by Stephen Reed | Accounting News, Financial goals, News, Newsletter
Retirement should be a time to finally relax and enjoy your golden years, but for many people, this is only possible with careful planning, discipline, and smart financial decisions made during your working years. Below we take a look at some essential tips financially savvy people use to be successful in retirement.
Start Early and Save Consistently
Financially savvy savers know that you need to start early and save consistently in order to reap the most benefits of compound interest. As soon as you can make saving for retirement a regular habit, this should be your goal. By doing so, you can take advantage of the growth potential of your investments and build a substantial nest egg.
Starting Late in the Retirement Savings Game?
If you’re getting a late start in saving for retirement, taking advantage of compound interest is still possible, but it will likely require more focused effort and discipline. The most crucial step to take is to start today. Try to contribute as much as you can to retirement accounts like IRAs and 401(k)s while taking advantage of any matching contributions by employers. You can also delay retirement by a few years if possible, allowing more growth through compound interest. The key when starting late is to practice consistent, disciplined saving and make smart investment choices.
Set Clear Financial Goals
Savvy savers are proactive planners, which means they set clear goals for their money. Take the time to assess your current financial situation, estimate your retirement expenses, and determine how much you need to save to meet those expenses. Set specific, achievable goals to help stay on track and make informed financial decisions. Once you get going, you’ll need to keep tabs on where your money is going and how much it’s growing. Meet with an investment professional at least annually but also after any big life changes—like a new baby or a job transition. You want to understand how those changes could affect your retirement savings plan.
Maximize Retirement Account Contributions
Take full advantage of retirement savings accounts like 401(k)s and IRAs. This includes contributing the maximum allowable amount each year, taking advantage of any employer matches or tax benefits. Additionally, you want to avoid borrowing from your 401(k) account. A 401(k) loan can be risky due to taxes and penalties if you can’t repay the loan. Not to mention, it’s usually not worth the loss of long-term compound growth on the money you borrow.
Minimize Debt
Carrying excessive debt into retirement can be a burden during your golden years, so you’ll want to work diligently to minimize debt before retirement. This might involve paying off credit card balances, mortgages, or other outstanding loans. Reducing debt will decrease financial stress and untangle more resources for enjoying retirement.
Create a Budget and Stick to It
Budgeting is a fundamental tool of financial success. Budgets help to maintain financial discipline and avoid overspending. The financially savvy create detailed budgets that outline their expected income and expenses. They track their spending carefully and adjust their budget as needed to ensure they stay within their means.
Create a Diverse Investment Portfolio with a Long-Term Focus
A well-diversified investment portfolio is a hallmark of savvy savers. Be sure you’re diversifying your investments across various asset classes, such as stocks, bonds, and real estate. This helps lead to more stable and consistent returns over the long term.
Speaking of long-term moves, smart investors play the long game when it comes to investing, and they’re not looking for short-term gains, so they don’t jump from investment to investment with every up and down in the stock market. However, you should also be investing in less volatile wealth building channels, such as mutual funds with a history of growth. Just remember that the key to a successful portfolio of growth is patience.
If you have any questions, or if you’re looking for personalized guidance tailored to your unique situation, don’t hesitate to reach out. Contact me directly for more information or to schedule an appointment. Let’s embark on the journey to a successful retirement together.
by Jean Miller | Accounting News, Credit Card Debt, Debt, Financial goals, News, Retirement Savings
Saving for retirement should be a critical component of any financial plan, but it can be challenging if you’re also working toward debt repayment. The good news is that it’s possible to do both at the same time. The key is to be consistent and disciplined, and in time you’ll see the benefits of your efforts. Read on for strategies you can use to save for retirement while tackling debt.
Prioritize High-Interest Debt
High-interest debt, such as credit card debt, can quickly accumulate interest and make paying it off even more challenging. By addressing this debt first, you can reduce the amount of interest you’ll pay over time. The amount of money you’ll rescue from credit card interest can be applied to remaining debt payments. Once your highest interest debt is paid off, move onto the debt with the next highest interest rate. This is known as the avalanche method of paying off debt.
