Pay Yourself First: Lower Your Car and Homeowner’s Insurance
If you are like a considerable segment of the population, you may do little to no shopping around when it comes to your automobile and homeowner’s insurance. You go with the first insurer and write a for the premium. Or you just renew your current coverage. Even when the premium is a little higher for the same coverage. You should, however, obtain new quotes to save money on your car and homeowner’s insurance. You can usually find savings, and with those savings, you can Pay Yourself First by investing them in your own retirement.
Key to Lowering Your Overall Insurance Costs
It just makes sense to lower your cost for the same amount of coverage. Whether it’s an auto or homeowner’s policy, the marketplace for these types of insurance is competitive. Investing the amount saved in yourself, in an IRA, for example, is a great way to add to your retirement plan. Instead of paying the insurance company, pay yourself. And if you have no at-fault claims on either your auto or homeowner’s policies? Even better, you’ll usually pay less.
Also, bundling your auto and homeowner’s coverage with one insurer lowers your premiums. Take advantage of this whenever possible.
What Might Seem Like a Small Amount of Money Grows Over Time
Although the actual amount of money saved on automobile and homeowner’s insurance might seem small when looked at on a monthly basis, over time the accumulated amount of money can prove significant. The amount of money placed in a retirement account does compound over time. There’s also a potential income-tax deduction of your IRA contributions. So, over time, the savings from your insurance policies invested in a tax-deferred IRA bring benefits on top of benefits.
Pay Yourself First Through Your IRA
Part of the process of using insurance savings as part of your retirement plan is making a decision about which type of IRA makes the most sense for you. The two basic IRAs you have to select from are a traditional IRA and a Roth IRA.
A traditional IRA is funded with pre-tax dollars. What this means is that your earnings will be taxed during retirement as you withdraw money from a traditional IRA. Each annual contribution lowers your AGI (Adjusted Gross Income), which means you pay less tax come tax time.
A Roth IRA is funded with post-tax dollars. In other words, you’ve already paid taxes on money placed into a Roth IRA. Thus, when money is withdrawn at the time of retirement, there is no tax liability.
You need to determine which IRA makes the most sense for you. This decision is driven by your AGI because there are income-thresholds for both a traditional and Roth IRA. Using a little long-term tax-planning, it usually makes more sense for most younger investors to fund a Roth IRA. This is because your income is lower at a younger age and in retirement, you won’t have to worry about paying income taxes on your withdrawals.
The key to developing a successful retirement plan is to take a comprehensive approach to it. This includes considering different investment options that are available to you. It also involves considering all of your expenses, including insurance. If you can trim expenses, especially for insurance, you can invest those savings to your retirement and get on the road to Pay Yourself First.