Save big on summer travel this season by giving the social marketplace a try! Hotel reservation re-selling is going strong on websites like Roomertravel.com and Cancelon.com, where unused hotel reservations can be bought and sold for a fraction of their original price!
First, let me say that if you are 1. Paying attention to the tax law changes, and 2. A reasonable person, then you must also be 3. Seriously annoyed.
With that in mind, the IRS released another advisory yesterday, December 27th, in which they informed taxpayers of the conditions that must be present in order to deduct the pre-payment of 2018's property taxes from your 2017 return.
The advisory states that: "whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018."
Basically, this means that you can only deduct the taxes that you paid in 2017 on assessed real estate tax bills. So if your property is re-assessed every summer, you can only deduct about a half -year's worth of property taxes.
You can read the entire announcement here.
With Thanksgiving a few days behind us, its a great time to summon one of my favorite New England recipes - Old Fashioned Turkey Croquettes!
Golden and crunchy on the outside, soft and savory on the inside...mmm, mmm, mmm. This is comfort on a fork, folks. Its also a great way to use up your leftover- leftovers! So for a delicious old-fashioned diner on the cheap, give these Croquettes a try!
As with most recipes from days of old, the flavors are simple, and the ingredients can vary with what you have on-hand. So feel free to get creative and use substitutions where you need to.
Makes 12 patties. Total Time 45 minutes.
2 cups cooked turkey (or chicken) diced
1 cup mashed potatoes (or whatever you have, more or less is fine, or you can skip this ingredient if you don’t have it)
3-4 cups of leftover stuffing or 1 box of a stuffing mix similar to a "Stove -Top" type of mix.
1 ½ cups of breadcrumbs
¼ cup water
Oil for frying
Another Energy Rate Hike Is Coming Your Way.
In case you missed it, you’re about to pay a whole lot more for your electricity.
Effective November 1st thru May 1st, and in keeping with providers in states across the US, National Grid is planning to hike its electricity supply rates from 9.7 cents/ Kwh to 12.6 cents. For the average household, that’s comes in at somewhere around 27 bucks a month more than you paid last winter.
You have a choice in electricity suppliers, so if you want to do a little leg work you might be able to shave a few cents off that rate. But don’t get too excited, the competition is slim at just under 11 cents, with some pretty slippery small print in the rate agreements.
To up your energy supply savvy, and find out what you should be looking for when energy supply shopping, check out this column in the Lowell Sun.
You can find a current list of approved providers on National Grid’s website.
With a combined time of just under 70.5 minutes, here are the results of “The Yankee Saver’s First (and hopefully last) Most Efficient Online Credit Freeze” competition.
First down the stretch was the hands down winner, “INNOVIS”. Frequently overlooked, credit bureau #4 Innovis beat out the competition with a total time of less than 30 seconds. Congratulations Innovis on your easy peasy credit freezy!
Experian held second with a time of 5 minutes. FYI the identity quiz is a bit of a stumper.
Equifax, driving with major delays, took third place with a time of over 7 minutes. For a while it was unclear if Equifax was freezing my credit report or my computer.
Also running was TransUnion. Hmm, how to put this? Oh I know.
TransUnion completed the competition on its second try. Coming in with a final time of a whopping 58 minutes! After a 24 minute first round with too many hurdles - like the required account opening, credit quiz, and extra marketing add-ons, TranUnion couldn’t get the job done. In the home stretch of round one TransUnion spit out a tiny message to call the 800 number. After a 25 minute hold, that number‘s network connection got distorted and dropped my call. On the second try they charged me $19.95 for their monitoring service when I ordered a credit freeze! Its time for TransUnion to get off the track! Shame, shame, shame, on you TransUnion!
Scared? Here's what you need to do, now.
Its seems pretty clear, in the wake of the Equifax data breach, that 143,000,000 of us are in for something unpleasant.
It also seems that there's no one action we can take that will guarantee us protection from whatever it is that lurks outside our door.
