Americans in general do not engage in the practice of saving money as much as they should. The personal savings rate during this time is starting grow due to the uncertainty that the recession is causing, but in general it is much too low. In China, for instance, the personal savings rate averages 50% of income. Compare this to the 3% currently in America or the negative number that happening just a few years ago.
The current economic situation has got me examining where I am spending my own money every month. By making a few minor changes, I was able to cut $800 out of my own budget and am now putting that into various investments. I encourage you all to take a look at your own spending habits and try to cut out as much waste as possible.
If you don’t already have a Roth IRA. I encourage you all to open one immediately. This is especially important to us young entrepreneurs who don’t have retirement accounts that an employer would traditionally offer. The beauty about a Roth IRA is that you can contribute up to $5000 per year and this money will grow interest and tax free. There are limitations as to when you can withdraw the money without penalty, but if you look at using this as a retirement fund, at age 59 1/2 you can withdraw your money and you will owe no tax on your earnings. That means, depending on your age, you will have 20, 30, 40 + years of tax free capital gains on your investments. This is like getting a huge amount of free money.
Out of the $800/month that I have cut out of my budget, I am putting $435 into my Roth IRA (Maxing out the $500) and putting $300/month into what I call a personal investment fund. It is important to continue to grow in our abilities and skills. Thus, I use this $300 for investing in leadership courses, language classes, and other things that will raise the value of my skills in the market place. If you don’t already save money every month for some sort of reinvestment in yourself, I think this is a very important thing to start doing. It is important to use discretion to make sure that this money actually does what it is intended for. Don’t try to trick yourself into thinking that setting aside beer money constitutes self investment because it does not! Make sure that whatever the money is spent on actually increases the value of your skills and abilities.
By following these tips you will be both preparing for retirement and enriching your mind. Here’s to your success!
Tags: continuous education, personal investment, Retirement accounts, Roth IRA, self investment fund, Young Entrepreneurs
