Top 6 Ways to Invest $100 Monthly This Year
The arrival of a new year provides an excellent opportunity to shed unproductive financial habits and embrace beneficial ones. Perhaps you’ve resolved to eliminate high-interest credit card debt, or maybe you’re embarking on your budgeting journey for the first time. Regardless of your objectives, it’s essential to understand that achieving them will require time and dedication.
So, how should you allocate your additional funds? If you find yourself with an extra $100 each month, there are multiple strategies to consider for wealth accumulation and getting ahead financially.
We consulted with a variety of financial experts to gather their recommendations on how to best invest an extra $100 monthly this year, and here are their insights.
1. Increase your 401(k) contributions
Mitchell Bloom, a financial planner from Bloom Wealth in Colorado, emphasizes that if your employer offers a 401(k) plan, it’s a smart place to begin, especially if you’re eligible for an employer match. Taking advantage of this match is essentially accessing “free money,” so maximizing your contributions is wise.
Consider raising your contribution percentage to funnel an additional $100 into your 401(k) each month, or if your plan permits, contribute a flat $100 monthly. Funds within a 401(k) grow tax-deferred, compounding over time, and taxes on withdrawals are delayed until retirement.
For those without access to a workplace retirement plan, don’t be discouraged. Instead, consider partnering with a low-cost advisory firm like Betterment. They can create a diversified global investment portfolio using fractional shares, making diversification attainable with a smaller investment.
2. Contribute $100 monthly to a Roth IRA
Jeff Rose from Good Financial Cents recommends looking into a Roth IRA for tax-efficient savings if you qualify. While contributions to a Roth IRA are made with post-tax dollars, the money grows tax-free until retirement. After age 59½, withdrawals are also tax-free, which is a very attractive feature.
Individuals can contribute up to $6,000 annually to a Roth IRA and traditional IRA, while those aged 50 or older can add an extra $1,000 for a total of $7,000 in 2020. Be aware of income thresholds: married couples filing jointly can’t contribute if they earn over $206,000, and single filers with incomes exceeding $139,000 face similar limitations.
3. Build an emergency fund
If you haven’t established an emergency fund yet, it’s a vital step. Jake Northrup of Experience Your Wealth advises that this fund should ideally cover at least three months’ worth of living expenses, though more could be beneficial.
A high-yield savings account is generally the best place for your emergency savings. While this won’t yield substantial returns, having cash readily accessible can safeguard your finances during unforeseen circumstances, like unexpected medical expenses or job loss.
Having a fully-funded emergency fund can also prevent you from accruing high-interest credit card debt. (See also: 7 Simple Strategies for Building an Emergency Fund from Scratch)
4. Allocate funds for future healthcare costs with an HSA
Financial planner Taylor Schulte, host of the Stay Wealthy Retirement Podcast, suggests that if your emergency fund is secure and high-interest debts are cleared, directing extra funds into a Health Savings Account (HSA) is beneficial.
He describes the HSA as a “triple tax-advantaged” account—unique among investment options—where contributions can grow tax-free, and qualified withdrawals for healthcare expenses incur no taxes.
However, to utilize an HSA, you must have a high-deductible health plan, defined for 2020 by the IRS as having a deductible of at least $1,400 for individuals and $2,800 for families. Additionally, the yearly out-of-pocket expenses must remain below $6,900 for individuals and $13,800 for families.
Morgan Ranstrom, a financial planner in Minneapolis, MN, advises maintaining enough cash in your HSA to cover your annual deductible for health costs but recommends investing any funds beyond that for long-term increases. “Continual contributions, growth potential, and minimal withdrawals can lead to an account that funds future medical costs in retirement without penalties,” he states.
5. Eliminate high-interest credit card debt
Although debt repayment might not seem like a traditional investment, the financial benefits can be substantial. Paying off debts eliminates exorbitant interest costs, effectively freeing up additional money for savings or future investments.
Chris Peach, a debt specialist behind the Awesome Money Course, urges checking your credit card interest rates, particularly as averages soar above 17%. “Achieving an 18% return on investment is often a fantasy, but you can achieve that return by paying down high-interest debts,” he explains.
For example, if you carry a $10,000 credit card balance at an 18% APR while making minimum payments of $200, it could take nearly 94 months to eliminate the balance, resulting in over $8,620 in interest. However, contributing an additional $100 monthly towards that balance could shorten the repayment period by 47 months, saving you almost $4,000 in interest—worthwhile returns from a modest investment.
6. Invest in your personal development
Russ Thornton, a fee-only financial advisor focused on retirement planning for women, highlights the importance of self-investment. Whether you spend your extra money on books, online courses, professional memberships, or training sessions, enhancing your skills can yield significant career dividends.
Acquiring new knowledge or skills can lead to better job performance, resulting in raises or promotions, and could even inspire you to start a side business that generates additional income. Networking through professional organizations can also provide beneficial connections that may influence your career trajectory.
