What are the differences between a Traditional, SEP and Roth IRA?
Read this article from Mint.com.
STAGE 1: The Early Years.
Traditional advice: You’re finally earning a decent income. Now put that money to work for you.
Changes to financial system:
Leverage is out; saving more to meet your goals is in.
Don’t count on supersize gains in stocks and real estate going forward.
Expect the market’s sharp zigs and zags to continue.
Right moves now:
Buy that house if you plan to stay in it.
Save for a hefty down payment.
Go all out for retirement.
Smooth the roller-coaster ride.
These steps cannot be repeated often enough. The majority of people don’t adhere to the basics of personal finance. If you are looking for a place to start, this is it. Click link below to read more.
1. Save for a rainy day.
2. Be prepared for an emergency.
3. Invest for retirement.
I thought this to be a great visual explanation of a very complicated situation. Everyone should watch this. See if you can explain it to a friend afterwards. :)
As I have always mentioned, the intention of this blog is to provide you with solid information that will allow you to make sensible decisions when it comes to money and personal finance. After reading studying many books and reading many blogs, one starts to have a sense as to what is good information from what does not work. Even though money management is different for different people in different situations, certain information works very well in general. This blog posting on The Digerati Life provides a great and simple breakdown of Dave Ramsey's basic steps to financial success.
I have listed the steps briefly; click Dave Ramsey's book to purchase from Amazon. Highly Recommended.
DAVE RAMSEY'S BABY STEPS
1. Save up for a small emergency fund.
This is very important and is usually very liquid cash that you can access quickly in the case of an emergency.
2. Pay off your debts with the debt snowball strategy.
A very important step in being free of financial distress.
3. Grow (or extend) your emergency fund.
This should equate to approximately 3 - 6 months of your expenses.
4. Save and invest in your retirement.
Put money in your employers 401k or 403b; enough to get the matching. Next, open up an IRA; a traditional or a Roth IRA depending on whether or not you think you will be in a higher tax bracket closer to retirement (which means that you should have a Roth IRA now).
5. Save for your child's college fund.
Open up a 529 plan. Save for your child's college fund. Let's face it, it's not getting any cheaper. The earlier you start the better.
6. Pay off your home mortgage early.
Once you get to this step, you can contribute more to your mortgage.
7. Continue saving, build your wealth, invest and give.
This is a great position to be in; just focus on growing your net worth.
I found this great article on Morningstar. For all of you that are looking for ways to reduce your Expenses which will obviously increase the amount of funds you have available to save, read through this article and highlight the ones that you can try.
Some of the most general ones I have indicated below. Many of these I adhere to.
2. If you see something in a catalog that you want to buy, wait a week before ordering to see if you still really want it. - This will help you determine whether it is a 'want' or a 'need'. Most of the time, they are 'wants'.
3. Use the public library to check out movies or books for free. - This resource is highly overlooked. Public libraries are a great source of books and yes, they lend DVDs as well.
7. Compare rates for cable and satellite. Go with the less expensive option. Only sign up for the channels you know you'll watch. - Today, we are bombarded by hundreds of channels, most of them we don't watch. Cut down to a reasonable cable package that works for you. Also, keep in mind that many networks offer the most popular shows online now. Sites like Hulu.com and Joost.com are valuable resources for TV shows.
10. Cut back trips to Starbucks or other premium coffee shops. - Do you really need to pay $5.00 for coffee? Well I leave this up to you. I am not a coffee drinker, but the same applies to eating out. Prepare food at home or even take tea bags to your office and make your own tea or coffee. Hey, I'm just providing options. :)
11. Stop buying clothes that are "dry clean only." Learn to iron. - I bought myself a TOBI steamer. I spent $180 a year ago and I believe I will soon earn a return on my investment in a few months. I have not once gone to a dry-cleaner since I got it. I do iron as well.
12. Don't renew subscriptions to publications you don't have time to read. - I have been collecting Time and National Geographic magazines for a year now; which I have no time to read. These subscriptions were canceled months ago.
14. Make IRA contributions early in the year to take advantage of additional months of tax deferral. - I plan to max out my Roth IRA before the first half of this year. Good investing strategy to earn tax-deferred.
16. Only use ATMs where you won't be charged service fees.- I agree; these little fees do add up. I prefer to walk a distance to my own bank than to go to another that's right across the street. The exercise is good anyway. :)
23. Pay off your credit cards monthly and avoid paying interest. - Obvious. I have a system of paying off my cards in full every month.
24. If you must charge, switch to a no-fee or low-fee credit card. Go to Bankrate.com to compare rates. - The alternative to 23.
34. Participate in company retirement plans to save on taxes. Your taxable income will go down and you'll defer taxes to the future. - This is one way to reduce the amount of money you pay in taxes at yearend. Reduce your taxable income by contributing to an IRA.
35. Take advantage of your employer match in your 401(k) or other retirement plan. - This is free money; contribute AT LEAST the amount necessary to get the employer match.
36. Don't take a loan from your 401(k) plan--you'll save on double taxation of that repaid interest. - I agree totally. Penalties are not worth it.
64. Quit smoking. - Not a smoker, but it is a costly habit.
75. Sell stuff you don't need or use anymore on eBay. - I have started selling off some of my old books. I love to collect stuff, but I have realized if I needed them at some point in the future, I could repurchase them at a much cheaper price. Therefore, I might as well get as much value for it now that I can. Ebay is great. I use Half.com for books as well.
79. Cut back on eating out. - Prepare food at home and save money. It is as simple as that.
80. Be a smart grocery shopper--cut coupons, shop at discount stores, and stock up on sale items. Check out Costco or Sam's Club. - Speaks for itself.
87. Plan your purchases--avoid impulse buying. - Not a time to be buying on impulse; unless you are buying great companies that are cheap in the market. :)
93. Skip paying cab fare now and then. Walk or take the bus. - Take a walk; your heart will appreciate it.
100. Sign up for a Upromise credit card. A percentage of your purchases will go into a college savings fund for your children. - I have had a Upromise card for about a year now. I use it because I know it contributes to my two year old niece's college tuition. I love you Breezy. :)
If you have any comments or other great ideas, share them with us.
One of the most important steps in successfully managing your personal finances is to build an emergency fund. How much? Well a good yardstick to use is the amount of your fixed expenses over a six month period. It is recommended that this is put in a highly liquid, high yielding savings account. I use ING Direct; great online service, great yield. This is money set aside for a rainy day; a time when the unexpected happens and you need some extra cash to get by. This could be an accident, health situation, job loss or something of an "emergency" nature.
Read this article from one of my favorite blogs, The Simple Dollar, on Building a Healthy Emergency Fund.
This is another great link on Building an Emergency Fund from Zen Habits.
These are the key individual provisions of the Act President Obama signed into legislation last week. I thought this to be information we all should be aware of. Read through and see what applies to you. Please distribute this link to all that you know. Information is the key to putting ourselves in a position of strength in this economy.