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Some of us know it as I.R.A while others pronounce it âeye-ruh.â No matter if youâre team âI-R-Aâ or team âeye-ruhâ, you should definitely know what it means!Â
These letters stand for Individual Retirement Account.Â
Donât roll your eyes! I know âretirementâ sounds like something you should only worry about when youâre much older, but I promise, youâll be thankful you learned all about this. Itâll help you learn a couple tips on smart tax moves and ultimately help out your future self!Â
You probably have a bank account where you put your money, right? So this is still relevant to you! Now, the question is: how much is the money sitting in your account growing each year? If youâre lucky, the answer is somewhere around 2% in the year 2020 (for a high yield savings account). But most people donât have that. Most people have a checking account that doesnât pay them any interest at all or a traditional savings account that offers an average of 0.09% in interest per year. That may not sound like a big difference – 2% versus .09% – but trust me: IT IS!Â
After 10 years of saving $100 every month (or $50 from each biweekly paycheck), a bank account with .09% interest rate or annual percentage rate (also called APR) will have a total of $12,059.56, while a high yield savings account growing at a 2% APR will have a total of $13,402.46. Thatâs a difference of over $1,000 of FREE MONEY! And, whatâs even more eye-opening is that the longer you invest and the more the interest compounds, the bigger the effect. So over a 40 year period of time, which is a typical American working career, the difference is more than $25,000!
What does any of this have to do with that Individual Retirement Account I mentioned earlier? Patience, weâre getting there!
When it comes to money, growth is key. How much can you grow your money in a year? In 10 years? In your working career? With a bank, your money is safe and protected, but it doesnât really grow that much. Thatâs where the stock market comes in! Itâs a good idea to put the money you may need for an emergency into a bank account for easy and guaranteed access, but also consider putting at least 5% of your earnings into an investment account for long term goals such as retirement.Â
For example, a 401k through your job allows you to invest your money in the stock market. If you donât have access to a 401k through your job, then you can open up an Individual Retirement Account (IRA) that also allows you to invest your money in the stock market. Similarly, a pension plan (if you can even get one of those in the 21st century!) also invests your money in the stock market.Â
So why do all of these fancy accounts put our hard-earned money in the stock market? The answer is: over the long term, (not just one year, but over many, many years) the stock market has a history of providing higher rates of return, thereby growing peopleâs money much faster than any bank!Â
When your job doesnât offer any workplace retirement benefits, then you can open an Individual Retirement Account on your own. Let me break down the basics for you:
What: Opening an IRA
Where: At a brokerage firm of your choice
When: Anytime you want
Why: Because your money can grow more in an IRA than it would in the bank over the long run
Now, letâs talk about the âhow.â First, choose whether you want to pay taxes on the money youâll be investing when you file your taxes next or if youâd rather pay them in the future when you file taxes for the year you took the money out. That will determine whether you open a Roth IRA or a traditional IRA.
Roth IRA vs. Traditional IRA
Roth IRA: Investment account that lets you put money away for your retirement. Money invested here is after taxes have been paid, so you donât have to worry about paying taxes ever again. Also, any profits you earn over time will never be taxed, and thatâs a BIG deal! Available only if you earn under a certain income level.Â
Traditional IRA: Investment account that lets you put money away for retirement, but claim a tax break on the amount invested when you file your taxes. Since you get a tax break now, when you take the money out in the future youâll have to pay taxes on your invested dollars and the profits earned. Available no matter what income level you fall under.Â Â
People who earn too much money for a Roth IRA tend to choose a traditional IRA (the limits for how much you can earn to have a Roth IRA changes every year.) Also, people who predict that they will earn less money in the future (at retirement) also like to choose a Traditional IRA because they like the idea of paying less in taxes as a result of being in a lower tax bracket.Â
Once youâve chosen the IRA type that you prefer, youâre ready to choose a brokerage firm. Choosing a brokerage firm is similar to choosing a bank. Make sure that you know what the fees are, what the customer service experience is like, what account types they offer, and what in-person versus web-based services or platforms they have. You can call them up or go online and create your account. Heads up: Youâll have to link the investment account (the IRA) to your bank account so that you can transfer money and begin to invest in the account you created.Â
What Do I Put Into My IRA?
Now, the toughest question of them all: What investments do I invest the dollars within my IRA into? The short answer is that it really depends on what your goals are. If youâre not trying to retire anytime soon, then you can afford to be risky. You can have mostly stocks and little to no bonds in the IRA. If you plan on retiring very soon, youâll want to make sure you have most of your money in more secure investments that donât change unpredictably in the market, such as bonds. The general rule of thumb when it comes to deciding how much to put in stocks versus bonds looks like this:Â
120 – your age = percentage of investment that should be stocks
So for example, A 30-year-old in 2020 should have 90% stocks in their IRA and 10% in bonds because 120 – 30 = 90.Â
Keep in mind that this can vary if youâre comfortable being more aggressive (more stocks) or more conservative (more bonds) with your investments. Itâs simply a good rule of thumb to get you started.Â
One final analogy to help you remember how this works, and then youâre on your way! The brokerage firm is kind of like your bank. Itâs where you open the account and do business. Your IRA is like the type of account you open at that bank. It has rules you need to follow and the rules change each year, so do your research. (When can you touch the money? How much money are you allowed to invest per year? Are there income limits on this account?) If you break the rules, then you may pay fees or maybe even penalty taxes. So make sure you understand the rules!Â
Stocks, bonds, mutual funds and ETFâs are what your dollars can buy and are held within the account. Finally, the annual rate of return is like your APR. While at the bank, the rate of growth or APR is offered to you upfront, thatâs not really possible with an IRA or any other investment account because the stock market is highly unpredictable. But remember, historical data shows that it averages much more growth than bank accounts do over the long run, so donât be afraid to put money aside for the long term if you can afford to.
Now, off you go! Youâre ready to open that IRA if you donât already have one!Â
The post IRA: #RealMoneyTalk, What Is That? appeared first on MintLife Blog.
If you’re thinking about how much is enough for retirement, you’re probably contemplating a retirement and need to know how to pay for it. If you are, that’s good because one of the challenges we face is how we’re going to fund our retirement.
Determining then how much retirement savings is enough depends on a number of factors, including your lifestyle and your current income. Either way, you want to make sure that you have plenty of money in your retirement savings so you don’t work too hard, or work at all, during your golden years.
If you’re already thinking about retirement and you’re not sure whether your savings is in good shape, it may make sense to speak with a financial advisor to help you set up a savings plan.
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How Much Is Enough For Retirement?
Your needs and expectations might be different in retirement than others. Because of that, there’s no magic number out there. In other words, how much is enough for retirement depends on a myriad of personal factors.
However, the conventional wisdom out there is that you should have $1 million to $1.5 million, or that your retirement savings should be 10 to 12 times your current income.