But here's the good news. By layering lots different security measures on top of each other, we can make it a whole lot harder for thieves to harm us. Yes its a pain, its time consuming, its more to do when our lives are already teeming with to do's. Equifax rots. There, we all agree. Now let's get to cleaning up and moving on.
Here are seven steps you should take today to protect yourself from identity theft.
1.Check your credit report.
Each year you are entitled to a free credit report from each credit bureau, and there are four credit bureaus - Equifax, Experian, TransUnion, and Innovis. So check your credit report from one of them now, and then again from a different bureau every three months. This gives you a year of reports for free, each year.
Get your free report here.
2.Place a freeze on your file at all four bureaus.
Contact each of the above named credit bureaus and place a freeze on your account to stop thieves from opening new lines of credit in your name. But be prepared, this process requires you to create a pin and you’ll need that pin when you want to temporarily lift the freezes whenever your credit needs to be checked. Do this the old fashioned way and keep a notebook with your pins, stored in a safe place. Also, expect to pay around $5 or so every time you place or lift a freeze, for every bureau. Again, Equifax rots.
3.Place a freeze on your file at ChexSystems.
ChexSystems is a nationwide specialty consumer reporting agency. They supply information about consumers checking and savings accounts. To stop thieves from opening checking and savings accounts in your name, place a freeze on your file at ChexSystems.
Go to CheckSystems here.
4.Change your Usernames and Passwords.
If you've been using the same username and password for a while, here’s why this is important. Frequently, identity thieves don’t come to the front door. They sneak in the back door, by hacking into a company’s database server. They go straight to the “User” table of that database, where all the usernames and passwords are stored, and grab those names. Then they either use them or sell them on the dark web for someone to use later. Companies are supposed to “encrypt” those names, so that when someone hacks in they can’t read the tables. But encryption is relatively new, and comapnies don't always use it. So if you’ve been using your fabulous-super-stong-totally-unhackable user name and password for a few years, its possible that thieves may have swiped it before a database became encrypted. It could be just a matter of time before they come a knockin’, with your username and password in-hand. I’m sure they’ll comment to their friends about what a great password it is as they’re using it to login to your account.
Make your new passwords stronger by increasing the character length, and avoiding 'dictionary words.' Be sure to add variations of capitalization, punctuation, numbers and letters. Never use your personal identifying information on accounts, like your name, birth dates or phone numbers. Also, don’t re-use passwords. Keep one unique password for each account.
5.Consider Adding Two Factor Authentication to frequently used websites.
When you try to login to your bank account online, does your bank call you with a security code to enter before it let's you in? That’s called Two Factor Authentication, and products like Symantec’s “VIP Access” allow you to add that layer of security protection to all of your logins.
To check out VIP Access click here.
6.Opt-out of pre-screened credit and insurance offers delivered by the post office.
It might sound extreme, but identity thieves will look in your mailbox and dig through your trash to find opportunities to steal your identity. Keep your junk mail to a minimum by opting out of pre-approved credit offers, and insurance offers, so your trash does not become their treasure!
Click here to opt-out for 5 years or permanently.
7.Consider using a credit monitoring service.
Honestly, I’m not convinced that these services do what they say they will. Equifax gets a no confidence vote right off the bat, and third-party monitoring companies like LifeLock boast compelling coverage in infomercials, but the pages of exclusions to this coverage on their website's Legal notice leave me less than comforted.
However, the fact remains that at the end of the day, identity theft is a nightmare. Its a mess to clean up, and a stressful, time consuming problem. Adding a layer of protection that alerts you to a potential theft can help you avoid this unpleasant experience, and getting help to deal with the problem, if it happens to you, might just be worth the $120 price of admission.
It’s an unnatural relationship to begin with, the one between we the people, and Equifax. Last year Equifax generated over 3 billion dollars by sticking its nose into my personal financial business, and your business, and the business of everyone we know, and the business of everyone they know, and then selling that information to anyone we needed in our financial world, every time we needed them. That includes banks, mortgage lenders, education loan lenders, potential employers, and insurance companies, for starters.
If they said good things it cost us less to borrow money, our premiums were lower, we got cleared for employment. But if they said bad things, or had nothing to say, it cost us more. Lots more.