Build an Emergency Fund
Establishing an emergency fund will help you cover unexpected expenses without having to rely on credit cards and thereby adding to your debt. Aim to save at least three months’ worth of living expenses in your emergency fund before you start allocating more funds toward retirement savings.
Increase Your Cash Flow
Increasing your monthly cash flow will provide you with more cushion in your budget to save for your emergency fund, meet your debt repayment plan, and save for retirement. In order to increase your cash reserves, think about requesting a raise, making a career change, or taking on a side hustle.
Consider a Balanced Approach
A balanced approach involves allotting a portion of your income toward paying off debt and a portion toward saving for retirement. You’ll need to decide what percentage of your income should go toward each goal, but this approach can help make progress toward both debt repayment and retirement savings without neglecting one for the other.
Cut Expenses and Establish a Budget
If you’re struggling with debt and saving for retirement, it’s probably time to take a closer examination at your income and expenses. Where is your money going each month? What can you do to build better financial habits? Look for areas where you can cut back, such as dining out, shopping, and entertainment. Even small slashes in costs can have an impact on your finances. When you begin to pay attention to where your money is actually going, you can make informed decisions that will help you redirect more funds toward your savings goals.
Automate Savings
Automating savings is an ideal way to ensure that you’re on track to meet your retirement goals. If your employer offers a retirement plan that allows you to contribute a percentage of your paycheck toward retirement savings, be sure you’re taking advantage of it. You can also set up automatic transfers from your checking account to a retirement savings account like an IRA. Automating savings is a set-it-and-forget-it approach that provides consistent progress in saving for retirement.
by Daniel Kittell | Accounting News, Debt, Financial goals, News
With inflation at an all-time high since the 1980s, more Americans are living paycheck to paycheck and sinking further into debt. If you’re trying to get out of debt, you’re not alone. Creating a plan is possible, and you don’t need to start off with a bang. Here are some practical steps you can start today to help set you on the path to becoming debt free.
Decide on a Debt Payoff Strategy
Here are a few proven approaches to boosting the speed of your debt payoff:
- Debt snowball: This strategy focuses on paying off your smallest debt first while continuing to pay the minimum monthly amount on all others. Once your first debt is paid off, you roll the amount you had been paying on that debt into payments on the next largest debt. You continue this method until your last and largest debt is paid off. This approach can be effective if small wins motivate you to keep going.
- Debt avalanche: This strategy tackles the debt with the highest interest rate first while continuing to pay the minimum monthly amount on all others. Just like the snowball method, once your debt with the highest interest rate is paid off, you roll that amount into payments on the debt with the next highest interest rate, and so on. This approach can be effective if you’re worried about high interest rates as it may help save money over the course of your debt repayment plan.
- Debt consolidation: This strategy involves rolling all debt into a single new one, ideally at a lower interest rate. This helps to make payments more streamlined, and could possibly shorten your payoff timeline. You can consolidate debt with balance transfer cards and personal loans. This approach can be effective if you’re overwhelmed by the number of debts and payment dates to keep track of.
- Debt management plan: This strategy involves working with a nonprofit credit counseling agency. They can set up a debt management plan to help decrease your interest rate and get you started on a repayment plan. This approach can be effective if you have substantial credit card debt and haven’t made much progress in paying it off.
Tally Your Debt
Once you have an idea of the approach you want to take in paying off your debt, you need to take a deep dive into your accounts. Gather the most recent statements from all your loans and credit cards, and make an inventory of your debts. List each debt with the following information:
- Creditor name
- Current balance
- Due date
- Minimum monthly payment
- Interest rate
- Target date for a zero balance
Once you have all that cataloged, determine your monthly total in debt payments. Note that for credit card payments, if you’re not paying them in full each month, you’ll want to specify the minimum monthly amount due.