Even $1 million may not be enough to retire comfortably. According to a report from a major personal finance website, GoBankingRates, you could easily blow $1 million in as little as 12 years.
GoBankingRates concludes that a better way to figure out how long $1 million will last you largely depends on your state. For example, if you live in California, the report found, “$1 Million will last you 14 years, 3 months, 7 days.” Whereas if you live in Mississippi, “$1 Million will last you 23 years, 2 months, 2 days.” In other words, how much is enough for retirement largely depends on the state you reside.
For some, coming up with that much money to retire comfortably can be scary, especially if you haven’t saved any money for retirement, or, if your savings is not where it’s supposed to be.
How to Become a 401(k) Millionaire
Early Retirement: 7 Steps to Retire Early
5 Reasons Why You Will Retire Broke
Your current lifestyle and expected lifestyle?
What is your current lifestyle? To determine how much you need to save for retirement, you should determine how much your expenses are currently now and whether you intend to keep the current lifestyle during retirement.
So, if you’re making $110,000 and live off of $90,000, then multiply $90,000 by 20 ($1,800,000). With that number in mind, start working toward a retirement saving goals. However, if you intend to eat and spend lavishly during retirement, then you’ll obviously have to save more. And the same is true if you intend to reduce your expenses during retirement: you can save less money now.
The best way to start saving for retirement is to contribute to a tax-advantaged retirement account. It can be a Roth IRA, a traditional IRA or a 401(k) account. A 401k account should be your best choice, because the amount you can contribute every year is much more than a Roth IRA and traditional IRA.
1. See if you can max out your 401k. If you’re lucky enough to have a 401k plan at your job, you should contribute to it or max it out if you’re able to. The contribution limit for a 401k plan if you’re under 50 years old is $19,000 in 2019. If you’re funding a Roth IRA or a traditional IRA, the limit is $6,000. For more information, see How to Become a 401(k) Millionaire.
2. Automate your retirement savings. If you’re contributing to an employer 401k plan, that money automatically gets deducted from your paycheck. But if you’re funding a Roth IRA or a traditional IRA, you have to do it yourself. So set up an automatic deposit for your retirement account from a savings account. If your employer offers direct deposit, you can have a portion of your paycheck deposited directly into that savings account.
Related: The Best 5 Places For Your Savings Account.
How long do you expect to live? Have your parents or grandparents lived through 80’s or 90’s or 100’s? If so, there is a chance you might live longer in retirement if you’re in good health. Therefore, you need to adjust your savings goal higher.
Consider seeking financial advice.
Saving money for retirement may not be your strong suit. Therefore, you may need to work with a financial advisor to boost your retirement income. For example, if you have a lot of money sitting in your retirement savings account, a financial advisor can help with investment options.
Figuring out how much is enough for retirement depends on how much retirement will cost you and what lifestyle you intend to have. Once you know the answer to these two questions, you can start working towards your savings goal.
How much money you will need in retirement? Use this retirement calculator below to determine whether you are on tract and determine how much you’ll need to save a month.
More on retirement:
- Find Out Now 7 Questions People Forget to Ask Their Financial Advisors
- 7 Mistakes Everyone Makes When Hiring a Financial Advisor
- Compare Fiduciary Financial Advisors — Start Here for Free.
- 7 Situations When You Need a Financial Advisor â Plus How to Find One Read More
- 5 Tips to Optimize Your Retirement Account Withdrawals Read Now
- People Who Retire Comfortably Avoid These Financial Advisor Mistakes
Working With The Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post How Much Is Enough For Retirement? appeared first on GrowthRapidly.
As the dust slowly begins to settle and we observe businesses putting their action plans in place to recover, we all sit and wonder what this may look like for us. How will I recover from this? How am I going to cover these unexpected expenses? How will I increase my earning potential? Whether youâre navigating the muddy waters of being unemployed, furloughed, return to office plans or continue working remotely â we have many things to consider as time continues to quickly progress. How should we handle debt? Are there any more relief programs or funding? How can we pick up the pieces and properly recuperate what may have been lost? Use the tips below to jumpstart your journey of reclaiming your finances.
Identify your financial focuses
Over the course of this year, many financial goals that were initially set needed to be tweaked or came to a screeching halt altogether. While it would be nice if we could rectify the many financial aspirations we have for ourselves and our families all at once, itâs simply not realistic. To alleviate the impounding pressure many have had to experience for a good chunk of time this year, itâs best to identify two to three key areas of focus. Not only does narrowing your focus help direct where your efforts should lie, it removes unnecessary stress so that a plan of attack can be created and executed upon. For example, if you would like to begin rebuilding your emergency fund, savings or simply get caught up on bills and other overhead expenses â make sure the actionable steps you take align with the overarching goal. This helps create tunnel vision to execute on the goal while quieting the noise of things that can be tackled at a later time. You owe it to yourself and your finances to see these goals through to the finish line.
Revisit your budget and make adjustments as necessary
Many think of budgeting like that pesky chore you put off every single week. Itâs that âthingâ you know needs to be done, but you always find something else to do instead. However, once itâs done â youâre always glad that you did it. Even if you have to have an adult temper tantrum, pull out the pen and paper (once again) to compare your income with expenses. Has your income increased or decreased? Are there expenses that are no longer on the list? Are there certain wants or luxuries that can be temporarily put on hold until things settle down? Take all of these factors into consideration when recalibrating your budget. Since thereâs an increased amount of time indoors, are there any spending habits youâve noticed that have been on the rise? If these questions are not easily answered, commit to reviewing the last few months of your bank statements. Do you notice more to-go food orders? An increased amount of emotional or impulsive purchases? Be honest with yourself and your habits so that you can address and make changes to healthily rebuild your finances.
Adjust debt payoff plan
If you havenât taken the opportunity to contact your creditors â consider this as a reminder! Itâs imperative you maintain an open line of communication with all lenders. These conversations can potentially lead to various options being available to assist you in your debt payoff process. Remember to keep in mind that you are not the only person experiencing financial hardship, so let pride become a thing of the past and be candid. Are there relief options during the pandemic? Are interest rates being lowered because of the current climate? If I were to miss a payment, what are the consequences? Are negative remarks being reported to the credit bureaus? Be very clear in your delivery. There are thousands and thousands of people attempting to pick up the pieces on their money journey. Take some time to check all creditor accounts for the most recent balances. From there, create (or readjust) your plan based on your personal circumstances. If itâs easier to tackle the smallest debt, shift your attention to those accounts. If catching up and restoring good standing with utilities and other overhead expenses need to be addressed first, do that. There is no right or wrong way to approach your plan; just donât adopt the spirit of avoidance.
