) before one starts to contribute 15% toward their future. We say this because once out of debt, you can use your income as it is meant to be, a wealth-building tool.

Brokerage Accounts

For some, contributing 15% to retirement accounts may max out their employer-sponsored plans. For those in this situation, thinking about a brokerage account is beneficial.

Brokerage accounts are fantastic ways to continue to save for all purposes. Most commonly, they are used for short-term funds to grow in the market while still having the liquidity necessary to access them.

It can be an adjustment when you start saving this much. You may think, “I just got out of debt. Now I want to enjoy all of the extra money I have.” The beautiful part about brokerage accounts is that they can be used for precisely what you want them to be used for, such as an investment savings vehicle for a new car or a new home. The most popular way to use the brokerage account is to save everything extra monthly to build up a vacation fund. What better way to enjoy your extra money than to take a trip for all your hard work?

Brokerage accounts are outstanding for overflow funding, of course, but what makes them even better are their tax benefits, especially in retirement. All contributions can be deposited and withdrawn at any time, penalty-free. When taking income in retirement from a brokerage account and taking capital gains, depending on your tax bracket, you may only have to pay 10-15% in tax on just the growth. This is wildly beneficial if most of your retirement assets are wrapped up in pre-tax dollars, like your 401(k). This is because when you take income from your 401(k) or other pre-tax retirement accounts, that income is added to your taxable income for the year, which could be taxed from 20% and up, depending on your income.

The power of speaking with your advisor

As mentioned, everyone has different goals and timelines with their money, so it is essential to speak to a Financial Advisor about your specific needs and goals. Please contact one of the Financial Advisors at Whitaker-Myers Wealth Managers; we would be happy to help!


July 31, 2023

Drew Hodgson

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