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As we head into back-to-school season, the next few weeks become the busiest time of the year for tax free shopping! We’re here to make sure you have all the information you need to take advantage of some potentially massive discounts.

How do Tax-Free Days Work?

These annual holidays (sometimes referred to as “sales tax holidays“) present a great opportunity for consumers to take advantage of lower pricing on items such as clothing, school supplies, shoes, and other goods. By removing sales tax from the price of certain items at this time of year, retailers help lower the expense burden on parents for back to school shopping.

There are certain state laws a retailer must follow in order to qualify for sales tax promotions. This often means that they will offer a retail sale at the same time as their tax-free shopping period, making the savings for consumers truly spectacular!

An example of this would be a state who’s guidelines specify that only personal items costing under $100 are eligible for tax-free shopping.

A retailer may, therefore, offer shoes for $99 that ordinarily sell for $150 so that they qualify. Thus, if the normal sales tax rate is 7%, your total bill would go from $160.50 down to $99. 

Which States Offer Tax-Free Weekends in 2019?

If you don’t live in one of the 17 states that’s offering a tax-free holiday this year, you can visit one that does in order to do your shopping and you won’t have to pay sales tax on those items as long as they are eligible under the state’s tax-free shopping guidelines.

The following states offer tax-free days between now and the end of August:
  • Arkansas
  • Connecticut
  • Florida
  • Iowa
  • Maryland
  • Massachusetts
  • Mississippi
  • Missouri
  • New Mexico
  • Ohio
  • Oklahoma
  • South Carolina
  • Texas
  • Virginia
Here are the specific details of each state’s tax-free shopping days

Arkansas

Connecticut

Florida

  • Dates: August 2 to August 6
  • What items are eligible? Clothing under $60, certain school supplies under $15, and computers selling for $1,000 or less, according to the Florida Department of Revenue.

Iowa

  • Dates: August 2 to August 3
  • What items are eligible? Clothing and footwear under $100, according to the Iowa Department of Revenue.

Maryland

  • Dates: August 11 to August 17
  • What items are eligible? Clothing and footwear under $100, according to the website for the Comptroller of Maryland.

Massachusetts

  • Dates: August 17 to August 18
  • What items are eligible? “Personal use items” costing $2,500 or less, according to the website for the Commonwealth of Massachusetts.

Mississippi

  • Dates: August 30 to Sept. 1
  • What items are eligible? Mississippi is unique and dedicating it’s tax-free days to firearms, ammunition and hunting supplies, according to the Mississippi Department of Revenue.

Missouri

  • Dates: August 2 to August 4
  • What items are eligible? Clothing under $100, computers under $1,500 and school supplies under $50, according to the Missouri Department of Revenue.

New Mexico

  • Dates: August 2 to August 4
  • What items are eligible? Clothing under $100, computers under $1,000, computer peripherals under $500 and school supplies under $30, according to New Mexico’s Taxation and Revenue Department.

Ohio

  • Dates: August 2 to August 4
  • What items are eligible? Clothing under $75 and school supplies under $20, according to the Ohio Department of Taxation.

Oklahoma

  • Dates: August 2 to August 4
  • What items are eligible? Clothing under $100, according to the Oklahoma Tax Commission.

South Carolina

Texas

  • Dates: August 9 to August 11
  • What items are eligible? Clothing, backpacks and school supplies under $100, according to the Texas Comptroller.

Virginia

  • Dates: August 2 to August 4
  • What items are eligible? Clothing under $100, school supplies under $20, Energy Star products under $2,500, hurricane preparedness items under $60, and generators under $1,000, according to the Virginia Department of Taxation.

Looking for other ways to save money? You don’t want to miss our secret mortgage hack that can possibly save you thousands!

How to Save $30,000 on Your Mortgage with Zero Extra Effort

Would you believe us if we told you that 10 minutes of your time could potentially save you tens of thousands of dollars on your mortgage? How about if we said those same 10 minutes could help you pay off your mortgage years earlier than anticipated?