Monitor your credit score regularly
Thereâs been a huge surge in personal data being compromised due to the pandemic. To protect yourself and your credit score, be sure to obtain a copy of your credit report from at least one of the bureaus (Experian, TransUnion and Equifax) and review regularly. Normally, you are allotted one free credit report every year â however, because of the pandemic you can now request your report weekly at no cost to you until April 2021. We all know thereâs a lot on all of our plates, but this can be incorporated in your weekly routine to make sure information stays accurate. During your review if thereâs anything thatâs false, submit a dispute and be sure to have any supporting documentation that can serve as evidence to support your claim.
Even though we donât like to admit it, life can present a lot of challenges that we may not be fully prepared for in our ever-changing adulthood journey. This pandemic has shined a light on the areas in our lives that can use some more time, intention and attention. Instead of beating ourselves up about the lack of preparedness, letâs be sure to make adjustments now so no matter what happens with the economy or the state of this country it does not have such a huge, negative impact to our financial goals. Letâs face it â even in the midst of tragedy, this year equipped us with a different level of endurance and resilience. It reminded us what really matters and where our energy should really be dedicated to. Start where you are and do what you can. Refrain from comparing your personal money story to someone elseâs. We all have unique situations and obligations that influence our saving and spending plans. Dust yourself off, grant yourself grace and begin a new chapter in your financial journey.
The post How to Financially Prepare for Post-Pandemic Life appeared first on MintLife Blog.
Timing is everything and when it comes to buying a car, that saying couldnât be more true. Negotiating and haggling with car salesmen can reduce the price of what you have to pay for a new whip. But if you want to get the best deal on a car, youâll need to know when to show up to the dealership. Whether youâre buying a used vehicle or a brand new ride, weâll tell you the best time of year to buy a car. Being that the purchase of a car is rather pricey, consider meeting with a financial advisor in your area to discuss your finances beforehand.
When Is the Best Time to Buy a New Car?
If youâre on a budget, one of the best times to buy a new car is the end of a model season. New car models are often introduced each year between late summer and early fall. While you might miss out on some new features, buying a new car in August or early September may save you some money.
Waiting until the end of the year to buy a new car can work in your favor as well. Many car dealers offer year-end sales in an effort to get rid of older vehicles and make room for new inventory. Buying a new car on a holiday like Christmas Eve or New Yearâs Eve is another way to get a deep discount.
If you canât wait until December to get a new car, you might want to buy a car at the end of the month or the end of a quarter. If a salesperson hasnât sold very many vehicles in weeks, he or she might be willing to compromise and lower the price of the car you want to buy. Even if a salesman has managed to sell multiple cars throughout the month, he might want to close one last deal in order to meet a sales goal or score a bonus.
Shopping for a car at the end of the day may or may not be effective. If you stop by a dealership an hour before itâs set to close, a salesperson may be open to negotiating so that he or she can end the day on a high note. But if he or she is used to working long hours, your sales associate may not be that flexible.
The Best Time to Buy a Used Car
A recent study from iseecars.com ranked the best times to buy a used car. At the top of their list are holidays including Black Friday, Veterans Day, Thanksgiving and Columbus Day. The months of November and December are also considered good times to purchase a used car.
According to the study, the months of April, May and June are some of the worst times to buy a used car. Specifically, Easter, Motherâs Day and Fatherâs Day are bad days for used-car buyers. But the No. 1 worst day to purchase a used car is the Fourth of July.
When Not to Buy a New Car
Generally, one of the worst times to buy a new car is in the spring. During this time of year, youâll see more people on car lots looking to soak up some sun and cash in their tax refunds. Other bad times to shop for new cars are whenever a particular vehicle is popular among consumers and whenever a new car model has been released.
Some people seem to think that buying a car on a rainy day is a good idea. But that approach usually doesnât work. In fact, you can expect car dealerships to be filled with people when thereâs bad weather simply because people tend to believe that theyâll find great deals on rainy days.
The best time of year to buy a car ultimately depends on your personal preferences and how much youâre willing to spend on a vehicle. If youâre rolling in dough and you want your car to have top-of-the-line features and amenities, you might want to buy a car as soon as a new model comes out. But if youâre trying to shave hundreds of dollars off your purchase price, experts say that itâs best to head to the dealership at the end of a period in the fall or winter, like the end of the month, quarter or year.
Our advice? When it comes to buying cars and getting your way at the dealership, it helps to know what youâre looking for. Doing plenty of research and knowing the make and model that you want your car to have can make it easier to figure out when to purchase your new vehicle.
Tips for Taking Care of Your Finances
- If you find yourself having some financial struggles, perhaps itâs time to have an outside resource step in to help you out. Financial advisors typically have extensive experience in a number of important areas of finance, like tax planning, retirement planning, budget planning and more. SmartAssetâs advisor matching tool can set you up with as many as three suitable advisors in just 5 minutes. Get started now.
- The best way to manage your money on both a short- and long-term scale is to create a firm budget. SmartAssetâs budget calculator can help you figure out exactly where youâre overspending.
Photo credit: Â©iStock.com/cosmin4000, Â©iStock.com/ViewApart, Â©iStock.com/kali9
The post When Is the Best Time to Buy a Car? appeared first on SmartAsset Blog.
Investing in your retirement early is the best way to ensure financial stability as you age, especially when it comes to understanding various retirement options. Getting started may feel overwhelming â luckily weâre here to help. We help break down the difference between 401(k) and 403(b) accounts, and how they can impact your financial life.
You may already know the value in adjusting your budget to make saving for a rainy day a priority. But are you also prioritizing your retirement savings? If youâre just getting started in the workforce and looking for ways to invest in yourself, 401(k) and 403(b) plans are great options to know about. And, the main difference between a 401(k) and a 403(b) is the company whoâs offering them.
401(k) accounts are offered by for-profit companies and 403(b) accounts are offered by nonprofit, scientific, religious, research, or university companies. To understand the similarities and differences between plans in depth, skip to the sections below or keep reading for an in-depth explanation.
How a 401(k) Works
How a 403(b) Works
The Difference Between 401(k) and 403(b)
The Similarities Between 401(k) and 403(b)
5 Ways to Grow Your Retirement Savings
$19,500 with your employer matches. Plus, most retirement funds have required minimum distributions (RMDs) by the time you turn 70. This essentially means you have to take a minimum amount of money out each month whether you want to or not.
In most cases, employers will offer 401(k) matching to encourage consistent contributions. For example, your employer match may be 50 cents of every dollar you contribute up to six percent of your salary. For example, with this employer match on a $40,000 salary, you would contribute $200 and your employer would contribute an additional $100 each month. This pattern would continue until your annual contributions hit $2,400 and your employer contributes $1,200.
Employee matching is essentially free money. Youâre monetarily rewarded for your retirement payments. Be sure to pay attention to vesting periods when setting up your employer match. Vesting periods are an agreed amount of time you need to work at a company before you receive your 401(k) benefits. For example, some companies may require you to work for their team for a year before earning retirement benefits. Other employers may offer retirement benefits starting the day you start working with them.