So that’s not exactly a balanced relationship. But it gets worse. When I wanted to know what they were saying about me twice in one year, I actually had to pay them or they wouldn’t tell me. Just like you did, and everyone you know did, and everyone you know knows did. Then, Equifax said that if I wanted to make sure that an imposter could not illegally open a line of credit in my name, I had to pay them again to not give out my information. ( aka to “freeze” my credit) They told that to you too, and to everyone you know, and to everyone who you know knows. That’s a lot of people paying to keep Equifax from handing out information that’s none of their business in the first place.
This relationship reminds me of that giant mean kid in middle school, you know that bully that stands inside the door of the bathroom and makes you give them a dollar to use the facilities. Not wanting to get pummeled or to pee our pants, we play along.
It’s a pretty slimy way to make a living. But boy does it pay! Look what Equifax took in, over the last two years alone, by hiding behind the bathroom door and selling access to our financial behavior:
But the fact remains that most of us need loans, and since those loans support our buying behavior, which in one way or another supports all of the businesses and industries in this country, the strength of our economy depends on us having those loans. So we play along in hopes of seeing these three little words grace our credit report:
“Paid as agreed.”
Not too flowery, is it? Not really something to embroider and frame on your wall. But there it is, this is the main job of credit bureaus like Equifax, to identify those of us who have “Paid as Agreed.” The more you pay as agreed, the higher your FICO score and the lower your interest rate.
And let’s take a minute to review what FICO actually means. FICO is an acronym for Fair, Isaac and Company. Back in 1956 Bill Fair and Earl Isaac started this data analytics company that slapped a number – a risk measurement ranging from 300 to 850– on each consumer. Lenders in the United States now rely on this number like we rely on oxygen.
So, to recap, we don’t want any of these companies in our business, but we have no say in the matter if we need to borrow money, and we all need to borrow money.
But, again, it gets worse. So let’s just make sure we all have the story straight here. Then, Equifax, who clearly has zero incentive to respect our privacy since they make such a nice living by disrespecting it, used open source software to program that digital container that holds our personal identifying information. Open source software is free code available online. Software developers can cut and paste this code to build all or parts of their programs. Since its free, companies save lots of money by using it instead of purchasing software from another company or paying their own people to develop what they need from scratch in-house.
In today’s world, our personal identifying information (PII) are the keys to our financial assets. Reasonable people would assume that these keys would be stored safely in the digital equivalent of a steel vault guarded by fierce militia. But as it turns out, Equifax actually built that container using Struts 2, a free open source program with a protective shield as strong as overcooked vermacilli.
Any programmer can tell you that open source software, while useful, is also full of vulnerabilities, and that Struts 2 in particular needs lots of patches in order to be secure. These patches obviously didn’t happen at Equifax. Their software was so vulnerable, so unsafe, that someone who wanted to steal it could just go right in and take it.
And that’s just what someone did.
So now, 143,000,000 of us have had the keys to our financial world stolen, and there is no way to cancel those keys and make new ones. We can’t change the locks, since our social security numbers stay with us until we die. The assets of half of America’s families are now vulnerable to an identity theft so severe that it has catastrophic potential. It’s not just our credit cards here kids, its our 401k’s, IRA’s, savings accounts, 529s, tax returns, social security payments…. for the rest of our lives.
Well this is pretty bad isn’t it?
So what does Equifax do? The President of Information Solutions, the President of Workforce Solutions, and the CFO carried on in a way that can only be described as consistent with their corporate mission:
They cashed in. Selling millions worth of their Equifax shares, these guys made sure they would not lose a penny of the money they made selling our private information to other people and then letting someone steal it.
Nothing Fair about that Isaac.
The CFPB (Consumer Financial Protection Bureau) has put out a toolkit for moving forward financially after a natural disaster. Some great tips here!
God Bless and Stay Safe!
Early 2016 might seem like a bad time to start investing for retirement. With headlines like “Wall Street Shattered” and “Dow Plunges,” most investors aren’t exactly excited about contributing to their retirement funds. However, if your household is one of the 38 million in America without any retirement assets, this is exactly what you should start doing.
