How to Analyze Life’s Big Money Decisions

Are you working hard to navigate life’s major money-related challenges? Recent years have witnessed how technology allowed us to be more in control of our finances, some apps and software programs exist to be useful in helping you get a better handle on your money. However, millions of people still struggle to do something as simple as setting up a basic savings program. Others find it difficult to evaluate real estate opportunities. It seems as if everyone has a personal sticking point or one situation that stumps them despite their best efforts and intentions.

If it’s not saving money or buying property, it might be establishing a retirement account or getting a worthwhile life insurance policy. Eventually, most must deal with at least four different decisions. Whatever your personal situation, review the following points to gain a clearer perspective on the most common obstacles today’s working people face.

Establishing a Savings Plan

There are dozens of excellent strategies and tactics for building a savings plan, but the simplest ones tend to bring the most lasting results. If you currently do not save money on a regular basis, try to begin slowly. The initial goal is to create a savings habit, not to sock away a specific amount of money. Many working adults discover that they can set aside between 2% and 10% of their earned income.

As a first attempt, enroll in a plan through your employer or bank so that automated paycheck deposits deliver a fixed amount to a designated savings account. Later, after experimenting with amounts, use a fixed percentage of every paycheck, and try to find a level that you can consistently place into the savings account. When possible, use an interest-bearing account, like a certificate of deposit or money market. It’s wise to earn a competitive rate on what you set aside so that the balance can grow as time passes.

Evaluating Real Estate Opportunities

Sizing up real estate opportunities can be tricky for those who have never purchased a piece of property. However, the essential concept behind the effort is the same one that governs so many other types of investing decisions such as putting X amount of capital into a given asset class with the intent of removing an amount greater than X after some amount of time has elapsed. Those who engage in real estate transactions expect to realize a gain when they decide to sell.

For diligent investors, it’s imperative to know the internal rate of return (IRR) before putting any capital at risk. What is IRR, and how can you benefit by knowing its value? Fortunately, you can determine your internal rate of return by reviewing a guide that explains why it’s so important, how to apply the principle, how it operates in the real world, and more. Once you acquire a familiarity with IRR, it’s much easier to evaluate real estate opportunities and choose the ones that are most suitable for your particular risk tolerance level, budget, and portfolio.

Choosing Between a Roth and Traditional IRA

The majority of working adults are faced with a common decision about which kind of individual retirement account to open, a Roth or traditional version. While part of the equation depends on personal preferences, there’s a strong case for choosing to place after-tax money into the account, which is what a Roth IRA accomplishes. The major advantage is that once you reach retirement age, you can make withdrawals tax free no matter what income bracket you’re in.

Traditional accounts give savers the unique benefit of avoiding tax on the contribution upfront, which can result in a substantial advantage. However, at retirement, account holders must pay tax on the entire amount withdrawn at their current tax rate. If you’re on the fence about which method to use, calculate estimated savings under both types of IRA and see which one is likely to deliver the best results.

Buying Life Insurance

Analyzing the purchase of life insurance is best done with professional help from a licensed agent. Try to work with someone who has several years of experience selling different kinds of policies. Aim to find the ideal amount of protection based on your income level, number and age of dependents, and other financial goals. Keep in mind that many policies come with savings features that allow for interest-free borrowing, tax-free growth of principal, and more.

For working adults who want a simple solution, term insurance can be a wise choice. Policies don’t include savings features and tend to be substantially less costly than whole life coverage with the same benefit amount. In most situations, holders can sell their life policies to third-party buyers under certain circumstances if the face value of the coverage exceeds a certain amount and other conditions are met.

About The Author

Scroll to Top
Share via
Copy link
Powered by Social Snap