403(b) accounts include school boards, public schools, churches, hospitals, and more. This type of account is also known as a tax-sheltered annuity plan â they allow pre-tax income to be invested until taken out.
Employers that offer 403(b) retirement plans may offer a pool of provider options that undergo nondiscrimination testing. This allows employers that qualify for this account to shop around for plans that offer the best benefits and donât discriminate in favor of highly compensated employees (HCEs). For instance, some 403(b) accounts may charge more administrative fees than others.
Employers are able to offer employee matching on 403(b) accounts if they decide to. To cut costs for nonprofit companies, 403(b) retirement plans generally cost less than 401(k) accounts. Costs associated with starting up these accounts may not affect you, but it may affect your employer.
|Yearly Contribution Limit||$19,500||$19,500|
|Employer-Issued Packages||For-profit employers:
Corporations, private establishments, etc. and sole proprietors
|Non-profit, scientific, religious, research, or university employers:
School boards, public schools, hospitals, etc.
|Minimum Withdrawal Age||59.5 years old||59.5 years old|
|Early Withdrawal Fees||10% penalty, tax, and additional fees may vary||10% penalty, tax, and additional fees may vary|
The Differences Between 401(k) and 403(b)
Both a 401(k) and 403(b) are similar in the way they operate, but they do have a few differences. Here are the biggest contrasts to be aware of:
- Eligibility: 401(k) retirement plans are issued by for-profit employers and the self employed, 403(b) retirement plans are for tax-exempt, non-profit, scientific, religious, research, or university employees. As well as Hospitals and Charities.
- Investment options: 401(k)s offer more investment opportunities than 403(b)s. 401(k) accounts may include mutual funds, annuities, stocks, and bonds, while 403(b) accounts only offer annuities and mutual funds. Each employer varies in retirement benefits â reach out to a trusted financial advisor if you have questions about your account.
- Employer expenses: 401(k) accounts are generally more expensive than 403(b) accounts. For-profit 401(k) accounts may pay sales charges, management fees, recordkeeping, and other additional expenses. 403(b) plans may have lower administrative costs to avoid adding a burden for non-profit establishments. These costs vary depending on the employer.
- Nondiscrimination testing: This form of testing ensures that 403(b) retirement plans are not offered in favor of highly compensated employees (HCEs). However, 401(k) plans do not require this test.
The Similarities Between 401(k) and 403(b)
Aside from their differences, both accounts are set up to aid employees in retirement savings. Hereâs how:
- Contribution limits: Both accounts cap your annual contributions at $19,500. In the event you contribute over this limit, your earnings will be distributed back to you by April 15th. If youâre under your retirement contributions by the time youâre 50 years old, youâre allowed to make catch-up contributions. This means that, if youâre eligible, you can contribute $6,500 more than the yearly contribution limit.
- Withdrawal eligibility: You must be at least 59.5 years old before withdrawing your retirement savings. In the case of an emergency, you may be eligible for early withdrawal. However, you may be charged penalties, taxes, and fees for doing so.
- Employer matching: Both retirement account options allow employers to match your contributions, but are not required to. When starting your retirement fund, ask your HR representative about potential benefits and employer matching.
- Early withdrawal penalties: If you choose to withdraw your retirement savings early, you may be penalized. In most cases, you need a valid reason to withdraw your funds early. Eligible reasons may include outstanding debt, bankruptcy, foreclosure, or medical bills. In addition, you may be charged a 10 percent penalty fee, taxes, and other fees. During a downturned economy, as weâve seen with the COVID-19 pandemic, fees may be waived.
retirement plan options and their benefits. When employers offer retirement matches, consider contributing as much as you can to meet their match.
2. Set up Monthly Automatic Contributions
Save time and energy by setting up automatic contributions. You may feel less interested in contributing to your retirement as your payday approaches. Taking time to set up a retirement fund and budgeting for this change may be holding you back. To meet your retirement goals, consider setting up automatic payments through your employer. After a while, you may not even notice the slight budget adjustment.
3. Leverage Employer Matching
Employer matching is essentially free money. Employers may put money towards your future for nothing but your own contribution. This encourages employees to consistently put money towards their retirement savings. Not only are you able to earn extra money each month, but this âfree moneyâ will grow with interest over time. If you can, match your employerâs contribution percentage, if not more.
4. Avoid Early Withdrawal
Credit card balances, student loans, and mortgages can be stressful. Instead of withdrawing early from your retirement fund to pay for these, consider other debt payoff methods. If youâre eligible to withdraw from your retirement early, you may face penalty fees, taxes, and administrative expenses. This may hinder your savings potential or push back your desired retirement date.
5. Contribute Your Future Raises and Bonuses
If youâre saving less than $19,500 to your retirement fund this year, consider contributing more. If you earn a bonus or a raise, stick to your current budget and consider increasing your contributions. Ask your employer to increase your retirement payments right before you receive a bonus or raise. The more you contribute, the more interest youâll accrue over time.
Whether your retirement funds are established through a 401(k) or a 403(b), these accounts offer you the chance to build your financial portfolio. Consistently funding your retirement account may better your financial plan and set you at ease. As your contributions age, so do your interest earnings. Youâll be able to make money on your pre-taxed income and set your future self up for success. Get started by checking in on your budget and carving out a specific amount to put towards your retirement each month.
The post Whatâs the Difference Between 401(k) and 403(b) Retirement Plans? appeared first on MintLife Blog.
Reaching your twenties is an exciting milestone for most as it means youâve officially entered adulthood. Along with that milestone comes new responsibilities and worries that we didnât picture when our teenage selves dreamed of turning 21. We imagined our college graduation, moving into our first apartment, and launching our new career. That vision didnât include dealing with student loan debt, taking on a low paying entry-level job, or having to confront that despite spending 4 years in college, youâre still unsure how the world of personal finance actually works.
Itâs easy to dismiss it all because well youâre a 20 something, and youâll have plenty of time to play catch up. The reality is that each decade plays an important role in our future financial health. Take the time now to learn about your money and follow the money moves outlined below to put yourself on a path of lifelong financial success and eventual freedom.
Money Moves to Make in Your 20âs:
Learn How To Budget
Building a budget doesnât have to be overly complicated or time-consuming. Itâs actually the first step in putting yourself in control of your finances because it means you know where your money goes each month. The good news is that there are lots of apps and online tools that can make the process a breeze. Consider a system like Mint that will connect to your accounts and automatically categorize your spending for you. The right budgeting tool is simply the one youâll stick with long term.
Pay Off Debt
Debt isnât all bad. It may be the reason you were able to earn your degree, and a mortgage may help you one day buy a home. It can also quickly overrun your life if you arenât careful. Nowâs the perfect time before life gets more hectic with family commitments to buckle down and tackle any loans or credit card balances so you can be debt-free going into your 30âs.
