When people think of personal finance, they often think of a boring budgeting exercise to track how they spend money on ordinary household expenses and other bills. With the increasing cost of living, personal finance is becoming more of an issue that you can’t afford to ignore. There are many different ways to save money, and some of them can be very beneficial to you and your family.
Many people look to the Internet or their local library for information on budgeting and saving money. Educating yourself on how to budget your money is an essential part of developing critical personal finance skills and creating a budget that works for you. Many people have emerged as financial experts over the past two decades. Keep in mind that the vast majority of these people are ultimately trying to sell products and services so their approach may be very biased. A popular financial expert with a significant amount of free advice for people is Suze Orman. While a somewhat polarizing figure in some circles, she certainly offers a significant amount of information online for free.
Complex investment strategies will very likely require the help of an expert. We recommend a fee-based advisor who charges a small annual fee to manage your assets. Many fee-based advisors will require you to have a minimum investment of $100,000 or more. This isn’t feasible for many people, so you’ll need to educate yourself and make some decisions for yourself. Simply walking into a bank is problematic as most financial institutions really push their employees to sell their own products, whether these are the best choices for you or not.
As you are building your knowledge about personal finance strategies and tactics, there are a number of financial vehicles and strategies that you will come across, so let’s briefly review a number of them. In fact, your employer and financial institution may already offer programs like these.
Defined Contribution Program
Investing in a defined contribution program is an excellent way to invest for retirement. These types of programs consist of a variety of investment opportunities including mutual funds, stocks, bonds, or any other financial instruments that suit your needs. Basically, you are investing in a number of return-generating assets to fund payments to you. It is important to understand the rules and regulations in your state to help fine tune your particular investment, but the key benefit is being able to use tax-deferred growth options.
401K Plans and IRAs
Many employers offer 401K plans to their employees. It’s called a 401K plan after the section of the federal tax code that created these plans. So, what are they? At the very least, it’s a way that you can save for retirement and defer the payment of taxes. Essentially, you contribute a pre-defined amount out of every paycheck. This income is not subject to federal income tax and will continue to grow tax-free. Additionally, some employers offer contribution matching. This is where the employer will match some of all of the contribution that you make. Yes, it’s essentially free money from your employer.
The amount of your contribution is limited by the amount of your annual income and age but it can continue to grow tax free until you withdraw funds. Taxes are payable on withdrawals, but they can literally be deferred for decades.
There may be an issue if you leave your job as 401K plans are typically only available to employees. In these cases, or when your employer doesn’t offer a 401K plan, you may be eligible for an Individual Retirement Account (IRA). An IRA has specific rules around contributions and withdrawals, but these are generally not inconsistent with 401K rules. The good news is that if you are required to move your 401K plan from your employer, you can often “rollover” your 401K contributions into an IRA without a tax penalty.
Saving for Education
Saving for your children’s college education may be a wise move. Costs of post-secondary education have skyrocketed over the past three decades so this is a significant expenditure that you should plan for and it’s probably the best investment in your child’s future earning potential.
Creating a retirement savings plan for a child’s education is another great way to save for your future. Whether your child is attending a four-year college or community college, there are plans available that will enable you to meet their educational expenses. These plans generally fall under the IRS code as 529 plans.
Investing in your child’s education has a variety of benefits. A child’s education should be fun and educational, but when that same child goes off to college, he or she needs extra finances to pay for textbooks, meals, travel, and living expenses. This extra expense may ultimately be eliminated with the use of an education savings account, or SEISA.
Investing in your education, whether you’re a single parent retired, or not financially able to attend college is beneficial. Saving for education is something many parents choose to do. Financial aid for college is provided by a variety of sources, including student loans, grants, scholarships, and the like.
Investing in real estate is another excellent option to reduce your personal expenses. One downside to this type of investing is that it may not be very popular, especially if you reside in a fairly conservative area. Nevertheless, there are many benefits to investing in real estate.
Saving for your future is a valuable investment strategy. Remember that the most valuable resource you have is your time. Taking advantage of the free time you have in your life, and planning for the future of your family and for yourself can help create a solid plan for the future.
Investing in education and retirement is one of the most effective ways to save for the future. The quality of education received is very valuable, but if the source of income is inadequate, a person may fall behind in his or her mortgage payments. By investing in funds such as a 401(k) or IRA, these gaps in income can be covered by a more secure financial situation.
Saving for your future can benefit many aspects of your life. There are many personal finance tools and resources available to assist you in developing your own financial plan. Working toward a secure financial future is not only important for your own peace of mind, but also for the financial security of your family.