Welcome to Consolidated Credit’s on-demand webinars. Today’s webinar is about The Beginner’s Guide to Saving and Investing. Who we are. At consolidated credit our mission is to assist families throughout the United States in ending financial crisis and solving money management problems through education and professional counseling. Savings are usually put into a safe place and you can access your money at any time. Savings products include savings accounts, checking accounts and certificates of deposits. Deposits in these products may be insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration but there’s a trade-off for security and fund availability.
Your money earns low interest but after paying off credit cards or other high interest rate debt most smart investors put enough money in savings products to cover emergencies. Some people make sure they have up to six months of their income saved so that they know it will be there for them when they need it. But how safe is a savings account if you leave your money there for a long time and is the interest keeping up with inflation? When you invest you have a greater chance of losing money than when you save. The money you invest in securities mutual funds and other investments typically are not federally insured. You could lose your principal, but you also have the opportunity to earn more money. Start tracking your spending. The first thing you need to do is to determine where your money is going. You might be surprised when you see the results of your tracking.
You’re probably spending more money in some areas than you think. You know small expenses can add up quickly. Most people underestimate their small daily variable expenses like food and gasoline. These things add up over time. You need to record every expense as it happen either in a notebook an app on your phone or budgeting software on your computer. Next you have to set up a budget or some people like to call it a spending plan. To manage your money properly and to get ahead financially you need to spend less than you earn. Record your sources of income and when you receive them. Then determine how much of your income is spent on monthly bills and necessities. Plan how you will spend or save your remaining funds. A spending plan does not prevent you from getting what you want. It actually helps you get what you want. After tracking your spending for a month it is most likely that you will see some areas where you can cut back to help you keep your budget on track.
Next what are your financial goals? You have to decide what is most important to you and your family. Get everyone involved in your spending plan and prioritize your goals. Stick with your plans and goals and don’t give up. Nothing happens overnight and bad habits are hard to change but they can be changed. Regardless of what life stage you’re in you’re likely to have some short and long-term financial goals. Setting tangible and realistic goals, following them tracking progress is a key to achieving those goals. If you’re married it’s absolutely essential that you and your spouse both share the same financial goals. Develop your plans together and review your progress to make sure you’re both contributing and communicating. Once you have an idea of where your money’s going you can start saving in order to get ahead financially. You need to set aside a percentage of your money strive for at least 10% of your gross income, but if that’s not manageable for you right now put aside 5% to start. When things improve either an increase in income or debt reduction then strive for 10%.
This amount can be increased over time if you’re able to. Next it’s important to know why you’re budgeting. The reason behind most budgets is to help you spend less than you earn and to show you where you’re spending weaknesses are. It helps provide a structure for you to get stronger in those areas. Plan for emergencies. There’s a general rule of thumb when establishing emergency fund. It’s the size of your fund it should be equal to at least three months of your living expenses. Note that’s three months of living expenses, not three months of your income. When calculating expenses be sure to focus on your needs and not your wants. The whole point of an emergency savings fund is to be able to meet your obligations.
This means that you should focus on the necessities to keep your household afloat. Things like mortgage, car payments, utilities, insurance, food and health care. And instead of using credit cards shop with cash or a debit card as often as possible. Pay cash for items under $10 as a general rule and always for eating out. If you cannot control your credit card spending stop using credit cards all together. If you don’t consistently pay off your credit cards every month then stop using them. Don’t carry your credit cards with you. Hide them or freeze them in a block of ice so they can’t tempt you. Keys to successful budgeting and savings you know. What are you paying yourself every month? Many people get into the habit of saving and investing by following this advice. Always pay yourself and your family first.
Many people find it easier to pay themselves first if they allow their bank to automatically remove money from their paycheck and deposit it into a savings account or an investment account. Here are some rules to live by. Pay yourself first, minimize use of credit cards, review insurance coverage and deductibles, review your w-4 exemptions, save on utilities by conserving energy and water, you can also try to call your credit card companies and request a lower interest rate or a new monthly minimum payment. Establish a gift-giving agreement with friends and family. Use a list when grocery shopping.
Really think about your needs versus your wants and some other savings tips it’s like use the library instead of bookstores. you can also get games and movies at the library and separate your checking and savings account that way your savings stay in savings and can grow. Avoid paying fees use a bank with no ATM fees and avoid paying other fees whenever possible like late payments and utility bills leap video rentals etc. Take advantage of sales and coupons. Plan shopping ahead of time and stick to your list. Buy more of the items you use in a regular basis when they’re on sale. Combine coupons with sale prices for more savings. Shop around and compare prices, whether it’s on your phone service or car insurance. Look around for the best price and value.
Check what you’re getting for the money and make comparisons based on all the features and benefits. Evaluate your cable satellite TV package. Do you really need all 906 channels? Downgrading your level of service may put more money in your pocket. Calculate your commute. With high gas prices it may be better to take public transportation or carpool. Try walking or biking if you live close to your destination.