Build a Budget
First, get precise with your income, including side hustles, seasonal work, etc. Knowing how much you’re brining in each month from all sources of income helps to paint a clear picture of the available funds to spend. Next, add up your monthly expenses. This needs to include both essential expenses (mortgage, utilities, etc.) and discretionary expenses (typically optional purchases). Once you know your monthly income and expenses, you’ll know how much you can devote to paying down debt.
One way to boost your debt repayment journey is to scale back to a bare-bones budget, focusing on just housing, food, utilities, transportation, and bills while eliminating all discretionary expenses. If you go with this budget style, remember that it’s not forever, and the end goal will be worth it.
Cut Back on Spending
Many of us can’t do a hardcore bare-bones budget, but we can find ways to cut back on spending. Check your online subscriptions, streaming services, gym memberships, etc. How can you lower these costs, or cut them out altogether? Try preparing meals at home and bringing a sack lunch to the office. Keep an eye on water and electricity usage. Try to negotiate lower rates for insurance and cell service. The more you can scale back on spending, the more “found” money you’ll have to put toward debt.
Increase Income
If you find that you’re doing everything you can to tighten your financial belt and still barely making a dent in your debt, it might be time to consider increasing your income. While taking a second job is a viable option, you could also consider taking the initiative to ask for a raise from your employer, especially if it’s been a while since your last pay bump and your work performance has been consistently on point. However, if you’re new to the company or your position, it would be wise to hold off on this approach.
Additionally, side gigs such as dog walking, driving for companies like Uber or Door Dash, babysitting, and cleaning can all help to bring in extra income, and you can work around your full-time job. Also consider selling items you already own on reselling platforms like eBay, Poshmark, Mercari, and Facebook Marketplace.
Lower Your Interest Rates
Lowering your interest rates would allow you to put more funds toward paying down debt. Here are a few approaches:
- Balance transfer: A balance transfer allows you to shift debt from one account to another, ideally one with a lower interest rate. Many balance transfer cards offer a 0% APR for a limited amount of time. Moving high-interest debt to a credit card with 0% APR can help you knock down that debt at a much fast clip than sticking with a card with a high APR.
- Consolidate debt: Debt consolidation involves combining multiple debts into a single monthly payment. Many creditors offer debt consolidation loans, which are created specifically for paying off debt. Their terms typically specify a repayment period with a fixed interest rate.
- Negotiate a lower rate with creditors: Some creditors will work with you to come up with a repayment method that might better help you meet your goal. This could be a reduced interest rate or a smaller minimum monthly payment. Not every lender will offer to help, but it’s worth the inquiry.
Debt repayment is usually a journey, not a sprint, but the steps outlined above can help to pay off debt faster. The sooner you start, the sooner you’ll be debt free.
by Pete McAllister | Accounting News, Budget, Financial goals, News, Uncategorized
Setting goals is a necessary start to achieving a financially secure future, but sticking to those goals is another hurdle altogether. Unexpected expenses, the costs of day-to-day life, and failure to track spending all have the potential to derail any roadmap we may initiate. Read on for actionable strategies to help you stay on track to reach your financial goals.
Be Clear About Your Objectives
Most of us have heard that every dollar should have a name, which means that when it comes to saving, you need to be clear on your objectives. What are you saving for? It could be a down payment on a house, a child’s education, retirement, a dream vacation, etc. Many of us save for a combination of objectives, so it’s also important to be crystal clear on the reasons behind your financial goals. Knowing your “why”—for any goal in life—will create intrinsic motivation. The goal becomes a priority despite whatever external forces are at play.
Establish Small, Attainable Goals
Many financial goals are lofty, whether paying off student debt or saving for retirement or anything in between. They take diligence, consistent monitoring, and a solid framework to reach. In other words, financial goals require micromanagement. If your goal is to save $5,000 for an emergency fund, write down the steps you plan to take to achieve this goal, then put them into action and monitor them constantly. Some of these steps could include, for example, reframing your budget to account for the emergency fund, setting up automated weekly deposits into your savings account, and finding a money managing app that works for you.
