Money Tight? Make it Work Harder For You

March 11, 2013

Last year, employees got a break, a 2% bump in their take home pay, thanks to the payroll tax holiday enacted by President Obama to try to boost the economy in 2011- 2012.  The employees’ share of Social Security taxes were reduced from 6.2% to 4.2% for a time.  Like all good things, it came to an end and now employees are feeling the squeeze.

Now more than ever, it is important to have your money work hard for you.  If there are ways to maximize earnings, take advantage of them. Here are some ideas to get you started:

Use your Roth IRA as a back up emergency fund. Many people don’t realize that you can access the principal –your contributions– invested in a Roth IRA without a penalty from the IRS.  (The earnings are subject to taxes and penalties if you withdraw them before five years or age 59 1/2.)  Obviously you wouldn’t want to use this as a put and take account like a savings account but in order to fully fund your six months of expenses, you could include your Roth IRA contributions toward your emergency back up  in a pinch.

Maximize your employer contributions.   If you capture a dollar-for-dollar employer match in your 401(k), you just doubled your money.  A $1 for $1 match is equivalent to 100% interest and 50% interest if your match is fifty cents on the dollar.  The rule of thumb is to save 10% of your income for retirement (12% for women since we live longer).  Ideally, you would like to save 10% yourself but in a pinch you can include the employer contributions in the calculation. Just double check your employers vesting schedule because many employers won’t pay those out unless you are with the company for at least three years.

Use points for products. If you are disciplined enough to pay off your credit cards each month, make your purchases with a points card and then use the points for gift cards to the stores you frequent. This way if you are a music lover, you can get your iTunes purchases for free. You could even use your points for gas cards or household goods at stores such as Target or Bed Bath and Beyond.

If you are making the purchases anyway, the points are extra. In my case, I use a points card for my business expenses and use the points for gift cards  – birthday and Christmas presents for my adult children (and sometimes for myself! )

These tips can certainly be used any time but until our economy turns around, whatever we do to make our money work harder for us is a big help.