Build a Cash Cushion
The financial downturn caused by the pandemic has reminded the whole world of the importance of having an emergency fund. We donât know what life is going to throw at us and having a cushion can help you navigate the uncertain times. Though itâs not all about having a secret stash of cash to deal with the bad news of life (medical bills, car repair, layoff), it can also be about having the cash to seize an exciting opportunity. Having savings gives you the freedom and security to deal with whatever life brings your way – good or bad.
Your credit score can dictate so much of your life. That little number can play a big role in the home you buy, the car you drive, and even the job you hold as some employers (especially in the finance world) will pull your credit. Itâs important that you check your credit report and score (also available through Mint), learn how itâs calculated, and work to improve it.
Money Moves to Make in Your 30âs:
Invest For Retirement
Now that youâve spent your 20âs building the foundation for your financial life, itâs time to make sure youâre also tackling the big picture goals like saving and investing for retirement. I typically recommend that clients save 10% to 15% of their annual income towards retirement. That may seem like an insurmountable goal, but starting small by saving even 1 to 3% of your salary can make a big difference in the future. Also, make sure to take advantage of any matching contributions that your employer may provide in your retirement plan. If, for example, they offer to match contributions up to 6%, I would try hard to work towards contributing at least 6%.
Buying Your First Home
Buying your first home is a top goal for many, but it also seems to be getting increasingly more difficult especially if you live in a major city. The most important steps you can take is to improve your credit score, pay down high-interest debt, and be aggressive about saving for a down payment. Saving 20% down will help you qualify for the best loan terms and interest rate, but there are still home loans available even if you arenât able to save that much. Just be realistic with your budget and what you can afford. Donât let a lender or real estate agent determine what payment will fit into your budget.
Be Covered Under These Must-Have Insurances
Youâve spent the last several years building your savings and growing your family. Itâs now crucial that you have the proper insurance coverage in place to protect your assets and your loved ones. Life and disability insurance are top of the list. Life insurance doesnât have to be expensive or complex. Get a quote for term-life that will last a set number of years and protect your partner and children during those crucial years that they depend on you. Disability insurance protects your income if you become sick or injured and are unable to work. Your earning ability is one of your biggest assets during this time, and you should protect it. This coverage may be offered through your employer, or you can request a quote for an individual policy.
Invest in Self-Care and Well Being
Mental health is part of self-care and wealth. Most people donât talk about how financial stress and worry affect their overall health. When you can take care of yourself on all levels, you will feel healthier and wealthier, and happier. But it is not easy. It takes work, effort, awareness, and consciousness to learn how to detach the value in your bank account or financial account from your self-worth and value as a human being. When you feel emotional about your money, investments, or the stock market, learn ways to process them and take care of yourself by hiring licensed professionals and experts to help you.
Money Moves to Make in Your 40âs:
Revisit Your College Savings Goal
As your kids get older and prepare to enter their own journey into adulthood, paying for college is likely a major goal on your list. Consider opening a 529 plan (if you havenât already) to save for their education. 529 plans offer tax advantages when it comes to saving for college. There are lots of online resources that can help you understand and pick the right plan for you. Visit https://www.savingforcollege.com. This is also a great time to make sure you’re talking to your kids about money. Give them the benefit of a financial education that you may not have had.
Get Aggressive with Retirement Planning
Your 40âs likely mark peak earning years. Youâll want to take advantage of your higher earnings to maximize your retirement savings especially if you werenât able to save as much in your 20âs and 30âs. Revisit your retirement plan to crunch the numbers so you’ll be clear on what you need to save to reach your goal.
Build More Wealth
Youâve arrived at mid-life probably feeling younger than you are and wondering how the heck that big 4-0 got on your birthday cake. We typically associate being 20 with being free, but I think weâve got it wrong. There is something incredibly freeing about the wisdom and self-assurance that comes with getting older. Youâve proved yourself. People see you as an adult. Your kids are getting older and your finances are more settled. Nowâs the time to kick it up to the next level. Look for ways to build additional wealth. This may mean tapping into your entrepreneurial side to launch the business youâve dreamed of or buying real estate to increase passive income. Nowâs also a great time to find a trusted financial advisor who can help guide your next steps and help you plan the best ways to build your wealth.
Revisit Your Insurance Coverage
Insurance was crucial before, but itâs time to revisit your coverage and make sure youâre protected especially if you decide to launch a business or buy additional real estate. This is also where a financial advisor can help you analyze your coverage needs and find the policies that will work for you.
Consider Estate Planning
Estate planning (think wills, trusts, power of attorney) isnât the most fun / exciting topic. It involves imagining your gone and creating a plan for the loved ones you leave behind. It is also often overlooked by adults in their younger years. Itâs easy to assume estate planning is something the wealthy need to do. It really comes down to whether you want to decide how your life savings will be managed or if you want a court to decide. Itâs also crucial for parents with children who are minors to select a guardian and have those uncomfortable conversations with their family members about who would care for the children if the worst were to happen. Itâs also a good time to visit this topic with your own aging parents and make sure they have the proper documents and plans in place.
Whether you’re in your 20âs, 30âs or 40âs, it can be easy to put off planning your finances especially in the middle of a pandemic. Most of us are busy, and itâs easy to tell yourself that youâll have time to work on a goal in the future. Commit to setting aside one hour each week or even each month to have a money date and review your finances. Donât let yourself reach a milestone birthday (30, 40) and regret not being farther ahead. Follow these money moves now to seize control of your financial future.
The post Money Moves to Make in Your 20s, 30s, and 40s appeared first on MintLife Blog.
If youâre someone who struggles with financial anxiety and stress, practicing a financial self-care routine could help. Just like other areas of your life, the more consistent you are about financial self-care, the better. This is why I am emphasizing the idea of building habits. The reality is that anxiety and stress are lifeâs constants. We ourselves donât have the luxury of removing those factors from our environment, but what we do have are tools to help manage and reduce them.Â
Before I get into it, I want to note that thereâs a pretty extensive list of financial-self care options available, but what Iâve realized is that when we are struggling, we often overcommit ourselves to perfectionism instead of trying to be a little less imperfect. Iâm the first to admit that itâs really tough not to go all-in when reading advice that sounds life-changing. Often, we find ourselves trying out anything and everything to feel in control, and it is for this reason that I wonât offer you the extensive list today. Instead, I hope to help you focus on taking things slow for once so that you donât set yourself up for failure (and ultimately right back in the anxiety-ridden state you first found yourself in). You can view these three foundational habits as a starting point for a long-term financial self-care routine that you will work to enhance over the course of your life. With this in mind, letâs dive in.
