make investments go farther

Three Ways to Invest that Go Farther

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It may not seem like much but these ways to invest will go farther than you imagine

The average American family has less than $400 a month left after paying the bills. With the economy barely moving over the last few years, it’s more important than ever to make the most of your money. When every dollar counts, how you invest is just as important as in which investments you put your money.

The Department of Labor reports income and spending for Americans through its consumer expenditures survey. In its most recent survey, it reported that households make an average of $58,364 after taxes and spend $53,495 each year. That leaves about $400 a month to save and invest for the future.

make investments go fartherWorse yet, the data hides an even worse situation for younger savers. Younger savers under 25 years old spend an average of $3,661 more than they make each year.

Invest every penny of your extra money and you’ll still have less than $180,000 at the end of 20 years. That’s just $600 a month to live on in retirement if you withdraw 4% each month. Try supercharging your portfolio with risky stocks and you could end up with even less after the next stock market crash.

These three ways will make sure every dollar goes as far as it can, avoiding high fees and opening the door to make more money.

3 Ways to Invest to Make Investments Go Farther

Max out your retirement investments! Making your investments go farther is all about getting free money when its available. Wall Street money managers spend careers trying to beat the market by just a few percent and most aren’t successful. What if I told you there was a way to make thousands instantly on your investments?

Money you invest in a 401k or IRA comes off your income before taxes and grows tax-free until retirement. That maximum $5,500 contribution in your IRA account is worth an extra $1,375 if you’re in the 25% tax bracket. That’s the amount you’ll lose to taxes if you don’t take advantage of the income deduction for retirement saving.

make investment go farther taxes

Not only do you get free money for investing in your retirement but you might be eligible for a tax credit if you make less than $61,000 a year. The Retirement Savers’ Credit is a special tax credit for retirement plan contributions. Tax credits are super savings compared to deductions because you reduce the amount you owe on taxes one-for-one.

year end tax planning checklist retirement contribution credit

Save on Investing Costs. Another way to make your investments go farther is by cutting costs as much as possible. The average mutual fund charges 1.35% a year just to invest. Seems insignificant but that tiny annual fee will cost you $24,096 over 20 years in our save every penny scenario. Exchange traded funds (ETFs) are cheaper with an average expense ratio of 0.44% a year but will still cost you $8,315 in total costs over the two decades.

That’s not including expenses around buying and selling stocks, something that can cost you hundreds a year even on the cheapest investing sites. It’s why I’ve started investing on Motif Investing for a low-cost way to buy funds without annual management fees.

Motif is a new kind of investing site that cuts down on investing costs by letting you create your own funds. You can group up to 30 stocks in a single fund and then buy them all for one commission. You own the shares directly so there’s no annual management fee and you don’t have to buy individual stocks to get the diversification you need for security. I highlight the four funds I’ve created on Motif on the My Stocks and Bonds page.

Education still has one of the highest returns. So you might not think of it as a traditional investment but investing in your education is still one of the best ways to make your money go farther. Payscale looked at costs and income for graduates from 900 universities across America and found the extra money you can expect to make from a degree amounted to an annualized 11.6% return. That’s well above the 7% return stocks have offered over the last three decades.

Not only will an investment in your education go farther but you’ll have more choices for how you make a living. Beyond the traditional avenues for education, check out the video courses on Udemy to brush up on your skills.

Focus less time on what to invest in and more time on how you are investing to really make your investments go farther. Just taking advantage of these three ways to invest can mean tens of thousands over a decade or more. Combine smart ways to invest with simple stock market basics and you’ll be well on your way to reaching your financial goals.

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