Skip to main content

How to be frugal and invest the difference

By WTOP Staff

It can be disappointing to hear that the secret to building the finances necessary to fund a comfortable retirement is that there are no secrets. All you have to do is live below your means, invest the surplus and stay the course. This simple strategy gives almost everybody a chance to accumulate wealth. And if you are willing to reduce your expenses and use the money to buy an index fund, your investments may eventually churn out enough income to allow you to pay your bills without working for the rest of your life.

Don’t believe me? Here’s an example to illustrate the point. Let’s say you found a way to cut out an expense that costs $50 a month and instead saved that amount every month. After 15 years that $50 a month contribution will grow to $15,848, assuming 7 percent annual returns. And 30 years of saving $50 a month will lead to about $61,000. If you then use the 4 percent safe withdrawal rule, this amount of savings will allow you to withdraw $203 per month throughout retirement adjusted for inflation. That’s a lot more purchasing power than the $50 per month you gave up to save for retirement.

Of course, first you have to find $50 a month in savings. Here are three easy ways to cut spending so that you can begin to grow wealth:

Reduce your phone bill. There was a time not long ago when cellphones and especially smartphones were considered luxuries. But if your smartphone is a necessity for you now, there’s no reason you also need a traditional phone line. Paying for both a cell phone and land line is duplicating the same service. Pick one, and reduce your monthly cost. Carefully weighing the benefits of family plans and various data packages can also save you a significant amount of money.

Cut out cable. Many families pay $100 a month or more just to watch TV. But there are lots of ways to watch the shows you love at a lower cost. Some networks put many of their shows online for free, and a Netflix or Hulu subscription gives you lots of TV options at a fraction of the cost of cable. We don’t have a cable subscription and don’t miss it. If you can’t possibly part with your cable TV subscription, consider negotiating your rate or switching providers to lower your monthly payments.

Save while eating out. You don’t have to stop going out to eat all together. Just stop ordering $5 drinks for every member of your family when you do go out and you’ll easily save $50 a month without reducing the frequency. And many places have main courses that are plenty big without tacking on appetizers and dessert. A few minor adjustments to your dining habits could easily result in $50 in savings.

Once you find your $50 per month in savings, the key is to invest the money, preferably in a tax-preferred account. Putting the savings in a traditional 401(k) or IRA will allow you to get a tax break and your savings will grow unhindered by taxes until you withdraw the money. However, after-tax Roth IRAs and Roth 401(k)s can also be a good choice, especially if you are currently in a low tax bracket. Then you can pay tax on the money now at your low rate and withdrawals from the account in retirement will be tax free. If your employer will match your retirement account contributions your money will grow even faster.

Building wealth is easy enough, but most people can’t seem to do it. It’s important to make sure you invest the $50 per month you cut out of your budget and don’t just shift your spending to something else.

David Ning is the founder of MoneyNing.com .

More from U.S. News

10 Retirement Savings Tips for 20-Somethings

10 Places to Buy a Retirement Home for Under $150,000

The 10 Best Places to Retire on $75 a Day

How to Be Frugal and Invest the Difference originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
Read Next Story

Related News

Frustration grows in Venezuela as earthquake death toll reaches 1,430

Israel and Lebanon sign framework agreement with US in ‘first step’ toward peace, Rubio says

Trump-endorsed populist poised to become Colombia’s next president as rival challenges vote