Can You Pass The Retirement Quiz?

This isn’t your usual school quiz where you impact a grade in a class.  No, it is way more important than that!  This is a money quiz that will impact many years of your life.  Can you pass it?

Okay, so there really isn’t a pass or fail option.  It is more of an analysis.  If you can answer with solid answers to 7 of the 10 questions then I’ll give you a passing grade.  Take the quiz and see how you fair:

http://time.com/money/3836549/retirement-10-questions/?xid=yahoo_money

Budget Smart, Invest Wise

Thinking Outside the Retirement Box

Having a company 401k is a beautiful thing.  A company match is the biggest way to get a free return on your retirement savings.  But don’t let a company sponsored retirement plan be the end all be all to your future savings.  When it comes to your financial future, I’m a big believer in having multiple sources.  IRA’s, taxable brokerage accounts, real estate.  There are many ways you can put your money to work.

Working at a company for 40 years and having a retirement plan coupled with social security might lead to a decent retirement future.  Decent is not what I’m seeking and neither should you.  You need your company retirement savings plan, but you also need an IRA, and other investments to fund an excellent life during your golden years.

The following article presents additional ways to save for those future years.  It is possible to save too little, but you can never save too much.  Check out ways to expand your retirement portfolio and ensure you make the choices now for a great financial future.

http://finance.yahoo.com/news/ve-maxed-401-k-where-205207623.html

Budget Smart, Invest Wise

 

 

Video Series: Compound Interest

The power of compounding interest is a magical tool.  Your growth potential is exponential.  Nowadays, we are living longer than ever before.  With longer life spans, we now have more time than ever to watch are money grow.  When it comes to compound interest, time is key.

I first started investing with a broker and dividends from my portfolio holdings would just be placed into a cash account where I would eventually buy something else when enough money accumulated.  Now, I index invest, and all of my dividends and earnings are automatically invested into my holdings.

I invested with a broker for two years.  That time I lost on allowing my money to compound might not seem like much, but it will eventually equate to the loss of thousands down the road.  Let your money compound and live off of your interest in retirement; until then, let it be.

Budget Smart, Invest Wise

Why 1% Should Matter to You

It is 2015, and pensions are out, 401k’s are in.

The shifting retirement landscape has come to the point where companies rarely offer pensions for employees anymore.  Instead, 401k plans are the preferred choice.  Contributing to your employer-sponsored 401k plan to get the full company match is a given.  If they contribute 50 cents on the dollar for the first 6% then you put in 6% of your paycheck and the employer contributes 3%.  A total of 9%.  Not too shabby.

Contrary to many news outlets, companies are handing out raises to employees.  It could be in the form of an annual 3% raise.  A promotion can often times carry a raise of 6% to 20%.  No matter how big or small the raise is, you SHOULD consider raising your 401k contribution beyond the full company match.

It is the end of your company’s fiscal year and they award you a 3% raise (this is how employers make sure their employee salaries keep up with inflation).  Let’s say you contribute 6% of your paycheck and the employer matches you 3%.  You have a total of 9% of your paycheck being contributed to your 401k.  If you make $5000 a month this equates to a monthly contribution of $450.  If you were to take your 3% raise, increase your 401k contribution by 2%, a total of 8% that YOU are contributing, and add in your employer’s match of 3%, you now have a total of 11% of your paycheck going to your 401k.  Now, instead of having $450 a month deposited into your retirement account, the amount leaps up to $550 a month.

Adding 2% of the 3% raise to your 401k contribution still leaves you a little, 1%, increase to your paycheck.  You won’t miss the 2%.  Why?  Because you have already been conditioned to get by on the money you were currently earning.

Small raises to your 401k contribution can pay dividends later in your retirement life.  The following link shows you just how much a small increase now can pay you much more in your retirement years.

http://finance.yahoo.com/news/how-a-1–savings-boost-could-sweeten-your-retirement-155040943.html

Budget Smart, Invest Wise

What to do with Your Tax Refund

It’s that time of year when we begin collecting our W-2’s, 1099’s and other documetns to prepare our tax returns.  For some of us, including myself, we get excited about this tax time of year.  The main reason: a tax refund!

I found out last year through a car salesman that the car industry loves tax season.  The reason why?  Because many people end up using their tax refunds to help with a down payment of a new automobile.  A friend of mine last year used her tax refund to purchase a designer purse.

