Speaker 1: Hi, I'm Stacey and I'm back for another episode of
Better Financial Health in 15 minutes or less, and what I want
to talk about today is 1% how to nudge your finances along by
making sort of small moves that just move you in the right
direction.
Oftentimes, we think that we need to get everything perfect.
We need the home run.
We should have bought NVIDIA three years ago.
We should have bought Apple in 2004.
And we're looking for the perfect house at the perfect
price or the perfect job.
What we really need to be thinking about, and what we have
discovered in working with hundreds upon hundreds of
retirees, is that these millionaire next doors have
built their wealth not by swinging for the fences, but by
doing the little things along the way.
Or, to use a baseball term, they've hit a lot of singles,
they haven't hit a lot of home runs, but just over time, that's
compounded, and compound interest is a powerful, powerful
tool, and so what I wanna do is talk about how that can work
for you, whether you're in your 20s and 30s and you're just
starting out, or if you're already retired, how you can use
the power of 1% to really help you.
So, for our younger listeners, the thing I would encourage you
to do is, if you have a 401k or a 403b available to you,
increase your savings rate by 1% .
So if you make $60,000 a year, that is an extra $600 a year,
$50 a month and over time that could lead to that $600 in a
year could lead to 50 or $60,000 by the time you hit retirement.
So it's not a big change coming out of your pocket.
It's certainly not going to break you.
But that little change can have a big impact.
What if you don't have a 401k?
Or you're like, okay, I've already saved.
You know I'm already at 15% in my 401k.
Well then, consider maybe canceling one subscription
service and taking that savings say $10 a month and putting that
into a Roth IRA.
So that's $120 a year.
That also is going to build over time and build you a
tax-free bucket.
So these are some small things that you can do that will really
have outside benefits for you down the road.
The other thing that you can do is if you've got a savings
account at the bank or you're carrying more than $5,000 in
your checking account, I'd really encourage you to look at
either a high yield savings or a money market account not at the
bank, because a money market account at a bank is not really
a money market fund but a money market account at a large
brokerage firm such as Fidelity or Vanguard or Charles Schwab.
Those are going to earn you over four percent% and over time
that's sort of free money that you picked up and earned on
money that was just sitting there waiting for a rainy day
anyway.
And so if you've got, if you look at that and you say, okay,
I was earning nothing on that money, on that $10,000, but now
I'm earning $400 a year, well, that can go a long way toward
offsetting the cost of a vacation or even making one of
your car payments for you.
So those are some little changes you can make there that
can have outsized benefits to you longer term.
What if you're already retired?
You can also apply the 1% rule.
That's, for example, if you're pulling out $60,000 out of your
portfolio a year to live on, if you reduce that by 1%, that's
$600.
That's going to stay in there and grow over time and
potentially make it easier for you down the road when a big
expense comes up, because that's there.
The other thing that you can do is to be a little tax smarter.
If you're making charitable contributions and you're 70 and
a half or older and you have money in a pre-tax IRA, you can
pull that money out from the IRA .
The check has to be made payable to the charity, but that
money comes out of your IRA.
You never pay tax on that money .
It goes directly to the charity and they get full benefit from
it.
They don't pay tax on that money because they're a
charitable organization.
That's called a qualified charitable distribution.
So that's something that you can do.
You're still making the same charitable contributions, but
instead of pulling it out.
Still making the same charitable contributions but
instead of pulling it out and, since the standard deduction is
so high, not getting any tax benefits for your giving.
If you do do it through your IRA , you can't do it if your
money's in a 401k.
It has to be an IRA to be able to do this.
That's another way you can do it.
The savings account thing and interest earnings also applies
to you if you're retired.
So that's also something that you can do, because what we're
really trying to do is to just focus on that small changes that
we can do better.
It's the same way that we get in better shape we start going
to a class and we just show up every day and then all of a
sudden they're close, but a little bit better.
So those are some small things that you can do that will
enhance your overall financial wellness over time.
You don't have to hit a home run, just make one small step.
So I challenge you what is going to be the 1% thing you try
to do this week or this month to enhance your financial
wellness?
Thanks for tuning in.
This has been another episode of Better Financial Health in 15
minutes or less.