And with the help of a new retirement product from the U.S. Treasury Department, you can now invest without worrying about your account losing value.
How is this possible? Say hello to a brand-new retirement account called MyRA. MyRA was specifically designed for the 45% of working Americans who are not saving for retirement. MyRAs provide a place for individuals to grow a $15,000 asset base, while avoiding many of the hurdles and risks and all of the expenses that IRA investors typically face.
MyRA accounts abide by IRA income and contribution limits. That means single filers with incomes under $131,000, and married couples filing jointly with incomes under $198,000, can contribute. The maximum contribution amount is $5,500 for 2016, or $6,500 if you’re 50 or older or will turn 50 by the end of the year. Once a MyRA account balance reaches $15,000, the investor rolls it over to a Roth IRA.
Like contributions to a Roth IRA, MyRA contributions are made with after-tax dollars, and withdrawals in retirement are tax-free.
If you have yet to start saving for retirement, here are five reasons why you should consider opening a MyRA:
1. They’re safe. Your contributions are FDIC-insured, so you won’t lose a penny.
2. They’re cheap. With no minimum contributions, no loss in share value, no trading fees and no broker commissions, MyRAs are an affordable way for new investors to build wealth.
3. They’re easy. You can sign up online in just a few minutes at myra.gov. Once you do, choosing how to invest is simple. In fact, you don’t have to choose at all. All contributions are invested in the Government Securities Investment Fund. The goal of that fund is to give you a return that is higher than inflation and shield your investment from risk. Not a bad place to start building your nest egg.
4. They’re accessible. MyRA contributions can be made from your paycheck, checking account, savings account or even your tax refund. And while you shouldn’t touch money you have set aside for retirement, you can withdraw your MyRA contributions — but not the interest — any time, without penalty. (Seriously, though, just leave those contributions in there.)
5. They’re a good start. We all know winning Powerball is not a viable retirement funding strategy. You’ll need real money to pay for real expenses when you’re too old to work. So if you don’t have retirement benefits through your employer, start building the retirement assets you’ll need in a safe space with a MyRA.
After all, no one ever saved a million dollars without first saving $15,000.
This article was originally published on NerdWallet.com.
I would like to wish you all a happy, healthy and prosperous new year!
May 2016 be your best year ever!
Today, in the spirit of Resolution, I’d like to throw my hat into the ring and reveal that this year’s resolution here in The Yankee Saver land is going to be a big one…I mean… “Huge”!
This year's resolution is designed to tackle one of the biggest budget -busters of them all! This expense gets all of us, sometimes multiple times a day! Are you ready? Here it is:
This year at The Yankee Saver we resolve to stop paying other people for what we can make or do ourselves.
YIKES! I know, its a biggie! We are looking at some serious DIY action in the coming months! This means we pay ourselves for things we normally pay someone else for, like take out dinners, salon services, home repairs, drive-thru coffee, cleaning services, dog grooming, painting, and who knows what else ! Now I am not talking shabby substitute work here, I am talking "Wow, this is amazing, I am so psyched that I did this myself" quality DIY. A daunting task I know, but we're enthusiastic and excited for the challenge, right? OK, so maybe some of us are so tired right now that its seriously ridiculous, but here's the thing to remember: We can't always control the amount of money we make, but we can control the amount of money we spend paying people to do stuff for us. So, at the very least, this resolution is guaranteed to save us buckets of money! Even if its just take-out coffee a few times a week we still save about $520 in 2016. Think about how much could that grow if we add more! Its CRAZY good, all in cash, tax free!
So here we go! Who's with me?
I will, quite literally, keep you posted!
I love our American holiday season and all of its wonderful customs — the whole carol-singing, candle-lighting, tree-decorating, stocking-hanging, dreidel-spinning, manger-staging thing. There is one holiday activity, though, that we should stop treating as a tradition and start treating as the mistake that it is.
I’m not talking about serving Turducken. I’m talking about getting a “Holiday Helper” loan.
