Tuesday, August 7, 2007

You Spent HOW MUCH On Shoes?

I am FAR from an expert on investing. These are just the things I have learned and thought I would share with y'all. If any one bit of advice helps someone, I'll feel that this was worth writing.

I had lunch with one of my good friends the other day and, since it had been several months since we had a chance to talk, it was a four-hour lunch. Yep. Four hours. And we talked non-stop the whole time. The one thing that really stayed with me about our conversation was our talk about money and investments. She is helping her parents manage their estate and, since Tom and I have been through that fairly recently with his mom passing away, I gave her what little advice I could, based on what we have learned in the last few years. I was pretty impressed with myself when she made me stop talking so she could get a pen and paper from her purse and write down the advice I was giving her. So, I thought I'd write down some financial advice for y'all. So you don't have to get out pen and paper.



1. One of the teachers at my school and a good friend recommended to me years ago that I get disability insurance. I had never heard of it, knew nothing about it and was completely uninterested. But she opened my eyes about the possibility of something happening to me, all my sick days being used up and the bills still waiting to be paid. So, I got disability insurance for me and for Tom. We have not yet had to use it. But I'm still glad I have it.



2. Are you saving any money? What's that? You think you don't make enough to save? You have too many bills? Yeah, that's what I said for years and years and years. When Tom and I first got married, his parents recommended that we live on one salary and save the other. As soon as we left their house, we rolled our eyes at each other and chortled. We had way too many bills to pay and any extra money - well, we NEEDED that new stereo system with the reel-to-reel setup, right? No. We did not. We should have listened. Or, at the very least, paid a savings account before we paid ourselves. Ideally, have it taken out of our check before we ever got it. That's the best way to save. $10 out of each check may not seem like much, but it adds up fast and the interest compounds. That means (I'm at kindergarten level here - forgive me if you have millions invested in the stock market.) you make interest on your interest.



3. If your company offers a 401k, sign up now. Today. For teachers, this is a 403b. Some companies will match what you put in up to a certain amount. That is like found money. Teachers are laughing aloud here since that is never going to happen for us, but you can still have money put automatically into a 403b. That is TAX-FREE MONEY. Technically, it's tax-deferred because, until you take it out, you do not have to pay tax on it. So, not only are your compounding your interest, you are not paying tax on it. If you do not have a 401k or a 403b, set one up today. Today.



4. If you do not have a Roth IRA, go to the bank today and set one up. Today. Let me repeat that. Today. You can put up to $4,000 in if you are under 50 and $5,000 if you are over 50 for 2007. That does not mean you HAVE to put that much in. You can put in $50. Just start one. Because, people! This money is ALWAYS TAX-FREE. You will never, ever, ever have to pay tax on that money. Ever. This is the only investment vehicle that can say that. That's why the government only lets you put in such a comparatively small amount.



5. Once you get a pretty good amount of money in your savings account, you need to get some invested in the stock market. You want to be diversified, or have money in several different accounts with varying levels of risk, so you don't want ALL your money in the stock market. And you don't want to think in the short term when you invest in the stock market. In the long term, it's a good investment. Don't try to go out and pick stocks for yourself. Just go to a bank where you feel comfortable and know some people and use their free investment advice. Most banks have this, some offer more services than others. Look for one that actually has investment people who do that full-time. Now, let them advise you about setting up a mutual fund. A mutual fund is a fund that will contain various stocks and, sometimes, bonds, if you set it up that way. The fund will have a manager that will do all your investing for you. They will make the decisions about what to invest in and when to buy and sell. You just sit back and let your money grow and try not to have a stroke when you lose money one week. (I'm talking to you, Tom.)



6. If you have kids and think they might someday go to college, set up a 529 account with that same investment advisor. This is an account where you savings can grow for those college expenses and it is also tax-free, until you take the money out.



7. However. I have read several articles lately that emphasize you should plan for retirement BEFORE you plan for college, so plan accordingly. It is much more important that you have a comfortable retirement than your kids having money for college. That may sound very selfish, but look at this way. There are college loans available for students. There are no retirement loans. And how would you pay it back if there was? You won't be working! Your kids have plenty of time to pay back those college loans and they will certainly be glad they don't have to support you when you are retired. Or you could think about paying for part of their college, getting loans for part and letting them work (gasp!) for their spending money. These decisions will vary from family to family.



So, the bottom line is, save. Save now. Invest now. Even if you think you can't afford it.

Did you just buy a new pair of shoes? You can afford it.

2 comments:

Teaque said...

Great advice - A book that I love is Financial Peace University (and others) by Dave Ramsey. He has awesome ideas on paying off debt and beyond.

Boo said...

Thanks for sharing! I need to get started I guess!!