There are no catches, gimmicks, or extra income required! Just a simple switch in the way you pay your mortgage every month. Now that we’ve got your attention, let’s get right down to it.

The Simple Strategy

If you’re like most, you pay your mortgage in full each month sometime around the due date. The strategy we will outline here is a simple switch that will allow you to pay your mortgage bi-weekly, instead of once per month.

This spectacularly simple trick could save you tens of thousands in interest payments and shave years off your mortgage. Real life examples below.

If your employer pays you bi-weekly, this will be as simple as setting up an auto-pay plan with your bank to pull half of your monthly mortgage payment from each paycheck. If you’re not paid bi-weekly, you can still set up bi-weekly auto-pay payments; just be sure that you have enough in your account upfront to avoid over-drafting your account.

There is only one CRITICAL rule you need to follow: The first month that you make the switch, make sure you pay in full and on time!

The Math

There’s no magic in this process, it’s simply math. Not the kind that asks you to find the area of a rhombus you could never figure out in school. The cool kind of math that means you’ll save a boatload of money! There are two main ‘behind the scenes’ things happening mathematically when you make the change to bi-weekly payments.

The first is simple. There are 52 weeks in a year, so paying bi-weekly results in 26 payments over the course of a year. This essentially results in making 13 monthly payments per year, instead of 12 payments.

That one additional payment goes entirely towards the principle balance of your mortgage. While this alone may not seem like it can make that much of a difference, over the course of a couple decades, it can truly make a huge impact (see figure 1 below for specifics).

Let’s take a quick look at the impact this strategy has on the principal balance of a real-life mortgage at the end of each year over the first 10 years. We’ll use a 30-year fixed rate mortgage on a $250,000 home.  Let’s assume the mortgage has an interest rate of 3.93% (which is the current average interest rate in 2019).

*Chart created using this Bankrate Mortgage Calculator

Part of the beauty behind this strategy is that you end up paying more over the course of a year, without feeling the impact month-to-month. It will still feel just like you’re paying as much as you were previously, just with two payments each month instead of one.

Going a Step Further

There’s one other mathematical calculation to be considered but it will only impact some homeowners, as certain mortgages accrue interest on a daily basis. If you have a mortgage that is structured this way, making this change will be even more significant in your long term results.

The reasoning behind this is that each month you essentially end up paying half of your mortgage two weeks earlier than you normally would have. That leads to 14 days where you will accrue interest on a lower balance than they would if you paid monthly. Again, repeating this process over the course of a couple decades REALLY adds up.

“How much” you ask? Let’s look at another real-life example.

Again, we’ll use the same 30-year fixed rate mortgage on a $250,000 home just as we did in the example above. Take a look at how staggering these results are:

*Chart created by author using this Bankrate Mortgage Calculator

In this case, this simple trick saves the homeowner $28,310.81 and shaves 5 years off the mortgage! That’s a savings of more than 10% of the total value of the home! We don’t say this lightly when we say this simple trick really is a game changer in your debt management.

This one simple trick saves homeowners over $28,000 on a $250,000 purchase!

One other point worth highlighting from this scenario is the amount of interest customers pay on a typical mortgage. Breaking the numbers down this way, you can see you’re paying well over 50% of the price of the home in interest on a typical mortgage.

This is why we stress the importance of understanding and managing your credit score. A solid credit score could result in a lower interest rate on your mortgage, thus significantly lowering the amount of interest paid. For more information and tips on how to manage your credit score, check out our article Understanding Your Credit Score.


Understanding Personal Debt

Consumer or personal debt in the United States continues to be a pain point for many citizens. With an economy driven by debt, companies and financial institutions make it incredibly easy to obtain financing. While that’s great for those whom are well versed in budgeting and savings, most of us find ourselves getting trapped with massive debt accumulation

There are several types of personal debt and each carry different terms that include interest rates, payback length, loan terms and so on. It all can seem overwhelming, which leads to a serious lack of understanding and uneducated use of debt.

In this article, we’ll highlight a few of the common types of personal debt and how they can impact your financial health. We also have multiple resources to help you get out of any debt you currently find yourself struggling with. 