If you get a tax refund, you might view it as a “bonus”.  Unexpected money just fell into our lap.  We get the urge to spend this money on a luxury that we might otherwise have not been able to afford.  It’s YOUR money, do with it as you please, but I will offer some advice on how to spend your tax refund wisely:

Pay down Debt:  Instead of buying a new car with your refund, use it to pay down an existing car loan if you have one.  Make an extra payment or two to a student loan you might have.  Debt is an obligation you will  have to pay down eventually, so why not use the extra money to give you an extra step to being debt free.

Go on a Vacation:  Maybe you feel like you have worked hard, and you probably have.  Use the money, or part of the money, to treat yourself to a vacation.  The enjoyment and peace of mind you can get out of an experience far outweighs any “thing” you might want to purchase.  You will have created lasting memories.  Plus, more than likely, you will be more focused upon your return.

Just save it:  Suppose you are 25 years old and receive a tax refund of $1000.  If you used that money to open a Roth IRA or put it in a taxable brokerage account, you will be well on your way to creating future financial freedom for yourself.  Let’s use the following example: You take the $1000 and open a Roth IRA.  If you put in just $100 a month into that Roth IRA, then assuming an 8% return annually, you will have an account balance of well over $300,000 in 40 years.  Granted 40 years is a way off, but that money can help supplement your retirement.  You can also use the refund to build up an emergency fund or to contribute to a taxable brokerage account.

A tax refund is welcomed by everybody who receives one.  You worked hard last year, you paid a little more in taxes then you should have, now it’s the government’s turn to give a little back to you.  Spending our refund on cars, purses and consumer electronics is what American society has conditioned us to do with extra money.  Don’t fall into the trap of what everyone else does with his or her refund.  Use it to create a better life for yourself, for the present and the future.

Budget Smart, Invest Wise

Investing VS. Paying Down Debt

There is a psychological battle that many of us go through when it comes to our finances.  If you have debt, you might wonder whether it is best to pay it off or use the money and begin building a nest egg for retirement.

Every person’s situation is different, and the psychological role that debt can have on someone is unique to every situation.  At times you might feel trapped and bogged down by your student loan debt, car payment or even a mortgage.  The debt that is supposedly “good” seems to constantly weight on your mind.  For those of us that face this predicament, it is important to find the right balance when determining what debt to pay off, how much to pay off and how much to save.  I will provide some insight to help you decide the right balance for you.

Credit card debt/ high interest debt:  You should always focus on paying off ANY high interest debt you may have.  This may include interest that is accruing from unpaid credit cards or any other loan.  Credit cards can carry interest rates of 20 to upwards of 30%.  You will be hard pressed to find investment returns better than the interest you will be paying on high interest debt.

Do not feel rushed to pay off student loan debt: We are told constantly about the all-time highs of student loan debt and how the younger generation cannot buy houses or cars nor do much of anything until they get student debt paid off.  This is true to an extent, but think about this… most student loan debt carries an interest rate of 6.8% or a little less.  Now, compare that with returns of the S&P 500 that has returned at least 11% four of the past 5 years.  Moreover, when it comes to tax time, you are only able to deduct up to $2500 of student loan interest.

Time not timing is everything: Some people get in the mindset of “Well I must pay off all of my debt before I start investing”.  As I stated previously, everyone has a different mentality when it comes to debt.  Nevertheless, the longer you put off contributing to a Roth IRA or maxing out an employer-sponsored 401k, the less time your money has to grow with compound interest.  Let us use a quick example, say you had $50,000 and you put it into an index fund that returns 8% a year, after 30 years that original amount would turn into $503,000.  However, with just five more years, a total of 35, that same $50,000 would now be worth $739,000.  Do not delay your retirement.

At the end of the day, tackling one’s debt and investing is all about having an actionable plan.  Create a plan, with a budget and stick to it.  It takes time to pay off debts similar to the many years required for your retirement portfolio to grow.  Patience and diligence will allow you to reach your financial dreams and live the life you truly desire.

Budget Smart, Invest Wise

Paying Yourself First

“Pay yourself first”

It is a phrase many of us have heard when it comes to managing our money and investing.  I often post on Quora and see people ask, “What should I invest in?” or “What does it mean to invest in myself?”  These are great questions, as many young people especially do not have the right answer.

Ways you can pay yourself first…

Contribute to an employer 401k and get the full company match. This has a two-fold purpose.  Firstly, you are never seeing the money that is taken out so you will not miss it.  Secondly, your employer match is FREE money and the easiest way to boost your return.

Establish a Roth IRA.  Most individuals are eligible to contribute to a Roth IRA.  If you are unsure, go to Roth IRA and see if you meet the criteria.  Even a small amount of $100 a month automatically withdrawn from your checking account is a great way to add an additional retirement vehicle for the future.

