The Best Financial Lessons We Learned in 2015
We've covered numerous stories in 2015 schooling you on money management, savings, and your biggest financial mistakes, but keeping your finances in check can be challenging. So before we welcome in the New Year, we decided to round up some of the best financial advice to kick-start your 2016 habits in the best way possible. Scroll down to get your economic education.
Have you set up a 401(k)? Have you made any contributions to your retirement fund this year? Aside from making sure you have enough money later in life, CFP’s Gary Plessl and Kevin Houser, managing partners of The Houser and Plessl Wealth Management Group and authors of The Book on Retirement, say this is an “excellent way to increase savings and lower your current tax liability.” In our story "How to Improve Your Finances Before Year End," Gary said many people don't take advantage of their company's match contributions. "Some employers will match an employee’s contributions up to a given percentage," he said. "If you can afford it, it’s always wise to max out your 401(k) investments to whatever percentage your employer is willing to match."
But before you make a decision, finance experts say your health savings account (HSA) could be a better place for your next retirement dollar instead of a 401(k). Why? According to Money, it's tax free as long as you use the money for medical expenses. Any contributions you put into or take out of the account aren't taxed. Whereas any cash you deposit into a traditional 401(k) is taxed as income when you withdraw. A contribution of 15% to 20% of your income won't make a significant impact on your lifestyle now, but with the help of compound interest, it will make a huge improvement to your quality of life later on.
It might seem like an impossible task, but it is possible to become a millionaire in your lifetime. All it takes is stowing away $4 every day from the age of 25 and you'll be on easy street by the time you turn 65. In a money story earlier this year, financial adviser and author David Bach created a chart detailing how much money you need to set aside each day, month, or year in order to accrue $1 million by the time you're 65. So for all you mid–20-somethings out there, if you start investing less than $4 per day in your employer's 401(k) it will give you more $100 in monthly savings and more than $1000 in yearly savings. Here's the breakdown:
Age 20: $2/day
Age 25: $4/day
Age 30: $5/day
Age 35: $11/day
While we certainly don't want you to wish for the worst, having a lump sum you can break into in case of emergency is crucial. This will ensure you're always covered when illness or a job loss happens unexpectedly. In a recent interview for MyDomaine, Jeffrey Alford of Fidelity Investments LLC shared his top financial steps for young professionals and he recommends putting away three to six months of your living expenses as an emergency fund. This should also be put into a separate bank account so you don't touch it. Alternatively, enroll in automatic payroll deductions if your employer offers it so it happens automatically. “Setting aside a separate account will also make you more disciplined and make you think twice before dipping into that fund for luxury purchases,” he told MyDomaine.
If you haven't made any retirement contributions or started a savings plan yet, don't worry because you're not alone. But perhaps it's because you don't know where to start. You should begin the process by calculating a monthly budget, this way you can eliminate unnecessary spending and really know how much you can afford to put away. Start by taking a snapshot of your outgoing cash flow, this will show you what's going on so you can edit and reorganize your money accordingly. Be sure to make a detailed spreadsheet or use some of the awesome money-management apps like Mint or LearnVest. They'll keep you in line, as long as you don't skimp on the details. If you're really serious about saving, then you need to be honest with yourself and the app, that means putting every little dime you spend into the spreadsheet or app from gourmet coffee, work lunches, impulse buys, takeout, and more. This simple plan will help you calculate a monthly budget that works for you.
Having bad credit can greatly impact your ability to borrow money and that will have a huge ripple effect on your life—here are a few credit score killers you should know about. Everything else will be affected including any future home loans you want to take or business ventures you're planning to embark on. Not to mention it will also lower your chances at renting an apartment, buying insurance, and even getting a job. Credit is the foundation for everything, so keeping it in check is crucial. So if yours is in bad shape, then it's time to make a dedicated effort to improve it now.
How? Start putting money down on those debts, call collectors back, and pay your bills on time. The Fair Credit Reporting Act (FCRA) states: "bad debt and most negative items must be removed from your credit report seven years from the first date of delinquency." So if you have a bad record, then check to make sure it's wiped clean before that time. Your teens and college years are a crucial time to build good credit. It's a good idea to sign up for a basic credit card from a young age and pay it off each month. A simple rule is to never spend more than 30% of your available credit each month.
Do you have any money advice? What's the best financial lesson you've learned? Share it below.