Making a living in the volatile world of financial markets, has  taught me to appreciate the simple things in life, like the benefits of having a  Roth IRA.  Before I explain all the meaningful benefits of a Roth IRA, I want to put the Roth IRA in perspective.

Whenever you are saving for a particular goal, you need to consider your strategy (time frame), the savings vehicle (tax structure) and ultimately the investments that go into the savings vehicle.  The Roth IRA is simply a savings vehicle that offers many great benefits as long as you follow the rules.

A Roth IRA should not be associated with high volatility and high risk investments only.  I am pointing this out because many people have stopped contributing to IRAs, Roth IRAs and 401ks because they associate the recent stock market volatility with their 401k and IRA or Roth IRA.   This is a mistake.   Remember that the Roth IRA is a savings vehicle (a tool) that can hold everything from gold coins, cash, stocks, mutual funds, currencies and more.  It can hold almost anything your bank can and usually a lot more.  The difference is the tax benefits and liquidity versus it’s peers.    How did investors start to associate their 401ks and IRAs with high risk investments?   The simple answer could be that 401ks and IRAs are considered for long term investments.  But it goes beyond that.

After 9/11 and the recent financial meltdown many investors have naturally been  associating savings vehicles like 401k and Roth IRAs with losing money.  You really can’t blame them if you look at the past 10 years .  As we run through the benefits of owning a Roth IRA remember the benefits are realized whether you invest in cash, gold, stocks, T-Bills, etc.  Developing a sound investment strategy or thesis is something completely different.   Just be sure to follow the rules.

The Tax Advantages – Hands Off Pay Now and Play Later

My mother is an aggressive saver.  She managed to amass a healthy nest egg through her 403 (b) while she was a school teacher for 35 years.  Recently, she had to consider the implications of “tax-deferral” versus after tax savings money, as she will have to take  “Required Minimum Distribution” (RMD) when she turns 70 1/2 next year.  My favorite feature of the Roth IRA is that any money that is placed in a Roth is free of capital gains and income taxes when you retire.  This means that when you retire, the government keeps their hands off your money.

The Roth Rules

As with any government tax break, there are certain rules to follow.   First, the Roth IRA can only be funded with earned income from a job. You can’t just move other money into your Roth.

There are also Roth IRA income limitations or caps to be aware of.  For 2010, you can contribute the full $5,000 as long as your income is below $105,000 (single) and $166,000 (married filing a joint return)   This is why the Roth IRA is a great tool for younger investors who are just getting started investing.

Additional Benefits of the Roth IRA

While the goal of the Roth is long term savings, you can take contributions out anytime, tax free, without penalty and you don’t have to put the money back (as you would with a 401(k) loan).  Although the best strategy is to keep your money growing tax free in your Roth and have a separate emergency fund, it is good to know the Roth is there if you get into a pinch financially.  The Roth’s ability to create tax free liquidity is also a major reason I prefer the Roth to a traditional IRA.

Roth IRA For First Home Buyer

The IRS will allow you to withdraw up to $10,000 (including earnings; not just contributions) towards the purchase of your first home.   This is as long as your Roth has been opened for 5 years minimum.  You can take it out prior to 5 years, although you will have to pay taxes, just not the 10% penalty that comes with a traditional IRA early withdrawal.

Roth IRA for Children’s Education

With a Roth IRA you can access contributions to pay for your child’s tuition and education costs.  While there are other savings vehicles for your child’s education, it is good to know that you can give your kid an assist if needed from your Roth.

In Conclusion, I think the Roth IRA is simply one of the best savings vehicles available to investors today.  The tax benefits, high liquidity and flexibility make a Roth IRA a “must have” in my opinion.

I hope you found this article helpful in pointing out the benefits of owning a Roth IRA.

In Savings Habit 3, We looked at why it is wiser to Use Cash Versus Credit and Debit Cards for Discretionary Purchases Today, we are going to look at the final Savings Habit in our 4 part series:

Savings Habit #4.  How To Avoid All Unnecessary and Late Fees! - What’s worse than giving the government an interest free loan?  How about throwing away money already in your pocket?  If you were to go back and check the amount of late charges and ATM fees you paid over the last year, I am guessing it is somewhere between $100-$500.  That is real money you’re throwing away and by doing this, you are going the wrong direction.  Remember it’s not so much the amount of money but the direction and path you are on financially.  One way to avoid paying late fees is to Automate Your Finances. Let’s look at what you can do right now to fix this and stop paying these fees!