Credit Card Debt

First and arguably the easiest way to get into debt is by owning a credit card. Whether it’s a store credit card or a generic card, they all work in a similar fashion and offer one main benefit, an open line of credit. All you have to do is swipe the card and instantly purchase nearly anything you want regardless of if you can afford it.

One of the main benefits to having a credit card is it can help keep your cash flows open. More specifically, if you are looking to make a large purchase, you can finance it over the course of a few months rather than having to pay the full amount at once. Some card companies offer special 12-month financing over certain dollar amounts or have zero percent interest as an introductory offer.

However, one of the drawbacks ends up being that life gets in the way and you carry a balance. While a month or two with unpaid credit card debt isn’t the end of the world, many carry a balance for years, only paying the minimum payment. If you carry a balance, interest rates on cards can be north of 25% depending on your terms. To avoid paying high interest rates, you need to pay your balance off in full each month. This will save you stress and keep debt at bay.

If you currently find yourself with credit card debt, we can help you get out of it!

Auto Loan Debt

The next type of popular consumer debt is the auto loan. Auto loans are easy to obtain in most cases, but there are a few more hurdles you have to jump through to get an auto loan than to get a credit card. Financing a car is the typical road many travel, since vehicles are a necessity for most.

Financing a vehicle has become much cheaper as interest rates have decreased. Conservatively you can get a loan around the 5% area with respectable credit. Since borrowing is less expensive, if you want to get that new vehicle you may finance it over a few years, keeping your cash flow open.

Similar to credit cards, many people neglect to pay down their loan quickly, thus paying the full amount of interest. Also, when you go to shop for a vehicle, look to obtain financing at your local bank or credit union as they typically have more competitive rates than the dealership. If you find that your rate is a bit high, after you’ve paid on the loan for a few months you can look to refinance to a lower rate.

Mortgage Debt

Last up is the home mortgage, enabling people to realize their dream of home ownership. Many loans are typically a 15- or 30-year term, with either a fixed or variable interest rate. These loans are secured by your house and typically run 90% of your homes value or lower. To avoid private mortgage insurance you’ll want to make a down payment of 20%.

For many, obtaining the status of home ownership would be impossible without the home mortgage. This allows you to stretch the cost over many years, giving you the ability to afford a home. Typically you can prepay the note, meaning you can put more towards principal each month if you wish to pay down the note.

Unlike the other two debts, a mortgage is something you get once and will only look to refinance if rates go lower. Other than that, a traditional mortgage is a fairly straightforward product.

Conclusion

Unfortunately, debt is one of the trademarks of modern American society. The topics addressed in this article are some of the most common personal debts you’re likely to encounter during your lifetime. Using debt as a leveraging tool can have a positive impact on your financial well-being. However, for many the debt gets out of hand and becomes a financial burden. When using debt, use it cautiously and ensure you can repay the loan quickly, saving you money on interest expense.

Having Enough Money to go on Vacation

Vacations are a wonderful time where you can relax and forget about the world. Whether it’s sitting on a beach or hitting the slopes, the primary goal of a vacation is to take some time to enjoy life. Unfortunately, people take vacations on shoestring budgets and when the slightest financial obstacle arises, the whole vacation gets derailed.

This is where properly saving for vacation comes into play! Now, it’s simple to say that you’re going to save for vacation, but without a plan you could be going in blind. Without a plan, you leave yourself open to shortfalls and never reaching the goal of having enough for a vacation. While everyone operates differently, it’s up to you to identify an effective methodology and begin saving. Luckily, this article will help spur your mind and get you on the path to successful saving.

Method 1: Sinking Fund

First up is a generic sinking fund. A sinking fund is simply a separate place where you store money as it becomes available. There’s no certain dollar amount, rather it gives you a place to store your money and not spend it.

Sinking funds can be as simple as putting cash under your mattress and as complex as creating a whole separate savings account. Regardless of the method, the point is that this fund is always there, allowing you to contribute steadily over time. Even if you have no immediate plans to go on a vacation, you can continue contributing so that when you do want to take a trip, you’ll already have money set aside for such occasions.