As scores of consumers prepare for a busy holiday shopping season, the first stop many make is at their credit unions, for a 12-month personal loan. Consumer debt is at an all-time high, and most American households have little or no savings, so why are shoppers so excited about borrowing even more money for non-emergency spending? Simple. It’s holly jolly marketing.
Credit unions give these loans North Pole-inspired names, such as “Holiday Helper” and “Jolly Dollars,” but they’re really a way to cash in on cash-strapped shoppers. These loans have “low” interest rates — if by low, you mean often 20 times higher than what you’d get in your savings account. And they’re payable over 12 months, so there’s no threat of long-term indebtedness. You’ll finish paying yours off just in time to need another one!
We all know credit card debt is bad. Holiday shopping just isn’t fun when you have to think about how much money you already owe every time you swipe your plastic. But give that debt a fun, festive name and hand it to us in cash, and boom, everything changes! It just feels better, like the loan isn’t really “debt” debt. So it’s OK, right?
Wrong. Holiday loans are not good. They’re designed to keep you in a very expensive and unnecessary debt loop. They’re Grinch-bad.
Instead of funding your festivities with new debt dressed up in an elf suit, do these three things:
Ask yourself ‘the question’
No matter your financial history, decide right now to get smart about your money. Before you make any financial decisions, ask yourself this question: “Will doing this with my money help me to financially protect and serve myself and the people I love?”
If you need extra time to get your cash together, but don’t want to miss out on this year’s hot gifts, give these three little syllables a try: lay-a-way. Now available at major retailers, such as Wal-Mart, Kmart, TJX companies, and even Best Buy stores in some markets, layaway plans let you pick out your items in the store and have them held for you until you pay them off in mid-December. Plans vary by store, but generally require a $10 down payment.
Start a ‘holiday loan’ savings plan
Start your own savings program with the money you’d spend repaying a loan. Here’s how it works: At the beginning of the year, determine how much you’ll need for the holiday season. Take that amount, add 20% for “interest,” divide by 12 and transfer that amount into your savings account each month.
At the end of the year, withdraw your “holiday loan” from your account, but leave the interest. After five years, the interest will completely pay for your next holiday loan.
Now, those are some dollars that will really make you jolly!
This article was originally published on Nerdwallet.com.
My Country, 'tis of thee, Sweet land of liberty, of thee I sing;
Land where my fathers died, Land of thy pilgrims' pride, From every mountainside,
Let freedom ring.
My native country, thee, Land of the noble free, thy name I love;
I love thy rocks and rills, thy woods and templed hills, my heart with rapture thrills,
Like that above.
Let music swell the breeze, and ring from all the trees, sweet freedom's song;
Let mortal tongues awake, Let all that breathe partake, Let rocks their silence break,
The sound prolong.
Land where my fathers died, Land of thy pilgrims' pride, From every mountain side,
Let freedom ring!
Just a quick post to remind everyone to check your electricity supply rates. Believe it or not we are inching out of winter, and prices are starting to fall. So if you were among the many residents who switched suppliers and opted for a low cost 3-4month rate, make sure you check in now with suppliers before your rate expires, to avoid falling into a high priced variable rate.
In New England, the ideal strategy is to lock into a low 12 month rate in early spring or early fall. That way you set yourself up to renew each year when demand for heating and cooling, and therefore energy, is at its lowest levels and sells for the lowest price.
...My Fair Lady...
Isn’t it funny how cold and snowy Decembers make spirits bright, while cold and snowy Januarys make them so darn sluggish? With the holiday lights, music and decorations long gone, and store shelves full of Valentines and Cupid Pez dispensers, it’s certainly tempting to adopt a "What happened in December stays in December" attitude and push through to Spring.
But don’t seal that lid on the holiday season just yet, or you might miss out on something sure to put a little pep in your weather-proofed step. I’m talking about cash, in the form of Manufacturer’s rebates.
January is the month when some of last year’s spending pays you back a bit, via Manufacturer’s rebate checks and cash cards. Whether you bought appliances, mattresses, razors, coffee makers or even switched electricity suppliers, January is the time to make sure those rebate forms get in before they expire. It is also the time to call any manufacturers who owe you a check, to make sure it’s on the way.
