MONEY TALKS - Most of us are forced to make hundreds of decisions on a daily basis. Some decisions may be as simple as choosing what color socks to wear, while others, such as whether or not to accept a new job offer, may take hours of deliberation. At the end of the day, most of us are tired and don’t want to make a hasty decision that could affect our long term financial security. With that in mind, here are 10 simple tips that will go a long way in helping to secure your financial future.
1. Invest now - The earlier you begin saving, the more time your money has to grow. The goal is to have your money work for you by compounding over time. Gains from each year build on the prior year’s gains. Over the course of 30+ years, this can result in tremendous accumulation.
2. Pay yourself first – If your company has a retirement plan, such as a 401(k), 403(b), or 457 plan, enroll as soon as you are eligible. Most company retirement plans allow you to enroll in a plan where your contributions are automatically deducted from your paycheck and directly deposited into the retirement plan. The beauty of automatic deductions is, since you never see the money, it’s nearly impossible for you to spend it.
3. Maximize your employer match - Most employers will match your contributions up to a certain percentage. Make sure you contribute enough to take full advantage your employer’s match. When you don’t take advantage of a company match, you’re leaving money on the table. While some employers may not start matching your contributions immediately, that doesn’t mean you can’t start contributing in the interim.
4. Use tax advantaged savings plans – If your employer doesn’t have a group retirement plan, or if you are already maxing out your contributions, consider starting your own Individual Retirement Account (IRA). A traditional IRA lets you put up to $5,500 per year ($6,500 if over 50) in a tax deferred account. You can deduct the $5,500 from your income, and your money grows tax free until it is withdrawn.
5. Create an emergency fund - You should have enough cash to cover the greater of 10% of your gross household income or four months of expenses without having to tap into retirement savings or investments that are subject to market fluctuations. This liquidity helps protect your long term savings in the event of an emergency.
6. Review your insurance – Being uninsured or underinsured can put you and your family at risk. Regularly review your insurance policies (homeowners, auto, etc.) so that you have the adequate coverage. Disability insurance is a must for anyone who is working, and life insurance should be considered for anyone where others depend on their income.
7. Pay off consumer debt – Credit cards can have interest rates well into the double digits. Paying off credit card debt is a great way to create a surplus cash flow in the future. Credit card purchases are generally for short term items that have no lasting value. Learning to live within your means can go a long way towards financial independence.
8. Make more; save more - Each time you get a raise, increase your employer-sponsored retirement plan contribution rate. This has multiple benefits. You are increasing your retirement savings on a regular basis and you are controlling the rate in which your standard of living increases.
9. Invest in yourself – Going back to school to finish up your college degree or to pursue a master’s degree may cost you a lot upfront, but it will afford you more opportunities in the workplace. This should result in higher career earnings that easily exceed your education expenses.
10. Own your home - Purchasing a personal residence has several advantages. One advantage is the long term leverage you receive when financing your home. Regardless of how much equity you have in your home, it appreciates at the same rate. Another advantage is that the mortgage interest and property taxes you pay on your mortgage are tax deductible. Furthermore, the first $250k ($500k if married) of gains when you sell your home are tax free. What other investment vehicles out there allow you to make $250k without paying a dime in taxes?