Action Step 4: In an earlier post, I wrote How To Automate Your Finances in 2010.  No Surprise; this was one of  The Wise Buck’s Most Popular Posts.  Read this post and simply start doing these things today.  The time management benefits alone are worth it alone but don’t you really want to stop throwing that money out the window?

By automating your bills you will be sure they paid on time and you will avoid paying late fees in the process.  Something that has genuinely helped me manage my personal financesis that on every 3rd Wednesday of the month, I review all my bills to make sure they are paid.  Then, I review all my accounts for potential errors or discrepancies.

Conclusion

I hope you have found this 4 Part Series on How To Boost Your Savings relevant and useful.  The only thing left is for you is to take action and implement the steps.  Here is what I would do.  Put aside 1 hour.  Then, go back, read through each of these 4 Savings Habits and begin to implement them one at a time.

These 4 simple savings habits and steps in between have made all the difference in the world for me.  The best part is that none of these ideas require that you earn a higher income.  These steps WILL put more money back into your pocket and make you feel a lot wiser for doing so.

Share your ideas as to how you are putting these and other savings tips to work for you.

In Savings Habit #2, we talked about how Not To Pay More Income Tax Than You Owe Now, we are going to do something more interesting and definitely A LOT  more fun!   By the way, it’s okay to have fun with this stuff.  There is no rule that says you have to struggle through these steps (as if they were chores) Make them fun!

Savings Habit 3. Use Cash for Discretionary Purchases - I’ve often heard Dave Ramsey proclaim (And, I agree with him) that paying cash for things hurts more than when we use plastic (debit or credit cards).  It seems that we just aren’t as sensible when we are using our credit or debit cards; this should be evident given the economic climate.   Yet, we are much more reluctant to spend when we have to give someone our “hard earned” cash.  This is because we assign a positive emotion to cash and it’s hard to give it up.  We’re attached to it! Want to put this to the test?  I do and I am.

Action Step: Beginning next Sunday, go to your local ATM and withdraw the amount of cash you would typically spend on discretionary items for the week (food, gas, coffee, snacks, lunch, etc)  The rule is that you can’t use your credit or debit card the whole week.   See how you fare.  Do you feel an emotional pull when you have to pay with things for cash?  Do you give more thought to what you are buying?  Do you find yourself putting things back on the shelf?  These are some of the results many people have when applying this technique.

If you’re like most people, you will find that you spend a lot less than if you had used a credit or debit card.  Do you think this will work for you?  Please explain why or why not?

In Savings Habit 4 we will look at How To Avoid All Unnecessary and Late Fees for Everything once and for all.  I will teach you strategies on how to do this.

So, In Step One we looked at How To Get The Most Out of Your Current Savings. This is the concept of not leaving available money on the table.   And, while we don’t want to leave money on the table – Guess what?  We also don’t want to pay more taxes than we owe.  What I am showing you here is completely up to you, but I would suggest that you stop giving the government an interest free loan.  That money should go into your new found High Interest Checking Account, right?   You want your money working for who?  You…

Step 2. Don’t Withhold More Taxes Than You Owe

I used to look forward to that reliable tax refund check at the end of the year.  Many of us intentionally have more taxes withheld than we owe to avoid an inconvenient tax bill at the end of the year.  However, those excess withholdings could be earning you interest .  When you start to earn enough interest on your savings, you can buy whatever it is you would have bought with that tax refund anyway.

Action Step 2: Check out the IRS’ Withholding Calculator Figure out your correct tax.  Adjust your withholdings with your employer or CPA.  Now that that extra savings and put it into your new high interest checking account.

In Savings Habit 3 we will look at something very interesting: the concept of using cash versus credit cards to pay for discretionary items.

One of my goals for the month is to provide you with some valuable ideas on how to improve your savings habits.   And, while some of these savings tips may sound simple,  let me share a little secret with you:  The key to improving your financial profile isn’t about one killer idea or hitting the lottery, but rather its about developing a set of very simple and proven habits that work over time.   These habits will set you in the right direction and give you the control over your life your are looking for.

