3 Investments to Create and Improve Your Financial Well-Being

With the new year fast approaching, taking an inventory of your financial well-being can shape how you look at future years to come. Analyzing the progress you’ve made, whether it is building up that savings account you opened or hacking away at your student debt, are wins you should take pride in! There are also areas you may have stumbled, maybe you had to take money out of your savings account or you used your high-interest credit card a bit more than you would have liked and those balances are a little too high. These roadblocks happen, life happens, a pandemic even happens; you assess the damage to your progress and go from there. 

Looking toward 2021, it’s time to figure out what goals you want to set, how you want to budget, what progress you want to make, and how you can achieve everything you want to achieve. Incorporating more investment opportunities into your life plans can bring about new paths to financial wellness. Here are some goals to strive for next year that can help you on your journey to financial success! 

Open Up a Certificate of Deposit (CD)

Normal savings accounts have a very low interest rate, sometimes you may have a higher one depending upon your financial institution and its rate systems, but overall, they are relatively low. Upgrading your savings game by taking some of your money and opening a certificate of deposit, or CD, will help you increase your earned interest much faster. The interest rate on a CD is always much higher than a normal savings account.

CDs work like this: 

  • You meet the criteria for opening one by having the minimum amount of money ready to open the certificate, sometimes it’s $500, sometimes it’s $1,000, it really depends on your financial institution. You don’t have to settle for depositing the minimum amount of money; the more you deposit, the more interest you earn, but it’s all about how much money you are comfortable with setting aside. 
  • Then, you must select the length of time you would like to have your money in the CD – sometimes they can go for as little as six months or last as long as four years. The longer you keep your money in the certificate, the more interest you earn. In case you do come across an emergency in which you need the money right away, you can take it from the CD during its savings term, but you will incur a penalty fee. Knowing there is a fee may deter you from reaching in and taking from it, but knowing you can access it, may put you at ease if you are planning to put a large chunk of your savings into a CD. 

These certificates are a great way for you to invest in yourself with low risk. The money you invest is not going into a stock market or being turned into any form of cryptocurrency. Instead, it is staying right in an account at your financial institution. Planning for the year ahead and picking a term you feel comfortable with can allow you to maximize your money while it sits at the bank. Keep in mind when your CD term ends, you will have the opportunity to renew it, but at that time the rates for the CD may have changed – for better or for worse. 

Buy a House

Buying a house is a great investment opportunity. There are many ways you can make a house a profitable experience in the short and long term. In the short term, buying a house at a low price to fix up, then flip and sell it for a higher price once you have completed renovations has the potential to yield great results. Something to keep in mind is this is dependent upon how the housing market is at the current moment, which can make this a potentially risky investment if this is your first go at it. You may also find this to be a profitable experience for you, and could make this a consistent flow of money. 

In the long term, you can buy a house and do a few things with it. The first being that you can live in the home and use the equity to your advantage. Home equity can fund things like upgrades to the home, putting in a swimming pool, paying for education, or even starting a business. When you have equity built up in your home, you can use it for virtually whatever you want. You can also use a home as a rental property. Owning a piece of property that you can rent out to couples, families, college students, or young professionals is a great investment. If you choose the right home and the right area you can have great success here.

Things to consider when looking to buy a home as an investment opportunity:

  • The price of the property: You want to make sure you can afford the potential investment before you get in too deep. Knowing how much you can afford when buying a house is the first step to take when looking for the right property. 
  • The area: You should always consider the area the house is in. Is it an up and coming part of your town where you can see business booming and people wanting to move there in the coming years? Is it close to a college where you can have a constant flow of potential tenants?
  • The school district: If you want a lower liability tenant, like a family (as college students tend to be rowdy), take notice of the school district the rental property is in – could that be the thing that makes a family want to rent your house for the long term?

Buying a house can yield many positive and lucrative opportunities for you, should you want to view it as an investment opportunity.

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Focus on a Retirement Plan

You may already have one or you’re a bit overwhelmed by the idea of starting one, but focusing on building out a retirement plan is a great way to invest in your future. If you work for a company that provides one, speaking to the account representative can help you start the journey and provide you with the right paperwork and understanding of what you may need. It is important to understand what your employer offers and what they don’t.

Understanding the types of retirement accounts available can be overwhelming. Here is a brief rundown of standard accounts and what differentiates them: 

  • 401k vs. 403(b): A 401k is an employer-sponsored retirement account for private sector business employees. A 403(b) is an employer-sponsored retirement account for employees of public schools and tax-exempt organizations. These include people like government employees, public school teachers, doctors, etc. In both cases, you can make a payroll deduction into your account, with the potential for your employer to match your contributions. It can be a Traditional or Roth individual retirement account (IRA). The employee has control over how the money is invested (in stocks, bonds, or even a CD).
  • Pension Plan: This is a retirement account that is paid into by both the employer and the employee. When the employee retires, they start receiving their pension checks. Pensions are more common in public sector businesses, whereas 401ks and 403(b)s are the standard plans in the private sector. The main difference is that with a pension plan, the employer designates where to invest the money.
  • Traditional vs. Roth IRA: Traditional IRAs have contributions made with pretaxed dollars, whereas Roth IRAs have contributions made with after-taxed dollars. You generally contribute via a payroll deduction, and in both cases, you are allowed to make contributions up to a certain dollar amount each year. Upon the age requirement for qualified distributions, when you take money from your Traditional IRA you are taxed, whereas if you take money from a Roth IRA your taxes have already been paid. With a Traditional IRA, you must take a minimum distribution each year (you can break it up into monthly, quarterly, or annual payments to yourself). A Roth IRA has no minimum distribution, meaning you can take as much as you want, when you want.  

Retirement accounts can seem complex at the moment, but talking with your employer or the financial advisor appointed by your company and figuring out which one is best for you and your future will help relieve some of the anxieties you may face. Finding ways to invest your money in the new year can help open up opportunities for you to grow personally, not just your money, but also your knowledge and experience with financial literacy. Understanding how to spend savvily, save consistently, budget often, and invest wisely after this year full of uncertainty, will set you up for a stronger future.

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