Hey all! Today I have a guest post for you by Gavin McMaster. He's going to teach you 6 smart ways to invest $100 per month.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style, and believes patience in waiting for the best setups is the key to successful trading. Gavin has written 8 books on options trading, and you can find more from him at www.optionstradingiq.com
With the end of the financial year days away, now is the perfect time to start investing into your future with as little as $100 per month.
$100 is not a large amount of money and whilst this may seem insignificant considering the price of certain investments can be well over $100, it is important to remember that compounding exists – your
$100 monthly investment may be worth upwards of $1000 in 25-30 years’ time!
When researching this article, I reached out to financial advisors in order to understand how they would invest an extra $100 per month in this upcoming financial year.
1. Pay Off High Interest Debt
Debt is boring, we all understand – however, one must acknowledge that paying off high interest debt such as credit card debt is the first step in improving your financial position, which will subsequently allow you to invest $100 per month.
According to debt expert Chris Peach, you should be consistently checking the interest rate you’re paying on your credit cards, keeping in mind that the average credit card APR is well over 17%.
“For most people, getting an 18% return on your investment every year is more like a dream come true than a reality,” Mr. Peach said.
Luckily, one can achieve an 18% return or similar by paying off their high interest credit card debt and saving the money you would be paying each month to interest.
For instance, you may have a credit card balance of $10,000 at 18% APR, for this example, you have been paying the minimum monthly amount on the card for years.
The minimum payment for this balance would be $200 per month, meaning in 94 months you would have paid off the balance, which subsequently results in an additional $8,600 being paid in interest.
Let’s say you contribute an extra $100 each month to pay off that high interest debt, you will pay off the balance 47 months earlier and save almost $4,000 in interest payments.
That’s not bad for a monthly investment of $100, is it?
2. Save for Emergencies
Saving for emergencies is no doubt one of the most important investments you can make for your safety.
Financial advisors say that one should have around three months of living expenses saved up as an emergency fund.
It would be smart to keep your emergency savings in a high interest saving account to maximise on the money being stored in the bank.
Having an emergency fund can save your other investments by providing for you if job loss or injury occurs.
3. Increase Your 401(k) Contributions
A 401k is one of the best investments you can make for your future after you retire from the working sect of society.
They’re an excellent place to start if your employer offers one and particularly if you can qualify for an employer contribution match.
If you qualify for an employer contribution matching scheme, it will be the closest thing to ‘free money’ you will ever receive as whatever you contribute into the fund, your employer will have to do the same.
Striving to boost the percentage of your contributions is always an excellent school of thought to engage with, by investing an extra $100 into the fund each month you will have an additional $36,000 at the end of 30 years of work.
It’s a lot, isn’t it! So why not give it a try?
Your 401k can also grow tax-free and compound over extended periods of time to make you an even greater return on your initial investment.
4. Save for Healthcare Expenses in an HSA
Financial planner Taylor Schulte asserts that if you have an emergency fund and have paid off any high interest debt, the best place to put an extra $100 a month is into a health savings account.
“The HSA is the magical unicorn of tax-advantaged investment accounts,” he says. “Unlike any other account, they are triple tax-advantaged.”
You can invest up to certain limits on a tax-advantage basis each year. After this, your money compounds tax-free.
Related Post: How Compound Interest Will Make You Rich
When you receive distributions in order to pay for eligible healthcare expenses, you won’t have to pay any taxes.
There are some strict requirements if you were thinking of setting up an HSA, the most paramount being that you have a high deductible health plan.
The IRS, for 2020, references on their website that a plan with a deductible of at least $1,400 for an individual is considered a high deductible plan.
It is crucially important to keep enough cash in your fund to pay your insurance’s annual deductible in the event of unexpected health complications and costs.
“With regular contributions, potential investment growth, and minimal withdrawals, you’ll have an account that may be used to fund medical expenses in retirement without tax penalty,”
5. Put $100 a Month Into a Roth IRA
You should consider investing some extra cash into a Roth IRA if you meet the requirement to open this type of fund.
Most brokers will allow you to open this type of account.
This account requires you to contribute funds that have already been taxed, however, once they have been deposited, your money can grow tax-free.
Most commonly, the maximum contribution amount for a Roth IRA account is $6,000, however, for people aged over 50, $7,000 can be contributed.
If you deposit $100 a month into a Roth IRA and do so for 30 years, you will have a handsome retirement fund for your later years.
6. Invest in Yourself
No, I don’t mean invest in a spa treatment or a massage. When I say invest in yourself, I mean education, personal training sessions, or professional development.
If you are able to acquire nuanced concepts and knowledge, then your future job prospects may be greater, which will, therefore, allow you to earn a higher yearly income.
Wrapping It Up
Learning new skills is key to opening new doors and career paths, if you spent $100 a month on various books/audiobook or training courses, by the end of the year the knowledge you would have amassed will be worth well over $1200.
Thanks for reading.