Effective ways to save in a sinking fund include cash envelops. You can keep this around the house and when you have $5 or $10 in your pocket, simply slip it in the envelope instead of buying soda pop or fast food.

Method 2: Automatic Savings Deposits

Another method you can implement if you are one that tends to spend are automatic deposits into a savings or checking account. For example, if you know you get paid every other Friday, you can have $50 from each paycheck automatically deposited into your vacation account. This not only moves the money but moves it before you even have a chance to spend it.

You can take it a step further and open an online savings account. These typically generate a higher rate of return from interest, and funds typically take 1-3 days to arrive in your checking account. That means you won’t accidentally spend that money.

Also, there are apps on your phone (such as Acorns)that will round up your purchases and invest your spare change. If you search the list of finance apps, you may find something that fits your financial style perfectly.

Method 3: Have a Garage Sale

If you are looking to aggressively build and simply kickstart your vacation fund, you can look into having a garage sale. I bet you’d be surprised at how much stuff you have around your house that isn’t doing anything. You’ll likely have a garage sale and make a few hundred dollars, depending on the items you have for sale.

This can be a quick way to boost your vacation fund or to begin it. From there, you can look at flipping items from other garage sales or stopping by your local Goodwill store. You may find it enjoyable buying and selling items, leading to a continuous flow of money into your vacation fund.

Conclusion

These are just 3 of many ways in which you can begin saving for a vacation. The goal is to have enough money to cover the costs and then some. Emergencies arise and you don’t have to ruin a perfectly good vacation.

Overall, we believe that you should try to keep saving for a vacation a game. If you have kids, encourage them to compete and try to save the most money. Starting the process for saving towards a vacation should not begin a few months out, rather a continues flow of money into an account that’s set aside for this sole purpose.

If you make the task of saving for a vacation fun, you’re much more likely to succeed in the endeavor.

Most people we encounter in our lives live by the ‘Deferred Life Plan’, which means putting endless hours of work in now for the hopes and dreams of a glorious retirement. History has shown us over and over again that far too often this isn’t the result. Thankfully, we’re about to share with you an investment strategy that has beaten the S&P 500 for over 100 years in a row and is profitable in ANY market environment!

Most people are truly lost when it comes to retirement planning and investment strategies that meet their individual goals, especially when they are just starting out on this venture. They simply have no idea where to begin, so don’t be one of them! Just by reading this article you will be more prepared than the rest.

How Much Money Will I Need to Retire?

The first step in a successful retirement plan is calculating how much money you’ll need when the time comes. Retirement is an expensive endeavor, and you should be prepared for that when doing your planning. Experts have estimated that you’ll need between 70% and 90% of your income before retirement in order to keep the same standard of living. Understand these needs early on in the planning process so that you won’t become frustrated later. Here’s how to do that:

Calculate your average cost of living today and multiply it by 0.7-0.9, depending on how conservative you want to be with your calculations (the higher the number in this range, the more conservative). That will tell you how much money you’ll need each year during retirement. Now, look at the tables above to find out how much you need to start saving today in order to hit your retirement goals.

Start Saving for Retirement Now!

Ask any financial adviser and they will tell you the most crucial part of building a solid nest egg for retirement is starting early! It doesn’t matter if you feel like you’re already late to the party or if you’re only 16 and making minimum wage washing dishes at a restaurant, make today the day you put thought into action. Something as little as a $50/month contribution can go a long way in the big picture.

Still not sold that you should start today? Do yourself a favor and check out this compounding interest calculator and play with monthly contributions to see how far just a few more dollars per month adds up to significant sums over 20, 30, or 40 years! Using an average annual interest rate of 7-8% is a good place to start when running various scenarios (the average returns of the S&P over the last 30 years).

Once you figure out the amount of money you need to invest on an annual (and then monthly) basis, the next step is making the decision on which investment strategy is best for you.