Not sure if any of your holiday purchases came with a rebate? Think about the purchases you made from Black Friday until the end of the year. If you bought any gifts for a kitchen, there is a good chance you have a rebate coming your way. Manufacturers like Kitchen-Aid, Waring, Cuisinart, Bella, Oster, Sunbeam, Black and Decker and Faberware, to name just few, all offered rebates this holiday season. Additionally, some Keurig and Nespresso coffee brewers came with rebates valued between $50 to $100, FitBits with $10 rebates, and even some Beats headphones, on this year’s hot list for gift items, offered a $50 rebate. Once you identify which of your purchases qualify for a rebate, go to the website of the store where you made your purchase for further details, then print out the forms and mail them in. In about a month your check should arrive in your mailbox.
Rebates vary by manufacturers and stores, and they only count if you get them, so take a few minutes now to see if your purchases qualify. It is common for manufacturers to require rebate forms be postmarked within less than 60 days after the purchase date, which makes now the time to get that rebate form mailed in, before your cash back window closes.
If you switched electricity suppliers this fall, now is the time for you to be seeing that rebate check in your mailbox. If you have not seen it yet, be sure to call your new supplier and let them know. Rebates are only good if you get 'em, and businesses have a tendency to make the getting part a lot harder on consumers than it should be.
Why not take a few minutes right now to follow-up on that rebate? You'll be glad you did!
A few weeks ago I was on hold with one of my favorite credit unions. Normally a call of this nature would yield a three, maybe four second wait time, but to my surprise a voice on the other end told me that my expected wait time was over 60 minutes, and to leave a number for a callback. When I finally spoke to someone at the credit union, hours later, I was told the long wait time was due to the enormous response of their annual holiday program.
I was intrigued! What's so special about this program that folks are lining up on the phones for hours? Are they giving the money away? Cuz I'm up for waiting for free money too, no problemo!
Alas, as it turned out, its not a free money deal, its not even a good deal! It is a 12 month loan of up to $1200 with a whopping 18% interest charge, and it has become a holiday tradition for the masses. Families who otherwise find the holidays pinching their pocketbooks can get the cash they need upfront, and then spend the rest of the year paying it off. Then they get another one the next December, and another the year after that, and on, and on, and on.
So every month of every year families who are already struggling get a little visit from the Ghost of Christmas Presents, in the form of that 18% interest. All this to pay for gifts that most likely have long been forgotten.
For all of those who turn to loans to get through the holiday season, I have a better plan for you. Let"s call it the "Buy Five Get One Free" plan. Here is how it works - Starting in January, put $118 a month away (100 for the holiday savings, $18 for the interest you pay yourself). At the end of the year you will have $1416 set aside. Take out $1200 for your Personal Holiday Loan, and keep the rest in the bank. Do this every year for the next four years, and guess what? At the end of the fifth year you will have enough money left over to pay for an entire holiday loan. Your sixth year is free! Now that is a buy five get one free plan to make you and your budget merry.
So tell me, how do you manage your holiday spending? I'd love to hear other strategies that work for you!
Here is my cheat sheet for electricity suppliers in MA for National Grid Customers. I am sharing my research and thoughts with you all, hope it saves you a bunch of money and time!
Let me know what you think!
Take a look in the Lowell Sun today to see how to beat the electricity rate hikes!
Winning an electricity rate battle with National Grid, NSTAR
Electricity Rates have gone CRAZY!!!No one needs to pay hundreds extra for electricity over the winter months! Check out my ebooklet "The Yankee Saver Guide to Switching Electricity Suppliers" to find out how to make the switch!
The other night, with the chill in the air stirring memories of Downton Abbey seasons past, I pointed a hopeful clicker at PBS and wished for the Crawley family. No Crawley's to be found, I tuned in just in time to catch part of a new show on personal finance, that turned out to provide plenty drama of its own.