HABIT # 1: REVIEW & CATEGORIZE YOUR TRANSACTIONS DAILY
Building awareness of what and how much youâve spent can be a game-changer. This habit not only takes the dreaded guessing game out of your end-of-month leftover income and total spending, but it can help you course-correct throughout the month to ensure you hit budgeting goals, cut back in areas you may find yourself regretting, or even upping your spend in areas that bring you joy. A few added bonuses of this habit include saving time at the end of the month if youâre someone that typically sits down for 4-5 hours to get yourself organized, in addition to helping you catch fraudulent transactions faster!Â
Pro tips for building this habit:Â
- Make it easy: If you donât already use Mint, download the app today to have all of your transactions organized and easily viewable in one place.Â
- Make it obvious: Set a calendar reminder on your phone to check Mint each day at the same time. Iâd recommend early morning before your day gets busy.
- Make it attractive: Check your spending after a ritual or habit you enjoy doing. For example, after you sit down to drink your coffee, open up Mint to review your transactions.Â Â Â
- Make it satisfying: After reviewing your transactions, do something rewarding. For example, after categorizing and reviewing, consider checking it off your to-do list for the day to feel progress.
HABIT # 2: CHECK YOUR SAVINGS ACCOUNT(S) DAILY
Checking your savings accounts is a great way to flood your brain with positivity about your financial situation. Having savings is a rewarding feeling, and even more rewarding, is seeing your savings progress over time. Getting in this habit will also be a good reminder to actively save for each of your financial goals.Â
Pro tips for building this habit:Â
- Make it easy: Connect your savings accounts to Mint and use the goal-setting feature that allows you to customize your savings goals and connect your savings account to easily track your progress.Â
- Make it obvious: Consider setting your phoneâs background to a photo of something youâre saving for so that everytime you check your phone, youâll be reminded of saving. Mint also allows you to add photos of your goals in the web version and in the app.Â
- Make it attractive: In addition to checking your savings right after reviewing your transactions in Mint, consider starting a savings group with your friends and family. No need to talk about how much youâve saved, but you can talk about your goals and turn to the group for motivation when youâre tempted to spend what you would normally save.Â
- Make it satisfying: Make sure to give yourself credit for doing this habit by also crossing it off as a separate to-do list item. Try to also make it a rule to never miss checking your savings twice in a row. Skipping a day here and there because life gets in the way is totally normal, just make sure to commit yourself to doing it the next day.Â
HABIT # 3: REWARD YOURSELF 1X PER WEEK
I saved the best for last. Rewarding yourself is a critical step that most skip when trying to become more disciplined. Self-control can be a draining experience, especially at first. Make sure to set aside âfree timeâ each week to do something for yourself. It doesnât have to be big, and it doesnât have to require a lot of money. Think of it as a way of telling yourself good job for working hard and trying to improve.Â
Pro tips for building this habit*:Â
- Make it easy: Consider making your reward something that takes less than 2 minutes to start doing. Perhaps itâs turning on a Netflix show, making an easy dessert, grabbing a coffee at the Starbucks you just walked by, or even dancing in your living room to your favorite song.Â
- Make it obvious: As I write this, it sounds weird, but for some of us, setting aside time for ourselves isnât something weâre good at, so commit yourself to a consistent day and time thatâs for you to do what you want.
*Making it attractive and satisfying isnât necessary here because the reward in and of itself will reinforce the habit.Â
With that, you now have 3 habits to start building a financial self-care routine. Give this a shot, and let me know how it goes in the comments below.Â
The post 3 Financial Self-Care Habits You Can Start Today appeared first on MintLife Blog.
Getting a financial advisor in your 20s is a responsible thing to do. At the every least, it means that you are serious about your finances. Finding one in your local area is not hard, especially with SmartAsset free matching tool, which can match you up to 3 financial advisors in under 5 minutes. However, you must also remember that a quality financial advisor does not come free. So, before deciding whether getting a financial advisor in your 20s makes financial sense, you first have to decide the cost to see a financial advisor.
What can a financial advisor do for you?
A financial advisor can help you set financial goals, such as saving for a house, getting married, buying a car, or retirement. They can help you avoid making costly mistakes, protect your assets, grow your savings, make more money, and help you feel more in control of your finances. So to help you get started, here are some of the steps you need to take before hiring one.
Need help with your money? Find a financial advisor near you with SmartAsset’s free matching tool.
1. Financial advice cost
What is the cost to see a financial advisor? For a lot of us, when we hear “financial advisors,” we automatically think that they only work with wealthy people or people with substantial assets. But financial advisors work with people with different financial positions. Granted they are not cheap, but a fee-only advisor will only charge you by the hour at a reasonable price – as little as $75 an hour.
Indeed, a normal rate for a fee-only advisor can be anywhere from $75 an hour $150 per hour. So, if you’re seriously thinking about getting a financial advisor in your 20s, a fee-only advisor is strongly recommended.
Good financial advisors can help you with your finance and maximize your savings. Take some time to shop around and choose a financial advisor that meets your specific needs.
2. Where to get financial advice?
Choosing a financial advisor is much like choosing a lawyer or a tax accountant. The most important thing is to shop around. So where to find the best financial advisors?
Finding a financial advisor you can trust, however, can be difficult. Given that there is a lot of information out there, it can be hard to determine which one will work in your best interest. Luckily, SmartAsset’s free matching tool has done the heavy lifting for you. Each of the financial advisor there, you with up to 3 financial advisors in your local area in just under 5 minutes.
3. Check them out
Once you are matched with a financial advisor, the next step is to do your own background on them. Again, SmartAsset’s free matching tool has already done that for you. But it doesn’t hurt to do your own digging. After all, it’s your money that’s on the line. You can check to see if their license are current. Check where they have worked, their qualifications, and training. Do they belong in any professional organizations? Have they published any articles recently?
Related: 5 Mistakes People Make When Hiring a Financial Advisor
4. Questions to ask your financial advisor
After you’re matched up with 3 financial advisors through SmartAsset’s free matching tool, the next step is to contact all three of them to interview them:
- Experience: getting a financial advisor in your 20s means that you’re serious about your finances. So, you have to make sure you’re dealing with an experienced advisor — someone with experience on the kind of advice you’re seeking. For example, if you’re looking for advice on buying a house, they need to have experience on advising others on how to buy a house. So some good questions to ask are: Do you have the right experience to help me with my specific needs? Do you regularly advise people with the same situations? If not, you will need to find someone else.
5 Reasons You Need to Hire A Financial Consultant
- Fees – as mentioned earlier, if you don’t have a lot of money and just started out, it’s best to work with a fee-only advisor. However, not all fee-only advisors are created equal; some charges more than others hourly. So a good question to ask is: how much will you charge me hourly?
- Qualifications – asking whether they are qualified to advise is just important when considering getting a financial advisor in your 20s. So ask find about their educational background. Find out where they went to school, and what was their major. Are they also certified? Did they complete additional education? if so, in what field? Do they belong to any professional association? How often do they attend seminars, conferences in their field.