An Alternative ‘Time-Tested’ Investment Strategy

In a perfect world we would be able to put our money in a clearly defined place with little to no risk and a high rate of return. Unfortunately, investing for retirement is not that easy. You can invest in stocks (volatile), bonds (low interest rates), CD’s (low interest rates), and a number of other individual strategies that just aren’t ideal.

An all-to-unfamiliar investment vehicle that few utilize is something called participating whole life insurance. You might be surprised, and comforted, to hear that this alternative investment strategy is one used by some of the wealthiest individuals ever to walk the planet. Not only can this type of long-term investment provide generational wealth to be passed down, but it also provides you with a tax-free income stream!

Here’s a rough estimate of how much someone can invest with this strategy and the results they’d achieve:
*These are averages. Each person will have a different amount based on his/her overall health, family lineage, habits, etc. You will receive a personalized plan from the provider of your custom-built plan.

*Females: Your rate (investment) will typically be even lower than males!
**These investments are also going to leave hundreds of thousands, if not millions, of dollars to your family when you pass away! Retirement income AND generational wealth is the goal.

Most people look forward to their retirement, especially after they have been working for several years. They believe retirement will be a wonderful time when they can do things they could not during their working years. This can only be accomplished by taking action today with your retirement. Do yourself a major financial favor, and do some additional research on this alternative investment strategy!

Other Retirement Investment Strategies

If you choose not to partake in the participating whole life insurance investment strategy, that’s totally fine! Another step you can take is to make sure to diversify your investments over time in a retirement portfolio. This is a crucial technique, as it will reduce the amount of risk that you have when you are playing the market. If you are not having success, take some time off to study what you need to do to maximize your earnings.

Utilizing paid retirement services and managers in the beginning is well worth the investment. Find a financial manager today and begin developing a relationship. You will quickly find that the financial options for your retirement savings are nearly limitless. Working with a financial manager, who does this day in and day out, is the best way to narrow down the field and relieve the stress of starting on this endeavor. Do upfront research on management fees and find a conservative middle-of-the-road fee. This will ensure they aren’t a bottom of the barrel manager, yet won’t rob you blind through fees. The money spent early on in the retirement process will go a long way to achieving your dream retirement. Start with a quick math lesson on how compounding interest works and how even a little bit of money early on goes a very long way in the retirement process.

So, You Want to Get a Credit Card?

Signing up for your first credit card can feel like a scary endeavor. A quick search into the downfalls of having a credit card can take you down a very dark rabbit hole of financial horror stories, which will undoubtedly have you running the other way screaming. If you somehow can look past these stories and have decided you need to get a credit card (which you do), the next hurdle is wading through the THOUSANDS of options you have when it comes to credit cards. Fees, points, perks, affiliated with a brand you like; the options can leave you drowning in comparisons making you stagnant and indecisive. All of these items above are certainly worthy of consideration, but the most important thing you can do is pick one and go so you can get started on your credit-building journey. If you can’t decide on which card to get, find one with no fees and a point or cash back system and move on, you can correct course down the road with no damage done.

Why You Need a credit Card

Earlier I mentioned that you definitively need a credit card, and here’s a high level overview of why. If you’ve been in the market, or plan to someday be in the market, for any of the major life purchases (car, house, business loan, student loan, etc.) you have/will come head on with the topic of your credit score. Credit scores are based on a 300-850 point range (see image below). A good credit score can save you thousands of dollars over the course of a lifetime when it comes to major life purchases. Why? Simply put, your credit score is the statistic banks or other money lenders look at to determine how much of a financial risk it is to loan you the money to make your big purchase. A bad credit score can mean severely unfavorable interest rates, which over the course of a 5-7 year car loan or 30 year mortgage for your house, can quite literally add up to thousands or even tens of thousands more in interest payments! Credit cards are one of the main factors that make up your credit score, and when used properly can help you build and improve your credit score. Things like available credit to debt ratio, on-time payment history, and years of credit history are the most critical aspects of how owning a credit card can impact your credit score. The duration of your credit history is the one aspect you have the least control over, which again is why it is important to just pick a conservative one as described above and start building credit. Next, we’ll cover the rules of owning a credit card so you are using it as a positive financial tool rather than ending up in a financial horror movie.