Read Books.  Lately I have been ordering books on Kindle like a mad man.  Many of the books I read are financial related and leverage others’ experiences.  The Millionaire Next Door by Thomas J. Stanley is one I highly recommend.  Austin Netzley’s Make Money, Live Wealthy is another great book that offers wonderful insight into his personal journey of wealth creation.  Austin does a great job of connecting with successful entrepreneurs and innovators throughout his book and illustrates their journey to success.

Your Health.  Investing in yourself isn’t just about money; it is also about being able to enjoy the life you live so that one day you can reap the rewards of all the hard work you have put in.  Start exercising if you don’t already.  They key is starting small.  Do the elliptical for 15 minutes 3 days a week.  Then bump it up to four.  Replace a candy bar with a piece of fruit.  You get the picture.  Investing in your health should be the first one listed in this post, but like many of us it often times is the last thing we think about.

There are many other ways that you can pay yourself first.  Vacations, nice meals out, etc.  When it comes to your finances and personal development, YOU are in control.  Don’t just talk about these things, put them into action and set yourself up for greater success.

Budget Smart, Invest Wise 

Book Review: The 3 Takeaways from The Richest Man in Babylon

jimrohn.com
jimrohn.com

I recently finished reading George S. Clason’s The Richest Man in Babylon.  I heard the recommendation of this book on a Podcast I had listened to.  If you haven’t read the book then I suggest you buy it on Amazon.  A Kindle edition can be purchased for $1.99 and used copies cost less than a dollar plus shipping and handling.

This book is a great example of how the importance of handling one’s finances has been around for thousandsof years.  I won’t give away too many details, but I will list and discuss briefly my 3 main takeaways.

1)  Debt follows you wherever you go: If you get yourself into debt, it is your responsibility to get yourself out.  Own your debt and create an actionable plan to attack it head on.

2) Saving is important, but allowing your savings to grow is what truly matters: Saving 10, 20 or 50% of your income is important, but you need to have that money continually growing whether it’s with an index fund, a financial advisor or in rental property.  Having your savings in accounts earning 1-2% will never make you financially independent.

3) Don’t let misfortune define you, let it build you: Some are born into poverty, others encounter tragic life events, no matter what difficulties you have faced or might be facing you have the potential to create the financial feedom you desire!

I hope these 3 takeaways I got from the book inspire you to go out and read it for yourself.  Nobody cares more about your finances than you!

Budget Smart, Invest Wise

The Perfect “Financial” Christmas Gift

The older we get the less “stuff” we get for Christmas.  As kids our Christmases were often filled with various toys and gadgets.  However, once you reach your 20’s you tend to want bigger items such as iPads, new cell phones and money.

I gifted unto my sister this year what I consider to be the perfect financial gift.  It was a check worth $200.  Now most of the time when we get a check for Christmas or our birthday we think of what we could possibly buy with that money.  This check was different.  I wrote out the check, but I did not date or sign the check.  The check is currently worthless.  Under the “For” spot on the bottom left part of the check I wrote: “Roth IRA”.  The check was given unto my sister with the stipulation that it be used as funds to go towards her opening a Roth IRA.  When she decides to gather up another $800, she will have $1,000 to put towards a low-cost index fund through Vanguard, and I will sign and date the check.  This Roth IRA money will aid in her retirement goals many years down the road.

I would like to think that this gift can one day make her a MILLIONAIRE, and it can.  If she were to open an account with the $1,000 needed and put in the maximum contribution allowed to a Roth IRA, given an 8% annual return on her investment.  She would have an account balance of well over $1 million dollars by the time she is just 60!!!

Maybe you received some money for Christmas or a recent birthday.  My challenge to you is instead on spending it frivolously on the latest iPad or TV, open yourself a Roth IRA.  Vanguard offers low-cost mutual funds that can be started with as little as $1,000.  Be diligent and stay the course, you could turn some Christmas cash into a million dollars!

Budget Smart, Invest Wise

Who is your best friend when it comes to investing?

You might say it’s your financial advisor, your parent, a relative or maybe even a mentor who has had great financial success.

Think again…

Your best friend when it comes to investing is: Compound Interest

People who are new to investing often wonder what is compound interest, or why is compound interest important.  I’ve touched briefly on the subject of compound interest in a past post but I feel it is so vital to creating long term wealth that I am circling back to it again.

Money can be made and lost.  However, time cannot.  Each of us has only a finite amount of time here on Earth to build up a financial wealth.  Mr. Time is your next best friend.

Check out the following article which shows a visual representation of how Compound Interest and Mr. Time can work together to create a substantial amount of financial wealth for oneself.

http://finance.yahoo.com/news/every-25-old-america-see-200000319.html