- Their availability – Are they available when you need to consult with them? Do they respond to emails and phone calls in a timely manner? Do they explain financial topics to you in an easy-to-understand language?
If you’re satisfied with the answers to all of your questions, then you will feel more confident working with a financial advisor.
In sum, the key to getting a financial advisor in your 20s is to do your research so you don’t end up paying money for the wrong advice. You can find financial advisors in your area through SmartAsset’s Free matching tool.
- Find a financial advisor – Use SmartAsset’s free matching tool to find a financial advisor in your area in less than 5 minutes. With free tool, you will get matched up to 3 financial advisors. All you have to do is to answer a few questions. Get started now.
- You can also ask your friends and family for recommendations.
- Follow our tips to find the best financial advisor for your needs.
Articles related to “getting a financial advisor in your 20s:”
- How to Choose A Financial Advisor
- 5 Signs You Need A Financial Advisor
- 5 Mistakes People Make When Hiring A Financial Advisor
Thinking of getting financial advice in your 20s? Talk to the Right Financial Advisor.
You can talk to a financial advisor who can review your finances and help you reach your saving goals and get your debt under control. Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post Steps to Getting A Financial Advisor in your 20s appeared first on GrowthRapidly.
Structure is the key to growth. Without a solid foundation â and a road map for the future â itâs easy to spin your wheels and float through life without making any headway. Good planning allows you to prioritize your time and measure the progress youâve made.
Thatâs especially true for your finances. A financial plan is a document that helps you track your monetary goals to measure your progress towards financial literacy. A good plan allows you to grow and improve your standing to focus on achieving your goals. As long as your plan is solid, your money can do the work for you.
Thankfully, a sound financial plan doesnât have to be complicated. Hereâs a step-by-step guide on how to create a financial plan.Â
What Is a Financial Plan?
Financial planning is a tangible way to organize your financial situation and goals by making a roadmap to achieve them. When determining where to start, you should consider what you currently possess, your long-term goals, and what opportunity costs youâre willing to take on to meet your money goals.
Financial planning is a great strategy for everyone â whether youâre a budding millionaire or still in college, creating a plan now can help you get ahead in the long run. If you want to make a roadmap to a successful future, hereâs how to create a financial plan in 11 steps.Â
1. Evaluate Where You Stand
Building your financial plan is similar to creating a fitness program. If you donât have exact steps to reach your goals, you could end up doing random exercises without making progress. To create a successful plan, you first need to understand where youâre starting so you can candidly address any weak points and create specific goals.Â
Determine Your Net Worth
One way to figure out your financial status is to determine your net worth. To do this, subtract your liabilities (what you owe) from your assets (what you own). Assets include things like the money in your accounts and your home and car equity, while liabilities can include any debt, loans, or mortgages. Hereâs how to calculate your net worth using your assets and liabilities.
Your ratio of assets to liabilities may change over time â especially if you pay off debt and put money into savings accounts. Generally, a positive net worth (your assets being greater than your liabilities) is a monetary health signal. You should regularly keep track of your net worth to monitor the trajectory of your financial plan.
Track Your Spending
Another way to evaluate your financial planning process is by measuring your cash flow, or how much you spend compared to how much you earn. Net worth is a great way to understand where you stand financially, but measuring cash flow is how you might ensure youâre heading in the right direction.
Negative cash flow means that youâre spending more than you make, leading to things like credit card debt and bankruptcy. Conversely, positive cash flow means youâre earning more than youâre spending â which is an excellent step towards achieving your money goals.Â
Now that you have an idea of your net worth and cash flow, itâs time to set your financial goals.Â
2. Set SMART Financial Goals
By setting SMART financial goals (specific, measurable, achievable, relevant, and time-bound), you can put your money to work towards your future. Think about what you ultimately want to do with your money â do you want to pay off loans? What about buying a rental property? Or are you aiming to retire before 50?
Start by putting together a list of your goals and dreams, from running a doggy daycare to living in Paris. Even if it feels outrageous, your financial plans should help you work towards your long-term goals.
SMART goals help you break down your more extensive financial planning process into actionable pieces. Remember that dream to move to Paris? Using SMART goals, you may make your dream to live on the Seine a reality. Hereâs how to get started creating your SMART goals:
Setting concrete goals may keep you motivated and accountable, so you spend less money and stick to your budget. Reminding yourself of your monetary goals may help you make smarter short-term decisions to invest in your long-term goals.Â
Itâs important to understand that your goals arenât static. When your life goals change, your financial plans should follow suit.
3. Update Your Budget
Creating a budget may help you determine how to create a financial plan and achieve your long-term monetary goals. When you create a budget and stick to it, you can understand what areas you might afford to spend and where you should be saving.Â
An excellent method of budgeting is the 50/30/20 rule, popularized by Senator Elizabeth Warren. To use this rule, you divide your after-tax income into three categories:Â
- Essentials (50 percent)
- Wants (30 percent)
- Savings (20 percent)
The 50/30/20 rule is a great and simple way to achieve your financial goals. With this rule, you can incorporate your goals into your budget to stay on track for monetary success.Â
No matter what financial goal youâre working towards, itâs essential to have an updated budget and plan to achieve it. For example, if youâre planning for a wedding, you might eat out less to reduce your grocery budget each month.
What to Include in Your Budget
If youâve ever tried to put together a budget, youâve likely considered the basics like rent, loans, and groceries. But what other expenses should you consider? Over time, those daily lattes may start to add up â which is why itâs crucial to think about the many different costs you could incur during the month. When updating your budget, here are some of the most common items to include:
- Dining out
- Household maintenance
- Emergency fund
- Subscriptions and memberships
- Travel and transportation
- Bank account fees
- Car registration or lease
- Pet costs
- Personal care
So you know what you need to include in your budget. Now what? Check out our budgeting tips to get smart about creating your budget in line with your financial plan. If youâre ready to get the ball rolling on your future, try using a spreadsheet, a piece of paper, or a budgeting app to create your financial plan today.Â
4. Save for an Emergency
Did you know that four in 10 adults wouldnât be able to cover an unexpected $400 expense? With so many people living paycheck to paycheck without any savings, unexpected expenses might seriously throw off someoneâs life if they arenât prepared for the emergency.Â
Itâs important to save money during the good times to account for the bad ones. This rings especially true these days, where so many people are facing unexpected monetary challenges. Whether youâre just starting on your path to financial literacy or have been saving for years, itâs good practice to review your emergency finances to ensure they would adequately cover your current needs.Â
You already know you should be storing away money in case something goes wrong. But did you know that you should be saving for both a rainy day and emergency fund? Itâs important to have multiple backup funds to hold you over in case of an unexpected crisis.Â
5. Pay Down Your Debt
It can be frustrating to allocate your hard-earned money towards savings and paying off debt, but prioritizing these payments can set you up for success in the long run. With two significant methods of paying off debt, itâs essential to understand the difference between them so you can make the smartest decisions for your financial future.Â
No matter the debt repayment option you choose, the key to successfully paying down debt is to be disciplined with your budget. Skipping even one or two months of debt repayments may throw a wrench in your financial plans, so itâs essential to create a realistic budget that you can stick to.Â
6. Organize Your Investments
Investing may seem like a difficult topic to navigate, but you can put your money to work and passively grow your wealth when you understand the basics. To start investing, you should first figure out the initial amount you want to deposit. No matter if you invest $50 or $5,000, putting your money into investments now is a great way to plan for financial success later on.Â
When deciding how to create a financial plan, you should consider budgeting a set amount each month to go directly into your investment portfolio â this will be your contribution amount. Over time, those small bits of money may begin to grow into increasingly larger sums. However, itâs important to note that investing is a long game. If you want to see serious results, youâre going to have to wait for at least five or more years.Â
Ready to get started on your path towards long-term financial success? Check out our investment calculator to create goals, forecast metrics, and find opportunities to grow your wealth even further.Â
7. Prepare for Retirement
When thinking about how to create a financial plan, itâs crucial to consider your goals far in the future. Although retirement may feel a world away, planning for it now is the difference between a prosperous retirement income and just scraping by.Â
The earlier you can start saving for retirement, the better. If you start saving for retirement in your 20s, youâll have 30+ years of consistent contributions to your funds by the time you retire. Generally, the older you are, the more you should try to contribute to your retirement fund. However, a good rule of thumb is to save around 10â15 percent of your post-tax income annually in a retirement savings account.