Understanding Credit Score

Rules for Owning a Credit Card

Credit cards are essentially free short-term loans, when used properly.  When used incorrectly, they can cost you between 16-25% more for every purchase you make on the credit card. When you sign up for a credit card, the issuer will also be looking at your credit score and credit history, and will likely start you out with a very conservative credit limit (maybe as low as $500). Most times this is unavoidable, so we need to follow the rules that will be laid out next to increase that limit, which in turn will boost your overall credit score.

Rule #1: First and foremost, and I cannot stress this enough, never EVER miss a credit card payment. Average interest rates on credit cards typically fall in the range of 16-25%, so missing a payment will cost you significantly. These high interest rates are how people end up in the horror stories you read about because once you miss a payment and get hit with the interest at months’ end, it makes it that much harder to make next month’s payment in full, resulting in another round of interest hitting you! On top of that, on-time payment history, as mentioned earlier, is a major factor to your credit score. As unfair as it sounds, one missed payment can drop your credit score 50-100 points! To put that in perspective, we’re talking about a credit score system that ranges from 300-850, so a 100 point drop is significant to say the least. So again, pay off your card in full every single month, no exceptions.

Rule #2: Pay off your credit card in full every month! That’s right, it’s so important that it’s rule #1 and #2. One way to guarantee this happens is to automate your credit card payments. If you set up auto payments and make sure you are not spending more in a given month than you will be able to pay at the end of each month you will be on your way to credit euphoria.

Rule #3: Increase your credit limit regularly. Assuming you have followed rule #1 and #2 to a tee, this should be an easy task. Every 6-12 months call up your bank and request an increase in your credit limit, even if you don’t need the extra money. Tell them you have a not missed a payment in the last __ months and you would like your limit increased. Some banks will do this without you even requesting to have it increased, but if not make certain you are proactive and call them. The reason behind this move is the available credit:debt ratio mentioned earlier relating to your credit score. If you’re stuck at that $500 credit limit and spend $500 per month on it regularly that gives you a 100% credit:debt ratio which is not good in the eyes of the credit bureaus. You want to have as low of a credit:debt ratio as possible while actively using your card. DO NOT use this increased limit as a reason to spend beyond your means, as that would defeat the purpose entirely. In the scenario above, if you had your credit limit increased to $1,000 and continued to spend $500 max per month, your credit:debt ratio would be 50%, which will go a long way in boosting that credit score of yours.

Use the Perks

We’ll cover the detailed perks of credit cards individually in a later article, but for the basis of this intro to credit cards we will keep it simple. Almost every card these days comes with perks or point systems, which are complicated ways of saying FREE MONEY! Some credit cards come with up to 6% cash back on your purchases, and again this is nothing but free money. When you consider the average returns on the S&P 500 over the course of the last 30 years being 8%, earning 6% back just for buying things you would purchase regardless is significant. Make sure you are taking full advantage of the perks and points system your credit card offers. If you aren’t sure the full extent of the perks (there are some incredible perks in the fine print), call your bank and ask them to outline all of the perks of the card. You may be surprised to learn things like you never need to purchase rental insurance when renting a car because many credit cards come with free rental car coverage. That’s just one example of the variety of perks offered by various cards, so take 15 minutes to understand what perks you have and then use them!

Investing, a topic we all know about and love to discuss, but when it comes to execution most fall a bit short of expectations. For some, it’s waiting too long into their life to properly save money and for others it’s continual poor investment decisions that have put them into financial hardship. Television outlets and popular websites make investing seem intimidating and that you need professional assistance to build the best portfolio. While they may be right, many aspects of investing are easily simplified and can be figured out on your own.

Everyone’s investing objectives are different. However, there are commonalities that everyone likely shares and tips you can utilize in building your portfolio. Should you have any specific questions it certainly is a responsible decision to speak with an investing professional, but in the meantime, let us go over a few actionable ideas you can take with you.

