4 Things That Are Making You Poor

This is a guest post by Jeff Rose from Good Financial Cents.

Do you always feel that’s it impossible to catch up financially? For many, the rat race seems like a never ending cycle. You get to work, clock in, get your paycheck and you’re left scratching your head about what you can do to get yourself ahead financially.

If you feel alone, don’t. There are many others just like you and fortunately there are things you can do to get your financial situation on track. But, first you have to stop doing the things that are making you poor.

Here are four things that you can change today.

1. Throwing extra cash in your checking account.

It’s definitely very wise to save and have a good chunk in savings. You should keep at least 8 months worth of emergency funds (12 months if your income is unpredictable) in a high-yield savings account.

But over and above that, you’re missing out on the potential to earn more. Consider doing a CD Ladder or relatively conservative mutual funds. Just stop losing money by not taking advantage of the opportunity to earn more.

2. Giving in to 401k Temptation.

Does that new TV sound tempting? Or maybe you realized that you need to buy new tires and are not sure where you are going to get the funds (because you haven’t done #1).

Then it dawns on you – your 401k! Stop right there before the thought goes any further. Your 401k is not your savings account. Its your nest egg for down the road, so keep your hands off!

If you decide to take it and you’re under 59 1/2, figure on paying a minimum 20% in tax plus a 10% penalty. Giving away 30% to Uncle Sam is a sure way make yourself poor really quick.

3. Leaning too heavily on a 401k.

If you’re single and earn less than $116,000 a year, or are married, filing jointly and earning less than $169,000 a year, then congratulations! You are now allowed to participate in one of the greatest retirement tools of all time.

I’m talking about the Roth IRA. Investing in a Roth IRA means you set aside money now, watch it grow for decades and then cash out without paying a dime in taxes.

A recent study found that only 15% of American households have a Roth IRA. Are you part of the 85%? Don’t be. Here’s what you need to know about the Roth IRA rules for 2009.

4. 2010 tax bill- Save up Now.

In 2010, everyone will be able to take all their traditional IRA’s and old retirement plans and convert them to a Roth IRA.

The amount you convert will be taxed, but you can spread the bill over three years. You might want to start saving for the tax bill now, because this will be an opportunity you will want to capitalize on. It may end up being the best money move you’ve ever made!

This is a guest post from Jeff Rose, an Illinois Certified Financial Planner(TM) and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.

Photo by littleamandie