Retirement Plan Types
There are several types of retirement savings, the most common being an IRA, a Roth IRA, and a 401(k):
- IRA: An IRA is an individual retirement account that you personally open and fund with no tie to an employer. The money you put into this type of retirement account is tax-deductible. Itâs important to note that this is tax-deferred, meaning you will be taxed at the time of withdrawal.
- Roth IRA: A Roth IRA is also an individual retirement account opened and funded by you. However, with a Roth IRA, you are taxed on the money you put in now â meaning that you wonât be taxed at the time of withdrawal.
- 401(k): A 401(k) is a retirement account offered by a company to its employees. Depending on your employer, with a 401(k), you can choose to make pre-tax or post-tax (Roth 401(k)) contributions.Â
8. Start Your Estate Planning
Thinking about estate planning isnât fun â but it is important. When figuring out how to create a financial plan, itâs crucial to start estate planning to outline what happens to your assets when youâre gone.Â
To create an estate plan, you should list your assets, write your will, and determine who will have access to the information. Estate taxes can run up to a steep 40 percent, so having a plan for how to set up your estate may ease the financial burden of your passing on your loved ones.Â
Using a Lawyer for Estate Planning
Using a lawyer for estate planning can solidify financial plans that you donât want to leave to chance. By clearly outlining your estate plan, you can protect against potential legal battles or missteps that could occur when sorting out your estate. If you plan to use a lawyer for estate planning, hereâs what you need to know:
- Find an estate planning specialist: Just like doctors, lawyers specialize in all different fields. You wouldnât expect a dermatologist to be performing knee surgery, so why would you expect a lawyer with a different specialty to create your estate plan?
- Clarify legal fees: Estate planning fees may vary dramatically depending on the lawyer and your specific needs. Some lawyers charge based on the complexity of the plan; others charge a flat or hourly fee. There is no right or wrong with estate planning fees, but you should have an upfront conversation with your lawyer to determine which method would work best for you.
- Find a lawyer you trust: Estate planning is a very personal matter, so you should find a lawyer with whom you feel comfortable sharing personal matters.Â
9. Insure Your Assets
As your wealth grows over time, you should start thinking about ways to protect it in case of an emergency. Although insurance may not be as exciting as investing, itâs just as important.Â
Insuring your assets is more of a defensive financial move than an offensive one. When determining how to create a financial plan, you want to have insurance to protect yourself from any unforeseen difficulties that could hinder your success.Â
Types of Insurance
There are several types of insurance you might get to protect your assets. Here are some of the most important ones to get when planning for your financial future.Â
- Life insurance: Life insurance goes hand in hand with estate planning to provide your beneficiaries with the necessary funds after your passing.
- Homeowners insurance: As a homeowner, itâs crucial to protect your home against disasters or crime. Many peopleâs homes are the most valuable asset they own, so it makes sense to pay a premium to ensure it is protected.
- Health insurance: Health insurance is protection for your most important asset: Your life. Health insurance covers your medical expenses for you to get the care you need.Â
- Auto insurance: Auto insurance protects you from costs incurred due to theft or damage to your car.
- Disability insurance: Disability insurance is a reimbursement of lost income due to an injury or illness that prevented you from working.Â
10. Plan for Taxes
Taxes can be a drag, but understanding how they work can make all the difference for your long-term financial goals. While taxes are a given, you might be able to reduce the burden by being efficient with your tax planning. When planning for taxes, itâs important to consider:
- How to reduce your taxable income: You can capitalize on tax savings investment options like a 401(k) or 403(b) to help you save money by reducing your taxable income (while putting more money away for your future).Â
- How to itemize your deductions: Tax deductions are a way to lower taxable income as a full- or part-time self-employed taxpayer. You can deduct incurred expenses from doing business to reduce your taxable income.Â
11. Review Your Plans Regularly
Figuring out how to create a financial plan isnât a one-time thing. Your goals (and your financial standing) arenât stagnant, so your plan shouldnât be either. Itâs essential to reevaluate your plan periodically and adjust your goals to continue setting yourself up for success.Â
As you progress in your career, you may want to take a more aggressive approach to your retirement plan or insurance. For example, a young 20-something in their first few years of work likely has less money to put into their retirement and savings accounts than a person in their mid-30s who has an established career.
Staying updated with your financial plan also ensures that you hold yourself accountable to your goals. Over time, it may become easy to skip one payment here or there, but having concrete metrics might give you the push you need for achieving a future of financial literacy.Â
After you figure out how to create a monetary plan, itâs good practice to review it around once a year. However, this is just a baseline metric, so checking it more often may be necessary if a significant life event occurs.Â
Itâs always a good idea to reevaluate your financial plan if you get married, have kids, or quit your job. Every few months or so, take some time to look at your progress and assess problem areas. Take the time to celebrate milestones â it may help motivate you going forward.
Ask for feedback on your financial plan from people who know you. Your best friend might point out some things youâd forgotten about, like your desire to get a dog or live in a downtown loft. You can also run it by a professional, who can provide some objective insight and professional wisdom on how to create a financial plan.
Itâs important to remember that the journey to financial success is a personal one, and should be taken at your own pace. However, the earlier you get started, the more prepared you may be for a strong financial future. Download Mint to get started taking control of your finances today.
Sources: CNBC | Federal Reserve | IRS | IRS
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