Investment Advice

It seems like every time we get an opportunity to save some money, something always comes up. While we can’t stop those things from happening, we can learn how to build a wining financial game plan that won’t get sidetracked by life’s detours.

Many people will earn a fortune over their lifetime and will still end up with virtually nothing to retire on. For instance, if you earn $600 per week, you will have over $1,200,000 pass through your hands in an average working lifetime of 40 years!

One of the secrets of getting off correctly planning for retirement, is not squandering sums of money normally regarded as too small to be significant.

If you’re approaching your mid-forties, you’ve probably already worked 20 years. If so, you are halfway to retirement. Ask yourself if you have presently accumulated at least half of what you need to live on for the rest of your life. Statistics show that most people haven’t. And working harder isn’t the answer, investing smarter is!

So if you’re ready, let’s get started with the retirement investing principles that can help you reach your financial goals!

Principle #1: Pay Yourself First

This is the first principle in the Investment Advice: Retirement Planning For Everyone series.

By paying yourself first I mean putting 10% of your income towards your savings and investments before anything else. By doing this, you’re putting yourself and your family ahead of your creditors. Otherwise you might find, like many others, that you have too much month left at the end of the money.

Now I’m not advocating not paying your bills. It’s just that it always seemed to me, when I paid my bills first, there was never any money left to save or invest with. But when I paid myself first, I still found the money to pay the bills.

The first place for your 10% is to build up approximately three months or more of living expenses in a savings account. This is not a financial investment, it’s an emergency fund. This is here so you won’t have to sell any investments later on to pay for any personal emergencies that might arise.

Another example of paying yourself first is to live below your means. For instance, when you get a raise, put a good portion, if not all of it toward your retirement nest egg. If you were getting along fine before the raise, don’t waste it, invest it!

Principle #2: Don’t Let Credit Card Debt Keep You From Reaching Your Financial Goals   

This is the second principle in the Investment Advice: Retirement Planning For Everyone series.

Would you buy a house and pay 18 percent interest? Would you borrow money for a car loan at 19.5 percent? You would probably say doing either one of those would be crazy. But many people buy just about anything their hearts desire with credit cards and not even think twice about those rates. Pardon the pun, but if you have at least one credit card, this should be of interest to you.

Many people today carry credit card debt every month, meaning they don’t pay off the balance in full every 30 days. This is not new, as it has been well documented for years that credit card debt can wreck an otherwise sound retirement plan. But the credit cards aren’t really the problem; it’s how people handle them.

The following will give you an example of the power of credit card debt to rob you of financial success: Let’s say you owe $5,000 on a credit card at 14 percent interest and you make a payment of $60 per month. How long will it take to pay off the debt if you don’t charge another penny while you’re paying off the balance? The answer is about 308 months or almost 26 years. Now, if you really want to see what’s happening to your future retirement, multiply the 308 months by the $60 monthly payment. The answer is $18,480.

When you subtract the original $5,000 balance, you get what the $5,000 cost you in interest: $13,480! And that’s only if you stopped using the card at the original $5,000 balance. Stated simply, if you keep charging, you might not live long enough to pay off the debt; the interest will be staggering.

To address the existing debt, make sure to keep all payments current and put as much money as you can toward higher interest cards first. Some companies will offer to consolidate your debt into one card. That could be a good thing, as long as the new card has a lower interest rate and not just a lower payment. You don’t want a lower payment if it means you’ll be carrying the balance longer, unless there is just no other way.

Once you get the cards under control, you can play the game on your terms. Get a card with no annual fee and a 25-30 day grace period that allows you to pay your debt in full every month without an interest charge. You do this by only buying things for which you already have money in the bank. So, when the bill comes in, it’s easy to pay it off. Some of you are probably saying, “Are you kidding me?” But believe me, it’s possible. It really comes down to whom you’d like to make wealthy, you or the credit card companies.

Principle #3: Find Hidden Money To Boost Your Retirement Savings   

This is the third principle in the Investment Advice: Retirement Planning For Everyone series.

A mortgage is most often the biggest expense anyone has, so naturally it’s a good place to look for possible savings. I understand that you might not have a mortgage right now, but the following is good information to remember when the time comes and you find yourself tackling home ownership.

The best way I have found to shop for mortgages is to ask for both the rate and a truth in lending statement. A truth in lending statement should have all your closing costs on it, so you can choose the best rate with the lowest costs. Otherwise, it’s too easy to get confused when one rate is lower, but the points are higher, or when one has no points but the closing costs seem higher and the rate seems reasonable.

If you already own a home, you might consider refinancing if you’re going to continue to live in that house for a reasonable period of time and if you can save at least 2 percent or more on your current interest rate. You will usually incur a new set of expenses and closing costs when you refinance. You will need to shop around just like it is a brand new loan, because in essence, it is.

Some lenders advertise refinancing with no “out of pocket” expenses. This usually means that the cost of the refinancing is going to be added to your new mortgage balance. If this is the case, keep a close eye on these expenses. Make sure the payback is worth it. Ask yourself whether you plan to live in the home for a sufficient period to save enough on the lower payment to offset the expense of the refinancing. If so, take that monthly savings and put it in your nest egg. 

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Disclaimer

In an attempt to provide the reader with accurate information, material has been obtained from sources believed to be reliable; however, the accuracy and completeness, and the opinions based thereon, are not, cannot and will not be guaranteed.

All examples in this text are hypothetical. Any negative statements or criticisms of individuals or organizations is unintentional. The information contained in this text represents the opinion of the author and is to be accepted as opinion only. It is not intended to provide legal, accounting or financial advice for individual readers.

Each individual's financial needs are different. This text is not meant to be utilized as a substitute for a sound financial plan. An individual financial plan should be developed only after consultation with a qualified professional.