As I watched, a young, single woman who had finally paid off all of her credit card and student loan debt, was being advised on what to do with the money she had saved for emergencies. I listened as the show’s famous host told the woman that in order to have easy access to her money, as well as to benefit from tax free compound interest, the woman should put her emergency fund into a money market account within a Roth IRA.
WHAT??? SERIOUSLY??? NO!!!
It felt just like the time when Matthew Crawley lay still and bloodied on the road back to Downton! I found myself yelling "NO,NO! " at the TV, as my mind raced for a way to travel through time and airwaves, and land on the set to make things right again!
Regretfully, teleportation and time-travel are not my forte, and I remained in New England throwing slippers at my television, as the poor woman in audience thanked the famous host for being wonderful, and went off to jeopardize her financial future.
Hopefully, I can save you, my readers, from the same financial fate. So, without further ado, here is what you should really do with your emergency fund, and why a Roth IRA is a terrible place to put it:
1. Put your emergency fund in a money market account at a local bank or credit union, and keep it out of your Roth IRA.
Money market accounts are similar to savings accounts in that they offer safety and easy access to your money, yet they differ from savings accounts in that their rates are usually tiered, so the bigger your balance the bigger the interest rate you receive. Keep in mind that by “bigger”, I mean “still extremely small”. In investment land, the more risk you take on, the more an investment has the potential to gain or lose money. Since money market accounts have no market risk, they also have no potential for big gains. But that is OK, we don’t need this money to grow, we need it to be safely held and easily accessible to us in case of a financial emergency, to cover our expenses for a set period of time while we get back on our feet.
2. Roth IRAs are for growing money, not holding money. Use your annual contributions to grow your money!
Roth IRA’s are for growing money, because we do not have to pay taxes on the growth. Since we only get to put a limited amount of money into these accounts each year, it makes sense to leave the "holding money" job to money market accounts outside of our Roth, where the low earnings also mean low taxes to pay, and give the "growing money" job to all of the investments inside of our Roth, where high earnings put the tax savings opportunity where it can do the most good.
Let's think of it this way, suppose you are a farmer, and you have two jobs. You have to grow a cabbage, (your emergency fund) and you have to grow a 360 foot beanstalk (your retirement savings and investments). Now suppose that each year you get one bag of fertilizer (your Roth IRA contributions with their tax free earnings) that you can use as you wish. Will you use this fertilizer on a cabbage when you have a giant beanstalk to grow? Of course not!
Here is another example, suppose in January of this year you contributed the maximum of $5,500 into a well regarded moderate risk mutual fund within your Roth IRA. As I write this that amount would have grown by about 8%, or $450. Since you do not have to pay taxes on this growth, depending on your tax rate, you would save somewhere around $120 dollars in taxes by having this money in a Roth IRA. Meanwhile, had you put that same $5,500 into a money market account, in your Roth IRA or not, it will only grow at a fixed rate (currently around .3% for the year), so you would have made about $12 in interest to date. Depending on your tax rate, using your Roth contributions to fund your money market would have only saved about $3 in taxes. Use your annual Roth IRA contributions to grow your money and to grow your tax savings. Use your money market account outside of your retirement accounts to hold your emergency fund.
3. Taking money out of an IRA before retirement is a dangerous habit to get into.
We are creatures of habit, in an on-demand society. It is already difficult enough for most of us to avoid impulse credit card buying, or parting with our cash for a non-immediate use, never mind leaving it alone for decades in a retirement account. Saving money is hard! Suggesting that we actually earmark Roth IRA retirement savings for emergencies not only clogs up our opportunities to grow our retirement funds, but it also sets our minds to thinking that we can use those retirement funds now if we need to. But we can't! Most of us are all too familiar with how easy it is to blur the line between want and need, that is how we get into all that credit card trouble! The first time you dip into your Roth Emergency Fund it might be to repair the car that broke down, then next time is when the kids need braces, and before you know it you are taking money out to buy furniture, a new outfit or birthday presents! Retirement money needs to be considered off- limits until we are retired. so that we have the financial stability we will need when we are too old to work!
Let’s face it, most of us are already swimming against the tide when it comes to saving money. Let’s not make underfunding our retirement any easier than it already is!