Compartmentalize
In order to meet a specific goal, think about dedicating a separate account for it. You can even set up automatic direct deposits so you’re not tempted to use the money for something else. Be sure to label this account with a name that reflects your goal, such as “Early Retirement”. This can be applied to any financial goal. In fact, you may have several different accounts allocated to different goals.
Break Down Big Goals into Quarterly Milestones
Once you compartmentalize your goals, think of your bigger goals in terms of quarterly increments. If you want to save $20,000 in two years for a down payment on a house, rather than focusing on the daunting path ahead, make a plan to allocate a certain amount each month, then review the account every quarter. In this case you would need to save roughly $834 per month. When you see that you’re saving $2,502 per quarter, the end goal of $20,000 in two years is undeniably within reach.
Build a Flexible Budget
In order to reach financial goals like the $20,000 down payment example above, you need to keep spending in check. When you know how much money is coming in and leaving your account on a monthly basis, you can better determine how much you can allocate to different goals. When you create your budget, keep in mind that it should be realistic yet flexible so you can make smart adjustments as needed.
Save Your Raise
When saving for financial goals, aim to save at least half of any raise, bonus, or unexpected funds. Better yet, save it all. As tempting as it can be to splurge on a big purchase, you’ll be happier in the long run when you refrain from impulsivity in favor of staying the course to meet your future goals.
by Daniel Kittell | Accounting News, Budget, News, Retirement Savings
If you’re in the market for a new house, you might be wondering if you can tap into your workplace 401(k) to cover the down payment. The short answer is yes, but there are definite disadvantages in doing so. Let’s take a look at some of the pros and cons to this approach.
Benefits of Borrowing from a 401(k) to Make a Down Payment on a House
- You’re borrowing from yourself rather than another lender, which means you might not be losing as much money on interest payments as you would if you acquire the funds through other means, like taking out a larger home loan to cover your down payment costs.
- The loan approval is typically hassle-free. Provided your workplace plan allows for loans, and you do indeed have sufficient funds in your 401(k), your credit score and other financial credentials shouldn’t impact your ability to borrow against it.
- The process is typically quick. Every plan is different and works on its own timeframe, but once you’ve decided to borrow from your 401(k), it’s usually just a matter of filling out a few forms to gain quick access to the funds.
- More money for a down payment may equal more options. Borrowing against your 401(k) plan will allow for a larger down payment, which will allow for wider options when it comes to mortgage lenders. It could also help you qualify for a better interest rate as well as help you dodge Private Mortgage Insurance (PMI).
A Note on PMI
PMI is customarily required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. The most common way to pay for PMI is a monthly premium that is added to your mortgage payment. Because it protects the lender and not the borrower, many home owners want to avoid this added expense, but some choose to see it as just another expense of owning a home.
Disadvantages of Borrowing from a 401(k)
- You are diminishing your retirement savings, both in its immediate drop in balance and its future growth potential. Most likely, the return on investment (ROI) you would gain by keeping your money invested would be greater than the ROI from the interest you pay yourself (or the appreciation on your house).
- Your budget will take a hit. You are required to repay the 401(k) loan, which means that a portion of your future paychecks will go toward repayment. That means less money at your disposal for other expenses, such as homeownership costs.
- You will be on a repayment deadline. Borrowers typically get five years to repay a 401(k) loan. Depending on the size of your loan, you could potentially face large monthly payments in order to meet the repayment deadline.
- Inability to repay the loan will result in penalties. Your loan will be treated as a withdrawal if you are unable to pay it back in full by the deadline, which means that you will owe income taxes on it. You will also be subject to a 10% penalty associated with early withdrawals unless you were older than 59 ½ when you took the money out.
- Beware of the cost of leaving your job before the loan is paid. If you quit your job or experience a layoff, the entire loan amount will need to be paid by the due date for filing taxes that year. This could result in a need to repay the loan quickly in order to avoid penalties.
