You are the CEO of your money – at the end of the day, managing your money is your job, and you’ve got important decisions to make. Your ability to manage finances is critical to determining what your future will look like. One big part of this is figuring out where you should save and how you should spend in retirement.
Where Should I Save?
Unless you inherit or marry money (or win the lottery), there are only two ways to afford retirement: Get a job that offers a good pension, or save and invest.
Assuming the latter applies to most of us, the next question is: where should you be saving? Generally, the primary choices of accounts and investment vehicles available include tax-advantaged retirement accounts, taxable brokerage accounts, bank accounts, physical property, or paying down debt. With so many potential variables, it’s impossible to offer hard rules that will apply to everyone. However, we generally recommend the following:
7 Tips to Save Money
Pay off any high-interest debt first.
If your employer offers any kind of matching contribution to your 401k, then you should save at least up the amount matched.
If no employer match is available, you should try to maximize savings in tax-advantaged retirement accounts before saving in taxable accounts. These include accounts like traditional and Roth 401ks and IRAs
If you have kids, it usually makes sense to open one or more 529 accounts which cover education-related costs. But only do this if your other tax-advantaged retirement account contributions are maxed out. Remember, you can borrow for school, but you can’t for retirement!
A primary home can be a wonderful investment – the leverage of a mortgage and the tax benefits of the interest deduction usually make buying a home a good idea, as long as you can afford it and plan to live in it for at least six years.
Speaking of buying a home, we don’t usually recommend paying off your mortgage if you have a rate under 4.5% (unless you have a stock portfolio larger than the value of your home). If you don’t have the stomach for stocks, however, then maintaining a mortgage and simultaneously holding a significant amount of lower yielding cash or bonds is simply throwing money away. In this case, go ahead and pay off the mortgage.
While second homes and rental properties can be good investments, they’re not for everyone; keep in mind that a second property that isn’t rented out should be considered consumption, not an investment.