I’ve learned that developing these solid habits while respecting my limitations (not taking unnecessary risks) has made all the difference.  This also makes the journey much more enjoyable.  If your financial life seems out of control, understand that you will start off slow and eventually gain momentum.  Then, suddenly all of these habits will kick in and pay dividends. Pay attention to the order of things here because most people look for the results first with out practicing the habits.  And it just doesn’t work that way.  However, if you read most of the marketing messages out there it’s understandable why so many people fall off course.

Initially, these dividends are nickels and dimes.  Then, they become quarters and dollars.  Eventually, if you stick with what I am about to show you, these dividends become the equivalent of a phone bill, a car payment, the mortgage and eventually your entire monthly expenses.  The idea is to make your money work for you versus you being a slave or subservient to money and debt.

Over the course of the next several days I am going to introduce these 4 Savings Habits to you.  For today, we are going to look at your current savings accounts and show you how you can more than double the current interest rate being paid.

1) Get The Most Out of Your Savings – This isn’t the first time I’ve suggested the idea of making your money work for you versus you being a slave to debt.  Previously I wrote How I am Earning 4% on my Checking Account and You Can Too High Interest Rewards Checking Accounts that are backed by FDIC banks currently offer interest rates between 3% t0 5%.    I am guessing this is much higher than your big bank who is currently paying around .50%.   That difference is around 3% to be conservative.  On savings of $10,000 that is $300 per year of $25 per month.  That’s your internet bill right there.

Action Step 1: Stop and evaluate your current savings accounts and check out Check Finder and locate a rewards checking account near you.

Next,  we will look at how to stop paying unnecessary taxes.

Lately, you’ve heard of PIIGS?  I’d imagine your next thought is what are these people referring to?  No, it’s not that farm animal in your head.  I typically write about personal finance topics.  You know things like getting out of debt, how to plan for retirement, etc.  However, in order to act prudently it helps to understand the world around us.  So, what are these PIIGS anyway?

One of the things that happens after a boom is that you have to deal with the debt and easy credit that was created.  Countries that borrowed too much during the boom times are struggling to pay their debt back to their competitors.  Eventually, some of them default as a result of weakening demand.   As the world’s reserve currency, the Federal Reserve has the ability to print money and essentially buy the bad loans off the balance sheets of banks and even other countries, in order to protect the financial system.  People get really riled up about this…but guess what?  That is actually their job, like it or not.  I don’t necessarily agree with how they are doing things but that is their job (protect their charter banks) It’s not a conspiracy.  Onto how this started…

In 2007 it was the sub prime lenders.  In 2008 it was the investment bankers.  In 2009, I would guess your bank changed names?  Guess what is next?  Countries. Yes, countries.

The countries most likely to blow up this time around are the “PIIGS”: Portugal, Ireland, Italy, Greece, and Spain. One ore more of them will likely default in the next couple of years. And, that could result in the death of the Euro currency.   Now a lot of people are calling for the death of the dollar.  What they fail to realize is the entire global banking system uses USD as their reserve currency.  By default, the dollar will be the last to go…My guess (And I am not a gambler) is that the dollar will be on par with the Euro in a couple years.

It’s like watching history in the making.  Kind of exciting if you ask me.  Eventually we’ll (most likely have to go to a resource backed currency) in years, not months.  And this is how you bring value back into a financial system that is falling apart; you back it with SOMETHING!  Time will tell…it’s only time.

Things change.  Everyone is guessing right now.   Asset protection is your #1 priority, IMHO!

Bernie Madoff’s ponzi scheme affected thousands of lives.  Did you know there was one person who had been tracking Madoff and his Criminal Syndicate for years?

Saving Money Online with Digital Coupons, Freebies, and Comparison Shopping

One of the areas we need to  look at and examine when it comes to saving money is not just how much we’re putting away but how we can save money on things we are already spending. And, that is one of the keys; things we are already spending money on.   “A penny saved is a penny earned,”  The saying goes.

The internet has allowed us to save money by eliminating or reducing numerous expenses.  To mention a few: postage, telephone services and travel (as many work from home).  To put it mildly, the internet is a great invention for it allows us to save money.  But we have to know where to look to find the savings.  In this post, I will give you some really cool and simple places where you can save money.   The good news is that you no longer have to clip coupons out of the Sunday paper.

“Motivation is what gets you started. Habit is what keeps you going” – Jim Rohn