“Smart Savings Tips for Life’s Big Milestones”

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In This Article:

• You’ve Had a Major Life Change
• You’re Approaching Retirement
• You’re Considering a Career Change
• You’re Considering Buying a House
• Saving for Life’s Big Milestones

It’s always wise to save money for emergencies and goals you’re working toward. However, your financial journey won’t be linear. Major events can cause your savings to speed up, slow down, or be reprioritized.

For instance, if you just had a baby, you might redirect some savings to a college fund. Or if retirement is near, you may decide to maximize your 401(k) contributions this year.

You’ve Had a Major Life Change

Significant changes like marriage, divorce, having a baby, or caring for an aging parent may require a shift in your savings plan. Here’s how to update your strategy:

Set Up a 529 Plan

When you have a baby, it’s time to start thinking about their college education. One way is to set aside a certain amount per month in a 529 plan, an investment account for educational expenses. You can even set up a 529 plan before your child is born. There are two types: prepaid tuition plans for specific schools and education savings plans for any college or graduate school. Ensure you’re saving for your own retirement before prioritizing college savings.

Strengthen Individual Savings Before a Divorce

During and after a divorce, your financial stability is crucial. If you didn’t have a substantial savings account during the marriage, save in a high-yield savings account leading up to the divorce for financial flexibility afterward.

Build a Home Improvement Fund

If an elderly parent or another family member is moving in, save specifically for a home remodel or new furnishings. A high-yield savings account is a good choice. You could also 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 likely have more flexibility to prioritize saving. Here are some options:

Maximize Your 401(k) Contributions

If you’re currently saving 10% of your income in your 401(k) but it doesn’t add up to the $22,500 maximum yearly individual contribution allowed by the IRS, increase your monthly savings. Make use of a workplace match if available.

Maximize IRA Contributions

You can save up to $6,500 per year in an IRA. 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 also offer different tax benefits.

Take Advantage of Catch-Up Allowances

Both 401(k)s and IRAs allow savers 50 and older to save more per year. In 2023, you can save an extra $7,500 per year in a 401(k) 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, requires planning. To save for school, basic expenses, and future goals, try these strategies:

Set Up a 529 Account for Yourself

A 529 account isn’t just for kids; you can open one for your own future education expenses. Since it’s an investment account, choose investments appropriate for your timeline. If you plan to go back to school in a few years, limit riskier investments like stocks.

Use Certificates of Deposit (CDs)

Save money in CDs, which offer higher interest rates than traditional savings accounts in exchange for locking away your money for a set period. Use a CD ladder to save in three separate CDs with maturity dates of one, two, and three years.

Limit 401(k) and IRA Contributions

While saving for retirement is important, it may make sense to decrease contributions during a career pivot. Contribute 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

Before buying a house, many focus on saving up a down payment. Depending on the loan type, credit score, and local market, a down payment may need to be as much as 20% of the home’s purchase price.

Cut Expenses to Save More

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.

Save in a CD

If you plan to buy a house in three years, save a portion of your money in a three-year CD to capture a higher interest rate. Keep some savings more accessible in case you decide to buy sooner or an emergency arises.

Use Savings for Pre-Sale Repairs or Renovations

If you’re already a homeowner, certain home improvements can result in a higher sales price. A kitchen renovation or finishing a basement can be a wise use of savings.

Saving for Life’s Big Milestones

Reallocating savings and learning about different options can be time-consuming. However, changing your savings strategy usually means something significant is happening in your life. Recognize the shift as a positive move toward the future you want.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with expert advice and personalized service.

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