Are you wondering about, or looking to begin investing? The answer of when one should begin planning is AS SOON AS POSSIBLE. Young people have it made. They have their whole lives ahead of them and ample time to plan for retirement. The trouble is that few actually plan. Even those who save a decent percentage of their take-home pay, rarely plan for the future and fund tax advantaged accounts like they should. As I mentioned in my previous article, this is the value and beauty of a Roth IRA. The good news is, at whatever stage in your life you are you can still achieve your financial goals with proper guidance.
Everyone wonders how much they should save, and there is no perfect answer. In my opinion, it’s as much as you can afford. The reality is that the earlier and the more contributed the more compounding interest you can reap the benefit of. Ideally, everyone should strive to save at least 10% of their salaries each year. That may not always be possible, after all, nearly everyone has months where they can’t save a dime. This is why every plan needs a “rainy day” emergency fund. This way, when you do have one of those months you can continue your saving and delve into the emergency fund for needed reserves.
I help my clients attain the 10% savings amount by analyzing their cash flow. The first step is looking for any gaps or areas where there is too much spending by creating a budget. This gives the client a comprehensive view of their expenses and allows us to agree upon areas where we can cut back and allocate funds more efficiently. Next, I’m going to cover the vehicles to begin investing for your future.
The first option is often offered through employer, a 401k plan. This will allow you to put about 15% of your gross income into the plan. The money will come out of your check pretax, and you won’t have to pay capital gains year to year, but rather upon distribution when you are 59.5.
At the same time I also help my client’s fund Roth IRA’s with their after tax earnings. This is placed in mutual funds, stocks, bonds, and other securities based on risk assessment and asset allocation. The advantages to this type of account are you don’t have to lay out any money on capital gains each year, nor do you have to pay tax upon distribution. The only catch with a Roth is the annual contribution limit is $5500, unless you’re older than 55 at which point $6500 is allowed for catch up. Obviously the idea here is to begin young and fund as much as you can as early as possible.
The bottom line is that your actions now will have a huge impact in the future. If you plan on saving now, and diversify your plan through products we have discussed and furthermore Cash Value Whole Life Insurance. Now, don’t forget to consider life insurance and/or disability insurance. You need to make sure that your family will be taken care of, if, for some reason, you are unable to work.
Ultimately it comes down to the fact that no one is going to plan for you. It’s a necessity for future livelihood, and if you’d like to discuss your current position and how our comprehensive financial planning firm can help please contact me. My information is below.
Southern Capital Growth
Cell: (774) 277-1407