Four Money-Saving Tips for Members of Generation X
Members of Generation X, those born between 1965 and 1980, largely grew up before the internet and cell phones.1 This generation prides itself on self-reliance and entrepreneurship, boasting membership as diverse as Jeff Bezos, Serena Williams, and Julia Roberts.2 But Gen X-ers have also dealt with some unique financial challenges. Many were hit by the early 1990s recession as they were beginning their careers, further buffeted by the dot-com crash of 2000 and the Great Recession in 2008. What can members of Generation X do now to shore up their finances for the future?
Boost Your Income
Cutting expenses can be tough, especially if you have children, a mortgage, or other hefty expenses. One way to provide a bit more wiggle room in your budget without pinching pennies is to get a side hustle or second job. Whether you opt to deliver food through Doordash or Instacart, serve as a private taxi through Uber or Lyft, or moonlight performing a service or skill that's more closely related to your day job, taking a few hours a week to earn some extra income can pay off in the long run.
Increase Retirement Contributions
It can be easy to tell yourself you'll start to save more for retirement when you get a raise or pay off some debt. But through the power of compound interest, increasing your contributions now can actually reduce the amount you'll need to save later. If you can, set your retirement contributions to automatically increase every few months or put the full amount of a raise or bonus toward your 401(k). Your future self will thank you.
Consider Opening a Roth IRA
The Roth IRA wasn't introduced until 1997, when the youngest members of Generation X were just headed off to college.3 As a result, some members of this generation haven't yet taken advantage of the Roth's tax-saving structure. Unlike a traditional IRA, where you contribute funds pre-tax and future withdrawals are taxed at your highest marginal rate, a Roth IRA is funded with post-tax money. This means that withdrawals from a Roth are entirely tax-free.
By splitting your retirement savings between a 401(k) or traditional IRA and a Roth IRA, you'll be able to provide yourself with a source of tax-free income in retirement. And if you expect to pay a higher tax rate in the future, prepaying these taxes by contributing to a Roth can mean more money in your pocket.
Don't Be Afraid to Ask for Help
A financial professional can work with you to visualize your future financial goals and help you decide how to get there. Whether you're worried about putting kids through college while saving for retirement or are hoping to make a career change that might come with a pay cut, a financial professional can help you create a detailed plan to move you toward your goals.
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The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
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