Scale back on vacations. Savings doesn’t mean to deny yourself a trip, but weigh your options. Your children may have just as fun at a nearby waterpark as they would halfway around the country. Alter your attitude about savings. Have contests with family or friends to find the best bargains, low to no-cost entertainment. You can go to community concerts and plays or swap games, books and movies with friends. Experiment with less expensive products and places. Be open to trying brands that cost less and test out inexpensive restaurants and services to take advantage of offers for first-time consumers.
Change the need it now mentality. Don’t let shopping be your feel better solution. Try to find other ways to unwind like exercising or reading. When you do shop, weigh every purchase0 and ask yourself if it’s something you must have? Savings is all about you pay yourself first strive to put at least 10% of your weekly bi-weekly or monthly paycheck in the bank and remember you can do it. Too many people underestimate the importance of having a savings account. No savings can equal big trouble. The absence of an emergency fund can lead to severe financial setbacks. Unforeseen expenses are inevitable. So what happens when you’re unable to pay these expenses? Some people resort to payday loans because it’s a quick fix. You can literally apply for a payday loan online and get money wired into your bank account the very next day. This is a temporary band-aid and not a real solution.
Here’s some staggering information according to The Center of Responsible Lending. The average payday barrower gets trapped for over a year paying off a loan and 44 percent of barrowers come back as repeat customers. The average interest rates on payday loans are over, get this, 400%. Isn’t that something? This is why we stress the importance of having savings. Remember to stash your cash. Once you have your savings fund you may wonder where should I keep my money? Remember this is emergency savings not an emergency investments. None of this money, not a single dollar of it should be placed in the stock market. Not even in the most well diversified blue-chip stock fund out there. Another helpful strategy is to find ways to hold yourself accountable for your spending. The people you live with or the people you spend the most time with can be your best defense. Tell them that you’re trying to spend less and that you want them to give you a hard time when they see you spending money. Also make a list of your financial priorities and put into place so you’ll see it all the time, like a refrigerator door or bathroom mirror and then make another copy and put it in your wallet. You’ll see it each time you go to go for your cash and spend something.
If you want to take it a step further put small sticky notes on each of your credit cards to remind yourself what you’re saving up for. Pay in cash. People typically spend more money when they pay with credit cards or debit cards. Spending is more real when you actually have to take dollars out of your wallet. Track your spending. It doesn’t matter if you use your smartphone a computer program or paper and pencil to track your spending.
Just do whatever works and remember what you’re writing down is not as important as the act of writing it down. It helps you become more conscious of your spending and helps you stay committed to changing your compulsive spending behavior. Wait 20 minutes. I’ve read that if you’re shopping and you happen to see something that you “can’t live without” have the store clerk hold it for you for 20 minutes. Go away wait – 20 minutes. Most people come back look at it again and realize they don’t really need it after all.
You need to fight that compulsive urge and for online shopping it’s been said that people should wait 24 to 48 hours before buying an expensive item. It’ll help you decipher a want from a need. Your money can work for you in two ways. You work for money, your money works for you. When your money goes to work it may earn a steady paycheck. Someone pays you to use your money for a period of time. When you get your money back you get it back plus interest or if you buy stock in a company that pays dividends to shareholders. The company may pay you a portion of its earnings on a regular basis. Your money can make income just like you.
Another way to make your money work is if you buy something that increases in value. For instance you buy a piece of land that will hopefully increase in value. You want to sell the land in five 10 or 20 years and when someone buys it you make the profit. Assess your financial state. Calculate your net worth. Add up your assets including savings account, retirement funds, home equity, automobile, stocks and bonds, furniture, property, jewelry and anything of value that you have. Next add up all of your liabilities. Outstanding debts. Subtract your debts from your assets to get your net worth. Remember it’s always important to seek the advice of a qualified well-regarded adviser but always try to keep your costs low. Bonds are grouped together under the general category called fixed income securities. The term bond is commonly used to refer to any securities that are founded on debt.
When you purchase a bond you are lending money to a company or government in return they agree to give you interest on your money and eventually pay you back the amount you lent out. The main attraction of bonds is their safety if you’re buying bonds from stable government your investment is virtually guaranteed or risk-free. The safety and stability however come at a cost the rate of return on bonds is generally lower than other securities. When you purchase stocks or equities you become a part owner of the business. This entitles you to vote on the shareholders meetings and allows you to receive any profit that the company allocates to its owners. These profits are referred to as dividends. While bonds provide a steady stream of income stocks are volatile. They fluctuate in value on a daily basis. When you buy a stock you aren’t guaranteed anything. Many stocks don’t even pay dividends in which case the only way you can make your money back is if the stock increases in value. Compared to bonds stocks provide relatively high potential for returns. Of course there is a price for this potential you must assume risk of losing some or all of your investment. A mutual fund is a collection of stocks and bonds.
You’re pulling your money with a number of other investors. This enables you in part as a group, to pay professional manager or to select specific securities for you. Mutual funds are set up with a specific strategy in mind and their focus can be nearly anything. Large stock, small stocks, bonds from the government, bonds from companies, stocks and bonds, stocks and certain industries, stocks in certain countries etc. The primary advantage of mutual funds is that you can invest your money without the time or experience that is often needed to choose a sound investment. Theoretically you should get a better return on your savings by using a professional than if you were to choose it on your own.
