Advice about your investing is difficult to give without knowing exactly what you are investing for. I mean, some people save because they'd like to be able to plan to retire early, while others want to build for their future of buying a bigger house and raising a family, and still others are looking to pay for their childs education. But whatever your particular goal in your savings life, a basic understanding of financial management is important. After all, you are putting your future on the line or risking next months mortgage payment even. The following tips are some of the basics that you really should be aware of when considering investing, specifically outside of your retirement account. 1. Increase your savings rate: It is difficult sometimes to raise your savings rate as you alternate between the ideas of cutting expenses and picking up extra hours at work. But the likelihood - unless your Bill Gates - is that pure saving your money will be the biggest key to you hitting your financial goals. Some simple changes and adaptations can give your savings a huge boost though, such as cut out the coffee shop in the morning, dont eat out, or hit the sales and put the difference in your account. (I know you'll look at the coffee idea and think "What is he on......?" but think for a second. I used to buy a latte every morning for $3.50. That worked out at $17.50 a week on a 5 day week, $70 per month - $840 a year. That's close on $1,000 extra going into my savings accounts every year - and my waist line isn't missing the extra inches either!) 2. Emergency cash reserve: Put an emergency cash reserve of a few months worth of living expenses into something like a no penalty, instant access money market fund. Dont be caught in the cold in layoffs happen, which they inevitably do but don't have money sitting around in bank accounts that pay a pittance of an interest rate - make it work for you at every opportunity. 3. Paying off consumer debts: Consumer debts - i.e. credit card balances - are not tax deductible and are kind of like getting a negative 10% annual return. Pay them off and then save the difference in your investments. This is not good debt, it never saves you money, only costs you in the end. Get rid of it FAST! 4. Paying down your mortgage: This is sometimes not the best idea, being that this can actually be a tax deduction if you pay as usual. Contribute more to your retirement and keep this as a tax deduction. This is something that is not popular to a lot of people because most dont like debt, but this debt actually saves you a little money every year. 5. Contribute to your retirement accounts: Take advantage of the tax benefits of your retirement accounts. If you are in a 30% tax bracket, for every $1000 that you contribute to your retirement account, you've instantly saved $300. In addition, any profits inside your retirement accounts (dividends, interest) grow without taxation until you withdraw your money after age 59. If your fortunate and work for a good company that matches what you pay as a certain percentage of your pay and makes their contribution as a pensions payment, you should aim to contribute at least enough to receive the maximum company match. I mean, come on, we're talking about getting free money here. This is similar to making 100% returns on your investment immediately. Can you do that with stocks? Ha - not very likely! Think outside the box a little bit when planning your investing basics - look to take on more challenges when you develop your safety net, but still try to make them wise challenges. It could take a few years to organize your finances and begin investing outside your retirement accounts. Don't worry. Take as much time as you need so long as you keep pushing yourself. Oh - and remember - diversify your portfolio, DO NOT put all you eggs in the same basket, please! |
