Adapting Your Savings Strategy for Life’s Major Milestones
Life is full of unexpected twists and turns, and your financial journey is no exception. Whether you’re welcoming a new family member, approaching retirement, considering a career change, or planning to buy a house, it’s essential to adapt your savings strategy to meet these significant milestones. At O1ne Mortgage, we understand the importance of financial planning and are here to help you navigate these changes. Call us at 213-732-3074 for any mortgage service needs.
You’ve Had a Major Life Change
Major life events such as getting married, getting divorced, having a baby, or caring for an aging parent can significantly impact your financial plans. Here are some strategies to help you adjust:
Set Up a 529 Plan
When you have a baby, it’s never too early to start thinking about their college education. A 529 plan is an excellent way to save for educational expenses. There are two types of 529 plans: prepaid tuition plans for specific schools and education savings plans that can be used for any college or graduate school. Remember to prioritize your retirement savings before focusing on college funds.
Strengthen Individual Savings Before a Divorce
Divorce can be financially challenging, especially if you didn’t have a substantial savings account during the marriage. Consider saving in a high-yield savings account leading up to the divorce to ensure financial flexibility afterward.
Build a Home Improvement Fund
If an elderly parent or another family member is moving in with you, you might need to remodel your home or purchase new furnishings. A high-yield savings account is a good choice for this purpose. Alternatively, you could consider a home equity loan or home equity line of credit (HELOC) if you have good credit and favorable interest rates.
You’re Approaching Retirement
As retirement nears, you may find yourself earning more than you did earlier in your career, giving you more flexibility to prioritize saving. Here are some options to consider:
Contribute the Maximum to Your 401(k)
If you’re currently saving 10% of your income in your 401(k) but haven’t reached the $22,500 maximum yearly individual contribution allowed by the IRS, consider increasing your monthly savings. Take advantage of any workplace match if available.
Contribute the Maximum to an IRA
You can save up to $6,500 per year in an IRA (or across several IRAs). The total contributions you can deduct from your taxable income vary based on your earnings. Consider saving in an IRA once your 401(k) is maxed out for the year. A Roth IRA can offer different tax benefits compared to a 401(k).
Take Advantage of Catch-Up Allowances
Both 401(k)s and IRAs allow savers aged 50 and older to save more per year to catch up on retirement contributions. In 2023, you can save an extra $7,500 per year in a 401(k) or other workplace retirement plan and an extra $1,000 per year in an IRA starting at age 50.
You’re Considering a Career Change
Making a career shift, especially if it involves going back to school and reducing working hours, requires careful planning. Here are some strategies to help you save for school, basic expenses, and other future goals:
Set Up a 529 Account for Yourself
A 529 account isn’t just for children; you can also open one to save for your own future education expenses. Since a 529 plan is an investment account, it’s best to have some time to let your money grow. Choose investments that align with your timeline, limiting riskier investments if you plan to go back to school soon.
Make Use of Certificates of Deposit (CDs)
CDs offer higher interest rates than traditional savings accounts in exchange for locking away your money for a set period. You can use a CD ladder to save in three separate CDs with maturity dates of one year, two years, and three years. This strategy allows you to earn interest and access your savings when needed.
Limit 401(k) and IRA Contributions
While saving for retirement is crucial, there are times when it makes sense to decrease contributions and reallocate the money. During a career pivot, consider contributing only the amount your employer will match or a reduced amount if you only have an IRA. Save the rest in a high-yield savings account for easier access.
You’re Considering Buying a House
Saving for a down payment is a common goal for many prospective homebuyers. Depending on the type of loan, your credit score, and the competitiveness of your local market, a down payment may need to be as much as 20% of the home’s purchase price. Here are some tips to help you save:
Cut Expenses to Find More Savings
Building a down payment fund can be challenging, so look for ways to increase your savings. Cut subscription services you don’t use, dial back your cellphone plan, sell unused items, or even rent out your car. Every dollar helps.
Save in a CD
If you plan to buy a house in a few years, consider saving a portion of your money in a CD to capture a higher interest rate. This ensures your money stays locked away for this purpose. Keep some savings more accessible in case you decide to buy a home sooner or face an emergency expense.
Use Savings for Pre-Sale Repairs or Renovations
If you’re already a homeowner, certain home improvements can increase your home’s sales price. A kitchen renovation or finishing a basement can be wise uses of your savings.
Saving for Life’s Big Milestones
Reallocating savings and learning about different options can be time-consuming, but it’s a positive move that puts you on the path toward the future you want. At O1ne Mortgage, we’re here to help you navigate these changes and achieve your financial goals. Call us at 213-732-3074 for any mortgage service needs.