But again remember we are not financial advisors and if you want more information please seek out a financial advisor or planner. For most people a 401k or 403b is offered by your employer and is the easiest and best place to start investing for retirement. The money is withheld through payroll deductions and in 2015 you could save up to $18,000 of your pre-tax income and twenty four thousand if you are 50 or older. If you leave your job you can roll the account over into a new employers 401k or your own IRA. A 401k is usually offered by a for-profit company, while teachers and other employees of nonprofits may be offered a 403b instead. SCP stands for simplified employee pension and this kind of account is used primarily by self-employed or small business owners.
As the employer you can contribute up to twenty-five percent of your income or fifty three thousand dollars, whichever is less. These accounts are easier to set up than a solo 401k and it’s solo 401k is for a sole proprietor. They make contributions as both the employee and the employer up to a total of 53,000 in 2015 or 59 thousand for someone over age 50. IRA stands for individual retirement account and it’s basically a savings account with big tax breaks making it an ideal way to sock away cash for your retirement. A lot of people mistakenly think an IRA it self is an investment but it’s just a basket in which you keep stocks bonds mutual funds and other assets. Unlike 401ks which are accounts provided by your company. The most common types of IRAs are accounts that you open on your own. Others can be opened by self-employed individuals and small business owners. There are several different types of IRAs, including traditional IRAs, Roth IRAs and simple IRAs. Unfortunately not everyone gets to take advantage of them each has eligibility restrictions based on income or employment status and all of caps on how much you can contribute each year and penalties if you take the money out before the designated retirement age.
Many financial experts estimate that you may need up to 85 percent of your pre-retirement income in retirement. An employed sponsor savings plans such as a 401 K might not be enough to accumulate the savings you need. Fortunately you can contribute to both a 401 K and an IRA. An IRA can help you supplement your current savings in your employer-sponsored retirement plan, gain access to potentially wider range of investment choices then your employer-sponsored plan, take advantage of potential tax deferred or tax-free growth.
You should try to contribute the maximum amount to your IRA each year to get the most out of these savings. Be sure to monitor your investments and make sure adjustments are done as needed, especially as retirement nears and your goals change. A Roth IRA is a retirement account where you pay taxes before the money goes into your account and then your withdraws are tax-free when you take the money out. The benefit of a Roth IRA may depend on the person’s tax bracket. Both now and when he or she retires. Although there is no upfront tax deduction for a Roth IRA as with the traditional IRA, Roth distributions are tax-free when you follow the rules and because every penny you stash in a Roth IRA is money a tax subsidized gift from Uncle Sam you can tap into your contributions at any time penalty-free.
Roth IRAs make the most sense if you expect your tax rate to be higher during retirement than your current rate. That makes Roth IRAs ideal savings vehicles for young lower-income workers who won’t miss the upfront tax deductions and who will benefit from decades of tax-free compounded growth. Roth IRAs also appeal to anyone who want to minimize their tax bite in retirement, and again as always seek the advice of qualified well regarded advisors. My RA is a safe simple affordable way to start saving for retirement. It’s designed to make saving for retirement easy for those who may not have access to a retirement saving plan at their job. Because My RA follows the Roth IRA rules, savers must have taxable compensation to be eligible to contribute to a My RA account and generally must earn an annual income of less than one hundred and twenty nine thousand dollars for individuals and 191,000 for married couples if they’re filing jointly.
The account functions as a Roth IRA which allows savers to invest tax dollars and withdraw the money in retirement tax-free. But unlike traditional Roth IRAs, the accounts will solely invest in government savings bonds. They will also be backed by the US government meaning that savers can never lose their principal investment. Workers will be able to keep the account if they switch jobs and can contribute to the same account from other part-time jobs.
They will also be able to withdraw their contributions at any time without a penalty. However anyone who withdraws the interest they’ve earned in the account before age fifty nine and a half will pay taxes and possibly a penalty just like a Roth IRA. The plan will travel with the employee even after they leave their job. Withdrawals from my RA are not considered taxable income and can be made at any time at any age without penalties. Initial investments can be as low as $25 and workers can contribute as little as five dollars at a time through automatic payroll deductions, a checking or savings account. You can set up reoccurring one-time contributions to your my RA from another account such as a bank or credit union savings or checking account.
When you file taxes you can direct all or some of your federal tax refund to your my RA account like a traditional Roth account. Savers will be allowed to contribute up to $5,500 a year under current limits. Once a participants balance hits fifteen $15,000 or the account has been open for thirty years he or she will have to roll it over into a private-sector Roth IRA where the money can continue to grow tax-free. Workers will have the option to switch a Roth at any time. Thank you for joining us for this webinar. We hope you enjoyed it. If you have any follow-up questions feel free to email us at [email protected] .
In this webinar we share proven savings and investment strategies. You’ll learn how to budget so you can save every month for unforeseen events. We go over the differences between savings accounts and various investment vehicles as well as the strategies you can use to create and grow your savings.
Airdate: December 21, 2016