Next-Level Money Moves: What to Do When Your Basics Are Set

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Q: I have already maxed out my 401(k) and Roth IRA and am contributing to a 529, and my bills are paid off (with the exception of my house) -- and I still have money left over at the end of the month. What should be my next moves in managing my money?

A: I assume you also have an emergency fund and no debt except your mortgage. (If you don't have an emergency fund, building one should be your next move.) Starting with that assumption, here's how to put your extra money to the best use:

1. Save for Future Purchases

You have retirement and emergency savings covered, so now's the time to focus on saving for any other big purchases you foresee. This could mean saving up to buy your next car in cash, opening a separate savings account to save for your wedding or starting a vacation fund for that European cruise you hope to take in a few years.

Enter these savings goals into your monthly budget as a line expense. For instance, if you're saving to buy a car, make a "car payment" to yourself each month by setting aside $400 toward your next car purchase.

2. Reduce Your Mortgage Debt

Since you're still paying off your mortgage, you should look into ways to reduce that debt. The sooner you pay it off -- and the less you pay in the long run -- the more money you'll have to allocate toward other goals.

If the interest rate on your mortgage is 5 percent or higher, either refinance to a lower rate or focus on paying it down as fast as possible. That's a "guaranteed" 5 percent return.

3. Open a Health Savings Account

If your health insurance plan is compatible with a health savings account, open an HSA and max out your contributions. For an individual, the annual limit is $3,000; for families, it's $6,550. If you're 55 or older, you can add an extra $1,000 to each of these amounts. Like a 401(k) or traditional IRA, money in your HSA is tax-deferred.

Consider this possible hack. Your HSA is meant to pay for medical expenses. But you're not obligated to use your HSA money the next time you're at the doctor's office or pharmacy. Instead, pay your medical bills out-of-pocket and let your money grow inside your HSA. You can withdraw it penalty-free once you reach retirement age. In other words, you'll create an extra, "backdoor" tax-deferred account. This tip only applies to HSAs, not flexible savings accounts. An FSA is "use it or lose it."

4. Open Taxable (Non-Retirement) Investment Accounts

Since you're already covered with a 401(k) and Roth IRA, you can now open taxable (non-retirement) investment accounts and grow your money there as well.

The default account at brokerages is a taxable investment account. This means that you don't get any special tax advantages. You fund the account with after-tax dollars, and when you sell your investments, you'll pay taxes on the gains. In short, everything is taxed "normally."

Retirement accounts, like the 401(k) and IRA, can also be housed at those same brokerages, and these accounts come with tax advantages. The traditional structure allows people to contribute pre-tax dollars into their retirement account; the Roth structure allows people to be exempt from paying taxes on the dividends and capital gains.

Thanks to the tax advantages, you'll want to prioritize your 401(k), IRA and any other retirement accounts. But if you've maxed out your contribution limits and want to invest more, there's no limit to how much you can invest in an ordinary investment account.

5. Buy Rental Properties

A rental (or income) property is a great way to set up an additional income stream. To help you choose a property that's worth the investment, follow these critical rental property investing rules:
  • The 1 percent rule. You should be able to collect a monthly rent that equals (or exceeds) 1 percent of the property purchase price. So, if you buy a property for $100,000, you should be able to collect at least $1,000 a month in rent. This rule applies to homes in stable neighborhoods with high rental demand. If you're looking at a home in a higher-risk area (say with more crime or where renters may not have the best credit), you're better off aiming to collect 2 percent of the purchase price to balance out your risk.
  • Cap rate. The capitalization rate tells you how long it will take to recoup your purchase price. You can calculate this rate by dividing your annual net income by the purchase price. Let's say your net income on a property will be $500 per month. This is how much of the monthly rent you will pocket after you've deducted monthly operating expenses like insurance, utilities and repairs (but excluding debt servicing). Multiplying this amount by 12, you predict an annual net profit of $6,000. If you bought the home for $100,000, that amount divided by your annual net profit equals 0.06. Multiply this by 100 to turn it into a percentage, and you're looking at a rate of return of 6 percent on this property. That means it will take you 16 years (100 divided by 6) to recoup the cost of the property.
  • Cash-on-cash return. This figure will tell you how much far your investment will take you. It's calculated by dividing your annual net income by down payment. Let's use our example above -- you buy a $100,000 home and predict a $6,000 net profit -- and you put 20 percent down. Divide that net profit ($6,000) by your down payment ($20,000), and you've got 0.15, or a 15 percent rate of return. (Not too shabby, right?) Just remember to balance this against the risk that comes with any type of leverage. While you could use just one of these formulas to evaluate the promise of a potential rental income purchase, using all three in combination is a powerful way to get the best bang for your buck.
Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns seven rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for rebels who want to ditch the cubicle, shatter limits and live life on your own terms -- while also building wealth, security and freedom.

7 Valuable Things You Can Get for Free
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Next-Level Money Moves: What to Do When Your Basics Are Set
The days of the bubble are long past, and with them, companies whose "business" model involved giving away free stuff in hopes of attracting "eyeballs" to their websites. (Remember when would allow you to buy groceries and gasoline for less-than-cost -- for no particular reason?) But the business practice of giving away sample products in hopes you'll try, then buy, still has some merit. Kiplinger's highlights two websites that compile lists of goodies you can get free:
  • as of this writing features free samples of Nesquik chocolate milk, Arm & Hammer toothpaste and Dove shampoo among its front-page offers.
  • currently tells you how to pick up a free cookie at McAlister's Deli and a free photo magnet from Shutterfly.
Restaurants are another great place to pick up freebies -- although you may need to keep a close eye on your calendar. Surveying just a few of the offerings, Kiplinger's notes that on National Pancake Day (Feb. 28 next year), DineEquity's (DIN) International House of Pancakes serves up a stack of free pancakes. Only July 11, 7-Eleven hands out free Slurpees. And to help take the bite out of tax day, Cinnabon offers up two free Cinnabon Bites.
After scarfing down a Cinnabon (much less two), dessert is probably the last thing on your mind. But for incurable sweet-tooths, Kiplinger's points out that Dairy Queen has a loyalty club that entitles members to buy-one, get-one-free Blizzards. And one day a year, Ben & Jerry's gives away free cones of ice cream during Free Cone Day. (Kiplinger's notes that this "usually" happens in April.)
Free health care, anyone? Kiplinger's points out that under the Affordable Care Act, "most health plans now must provide a variety of preventive-care benefits free." These include "screenings for high blood pressure, mammograms for women older than 40, and routine vaccinations for children, as well as a long list of other tests and services." Granted, taxpayers are paying for all of this -- so in a sense it's not actually "free." But if you're a taxpayer, you've already paid for it, so you might as well get what you've paid for.
There's hardly a parent in America these days who would argue that college doesn't cost too much. But sometimes it's free. Kiplinger's notes that Berea College, in Berea, Kentucky, provides all students a four-year tuition scholarship that amounts to nearly $100,000 in value. Berea's website promises this: "Every Berea student is awarded our Tuition Promise Scholarship." Admission to Berea is "highly competitive," of course. But if you get in, "the actual cost to students and their families is $0."
And now for our final freebie (although to be honest, Kiplinger's offers many more ideas, some good, some not so good): Free language training. For those who don't make the cut at Berea, or who just want to add some specialized knowledge to their brains but leave the official sheepskin on the sheep, Kiplinger's points out that you can get free foreign language lessons online at and at the website of the Foreign Service Institute. To which we'd just add that you can get even better free language training at DuoLingo and get free lessons in just about everything else at
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