How to Invest Wisely

The first and most broad question is how to begin investing. Simply beginning the ‘search for information’ process will open your horizon to the hundreds of possible investment options on the market. From there, you will gain exposure to what fits your needs best and you can construct a portfolio that’s tailored to you. In this section of ‘how to invest your money’, we’ll detail three different accounts you can utilize to invest your money.

401(k) Plan

First on our list is the popular 401(k) plan. Many employers offer their staff a 401(k), which is a pre-tax retirement vehicle used to help you save for retirement. Pre-tax means that you will not have any of your income withheld from your paycheck while you’re working and you will instead have to pay taxes when you make distributions during retirement. You may also have the ability to utilize the tax benefits of a Roth 401(k), which is the opposite and is constructed using post tax dollars. Many people prefer this method because it allows your income tax to be withheld from your paycheck during your working years so that when you take distributions during retirement you don’t owe anything. A 401(k) is an employer offered, qualified retirement plan and cannot be opened elsewhere.

How you begin investing in a 401(k) plan is extremely simple, beginning with your deduction amount. When selecting how much to contribute towards your 401(k), you typically select a percentage of your paycheck. If you’re lucky, your employer may offer a match up to a certain percentage, which is free money.  This can be updated at any time should you decide to contribute a different amount.

From there, your plan has a predetermined selection of investments products you can invest your money in. You will likely find target date funds, index mutual funds and a few other alternative investments to add some spice to your portfolio. Should you have any detailed questions you can always ask your plan administrator.

In 2019, your contribution limits are $19,000, which is an increase from $18,500 in 2018. Learn more about 401k plans here. 

Individual Retirement Accounts (IRA)

The next vehicle on our list is an individual retirement account, or IRA for short. An IRA works similar in that you can select a vanilla IRA or Roth IRA, depending on your tax needs. However, the main difference is nearly anyone can open an IRA if they meet the income requirements, which depend on marriage and a couple other factors.

Another difference between an IRA and a 401(k) plan are the investment selections. In an IRA, you have a much wider selection of investments you can choose from, enabling you to create a more diverse portfolio. Your investments can include stocks, bonds, options and many other investment types.

In 2019, the contribution limits for an IRA are $6,000, up from $5,500 from the year prior. Learn more about IRA plans here.

Brokerage Account

The last account you can utilize to invest is a brokerage account, which is an investment account that carries no special tax privileges, and anyone can open. There are no contribution limits and your investment options are vast. You can choose to invest in anything your broker allows, but you may incur tax consequences that vary, depending on your investment portfolio.

Investment Options

Now that you know how to invest your money it’s time to review a few products you will likely encounter through your due diligence.

Mutual Funds

The first and among the most popular is a mutual fund. A mutual fund is an asset that is built though a basket of stocks. With a mutual fund, the goal is to follow an index or market, giving you exposure to the broader market. You’ll likely find various mutual funds in your 401(k) plan as these investment products are designed for long-term, passive investing.

Also, with a mutual fund you will notice an expense ratio, which is the annual cost of investing in a mutual fund. The lower you keep the expense ratio the more money you are retaining to invest.

Exchange Traded Fund (ETF)

Similar to a mutual fund, an exchange traded fund or ETF is traded on the open market similar to a stock. ETF products are more liquid than a mutual fund, meaning you can sell the asset quicker. Like a mutual fund, ETF’s have expense ratios and charge you on an annual basis. ETF products range from index tracking to inverse market directions.

Vanguard has great depth analysis of ETFs vs mutual funds. Read their article here.

Stocks

Last on the list of options are stocks. These are the most popular and well known. Purchasing a stock gives you ownership of a company, thus granting you access to participate in the upside or downside value. Stocks can be held long-term or short-term, and well-off companies tend to pay their shareholders dividends. Stocks can increase the volatility of a portfolio, as well as the returns.

Know these data points will not only give you the ability to start investing, but you will also have confidence going into a conversation with your investment advisor. Investing early and investing often will allow your earnings to compound, slowly growing and building wealth you can pass down from generation to generation.