Money Wisely

Your Way to Make Use of Money Wisely

'My Way', the Paul Anka song first made famous by Frank Sinatra and subsequently sung by many more people had the words '' Regrets, I've had a few, but then again too few to mention.'' When it comes to finance, many people have regrets over mistakes they have made and then of course the recession harmed most people's finances, a good number of whom had not made major mistakes. Circumstances were simply too powerful. That said it is worth looking at typical mistakes that people make, things to avoid as well as ways to rectify them.

Your 401k should not be touched

First of all it is important to say that it is important that people start saving from an early age. A 401k that is opened by someone in their 20s and to which their employer contributes is the best way to start out. The downside that many have found in recent years is that the investments have performed poorly.

What you shouldn't do after making the step to open one is to regard it as your bank and borrow from it. You will be undoing all your good work. You will have time to pay the money back but if you have found the need to borrow from it are you going to continue to contribute new funds while you are making the repayments; probably not! If you don't you will also find that you lose your employer's contributions at the same time.

In addition your repayments into your 401k will be on taxed income. There are better ways to borrow if you have a problem, emergency or cash flow. A personal loan is likely to be as cheap as anything and certainly better than using a credit card and finding yourself with a balance which then incurs a high rate of interest so now you can get desired cash amount with quicky approved cash lenders lists.

Early Social Security mean you will miss out

You can start to draw benefits from Social Security at the age of 62. If you do that your lifetime payments will be 25% below those you would receive at 66 and there is a 32% boost if you can delay until 70, effectively 8% guaranteed interest for 4 years. You must do your own sums but if you do live for many years, you are losing out.

Credit Cards

Credit Card Companies make their money from the interest they charge on balances not cleared in full each month. In the USA today, the average debt of those in debt is $15,000 and those who merely pay the minimum required each month will find their balances hardly fall as the high rate of interest is penal. You should look to pay off that debt and if you are employed with regular income you should be able to get a personal loan at a much lower rate to pay off the balance.

It is a solution that works as long as you do not build up a balance once again. Using a credit card for convenience makes sense but to buy something you cannot really afford it can cause significant financial misery.

Saving for Retirement

Time is the enemy. If you delay saving for your later years until middle age, you cannot get the time back. You should start regular savings in your 20s, even a small amount. Compound interest will help your savings to grow. If you think of it this way it might you the difference between starting at 25, 35, 45 and 55 years of age.

Target $500.000 with the assumption of 7% growth per annum.

  • Age 25 – that would be $190 a month
  • Age 35 - $410 a month
  • Age 45 - $960 a month
  • Age 55 - £2,890 a moth

The Children

Everyone wants to help their children but it cannot be at the expense of personal retirement provisions. When it comes to costly education there are student loans for the children to take out themselves. Perhaps they can get scholarships or grants and certainly private education if money is tight should always be avoided.

A college education is likely to lead to better job prospects and there is no reason why your child will not be able to repay a loan in the future rather than your overstretching yourself.

Professional advice

Plenty of people make mistakes in investment. Often it is a matter of timing; when to buy and when to sell. A professional who can advise on timing alone is valuable. Other financial aspects where you can get help are tax and insurance.

The Stock Market

The Markets do have problems; the years of recession are still so recent as evidence of the fact. However over an extended period average annual returns suggest you should not ignore Stocks. Advice is certainly useful for someone with little experience.

In later years as retirement looms you should certainly avoid any risks of course but you do need to seriously consider the Market to help grow your assets.

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