Photo by micsalac.

In my last post, Save Early and Become a Millionaire, I commented on how a 16 year old can go from a pauper to a millionaire by saving up some cash and investing it in a Roth IRA over 40 years. I wanted to do a little more research and find out exactly what an IRA is. So this is what I found out…

IRA stands for Individual Retirement Account. It’s a retirement plan that lets you contribute up to a certain amount per year and provides tax advantages too. After you establish the account you can invest in bonds, stocks, mutual finds and CDs just like a regular cash account. There are a few different IRAs but the two most common types are Traditional and Roth. Roth IRAs were created to encourage people to save for retirement by offering significant tax breaks.

So what’s the difference between Traditional and Roth? Good question. Now listen up, this part is important. With a Roth IRA you pay income tax, and then make your contribution with after tax dollars. There are no taxes when you make a withdrawal. With a Traditional IRA you get a tax deduction, which lets you deposit before tax dollars then when you make contributions but you also pay income tax on the entire amount of your withdrawals. Roth has the extra advantage since taxes will probably rise in the future; paying taxes now rather than later will save you money in the end. Read more…

Photo by theritters.

It’s easier than ever to become a millionaire. So what’s the secret? Don’t laugh, but it’s plain old saving. Getting an early start on your savings coupled with the right investing strategy will bring you up to millionaire status. The catch? You’ll have to wait a few decades.

According to the MSN Money article Start on your first $1 million at age 16, the simple recipe to become a millionaire has five simple steps:

• Work 4 summers, from age 16 to 20
• Save the income in a Roth IRA account
• Invest in a simple, low-cost equity portfolio
• Wait 47 years
• Collect at age 67, untaxed and ready to spend (maybe on a new hip by this point)

The article takes into account that, starting from age 16, a person earns $2000 each summer for four straight summers. Then if invested in a Roth IRA, it will grow, tax-free, for as long as the account exists. All withdrawals from the account after age 59 1/2 will be tax-free. The money grows to $25,917 by age 30, $197,943 by 50, $547,037 by 60 and finally gets over one million by age 67 or $1,114,423 to be exact.

Two problems I see right away. First, getting an average return of 10.7% isn’t as easy as the article says it is. But, then again, some people say the opposite. The article also states that if you invest in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you will have even more money. Nice to know. Read more…

Staying out of debt can be tough. Spending less than you earn is the best way to ensure your personal finances won’t suffer. But to avoid risk in other ways you must learn to find the best deals for the things you buy. This means looking for the best deals and sometimes buying used instead of new. To help you out with this task, here is a list of things that you should never buy new.

CDs, DVDs and video games can all be bought used to save up to half of the retail price. You can find used media and games at Gamestop stores and online at SecondSpin and Wherehouse. If you are a frequent DVD renter, think about renting online through Netflix or trade them with other people through Peerflix.

Used books can be bought through the usual sites: Amazon, SecondSpin and Half.com, as well as sites like bookfinder.com and abebooks.com. You may have not thought about this but you can borrow books for free from your local library. Libraries still exist and good ones can be found in every major city. Textbooks usually carry a high price tag so it pays to buy used or rent them. So if you’re a college student and are looking for textbooks, try Chegg.com. Here you can rent books by receiving them through the mail. Simply return them when the semester is over. This is ideal for textbooks since they almost always go unused as soon as the class is complete. Read more…

Looking to take an extended vacation overseas? Maybe if you’re a student you have plans to spend Spring Break ‘08 in Cancun this year? There may be something you haven’t thought about. You may not be aware but your credit card could have extra transaction fees associated with every purchase you make. So before you take out the plastic, you should know about your card’s overseas fees.

To the joy of credit card companies everywhere, credit cards are becoming more accepted in a growing number of countries around the world. When once only hot-spot tourist destinations like Paris and Barcelona accepted credit cards, many more places off the beaten path are starting to accept plastic also, such as eastern European countries, the Middle East and India, just to name a few. For those who are wary of carrying gobs of foreign cash or traveler’s checks with them, credit cards provide a useful alternate for travelers. Read more…

The cost of college is rising. Fast. While tuition continually out paces the rate of inflation, middle class families can easily be left behind if planning for college costs doesn’t start early. To get started, check out state-sponsored college savings plans, often called “Section 529 Plans.” These plans are designed to help families save funds for future college costs. Here is what you need to know to start saving with a 529 college savings plan. Read more…

Besides tuition and housing, gas may be one of the biggest expenditures that you will have to face while attending college, especially if you live a long distance from your school. And with the rising cost of fuel this summer, its always a good idea to adopt new ways to conserve gasoline. Here are some great tips and tricks to help save gas money this summer. Read more…

When I was a college student I rarely had any extra money, but when I did I was responsible and saved it. That extra money went into my savings account and sat there, never doing anything until one day I closed the account when I moved away. The point of this story is that there is a better way. Instead of putting away savings that won’t work for you, put that same money into a high-yield savings account that will work for you! There are many high-interest savings accounts out there, just take your pick. Read more…