Helpful reminder of basic tips: Save on a regular basis; don't spend too much. Subaccounts for your main bank account: 1. Savings Don't prioritize emergency savings over credit card debt. Pay off your credit card first! Secret to our grandparents' financial discipline: - Lack of access to credit Rank your debt; pay down the bill with the highest interest rate first. Figure of the difference between IRAs, Roth IRAs, and SEP-IRAs
2. Vacation
3. Emergency fund/rainy day
4. House
5. Taxes
- Layaway plans
- Loved ones (reality test)
- Loan sharks (most people sensibly avoided them)
Traditional IRA - (they're like the original 401(k) plan ;) You can put up to $5500, and another $1K if over 50 yrs. Immediate tax deduction, money grows tax-free; withdrawals taxes as earner income.
SEP-IRA - If you operate your own business, you can contribute 25% of self-employment income, up to a high limit (in 2015, it was $53K)
Roth IRA - No immediate deduction; money is contributed after-tax; generally never taxed again.
NEVER take money from a retirement account unless you are out of options.
Warren Buffett: Invest in index funds (like a very low-cost S&P 500 index fund).
Beware of fees.
Demand that your financial advisor be a Fiduciary (looking out for you). Not all are.
Check with the Certified Financial Planner (CFP) Board
Fee-only advisor: National Association of Personal Financial Advisors (NAPFA)
If you can buy disability insurance, do it. According to the Council for Disability Awareness, 1 in 4 20-year-olds will be disabled before they reach retirement age.
Insurance: Rental, Homeowner, and Auto
Home - protect your net worth (not pick up cost of every repair bill)
Go for high-deductible options. You won't use this insurance unless very unlucky.
Car - protect against collision (covers blue book value - not actual cost of replacement) and liability. Liability is important: do NOT sign up for minimum coverage. Liability pays the bills if you are in an accident and someone is hurt. Adequate liability insurance is twice the amount (and maybe more) of your net worth. People with really high net worth get umbrella insurance, in case you exhaust your liability.
Rental - Get it. It allows you to choose between replacement cost and actual cash value. Choose the replacement cost. Also, get liability: if your dog bites someone, you can get sued.
If you lack access to insurance through your employer, you can get an exchange plan.
Four varieties: Bronze, silver, gold, platinum.
Subsidies depend on your calendar-year income.
No plan guarantees you are fully protected.
Health-related debt is one of the leading causes of bankruptcy. The majority of people who had to declare bankruptcy had health insurance when they were ill.
-Comparison shop every year
- Do your homework to ensure your plan includes the doctors and hospitals important to you.
Double-check with your doctor and hospital that they participate in the plan :)
Longevity annuities are great if it is a fixed annuity. Make sure you get a low-cost annuity (eg, Vanguard or TIAA-CREF).
Keep an emergency fund.
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The government is your last-resort insurance. Social Security it a government program. So is Medicare. Student loans come from the government, and unemployment insurance. Mortgage deductions on your income taxes are a result of federal government largess.
Almost all of us have, at some point in our lives, relied on the government for services so we can get by or make our situations better.
The truth is that our financial lives as we know them would be much harder and more precarious without the benefit of government social programs.
Without Social Security, almost half of elderly Americans would probably live in poverty. It's the largest pension and protection most of us will ever see.
Speak up. When someone decries Social Security as a Ponzi scheme, remind him or her that many elderly would lead much poorer lives w/o it. When you hear someone say that government should keep its mitts off Medicare, speak up and say it is a government program.
Acting together, we can protect one another against financial and health risks that would crush any one of us, were we forced to face them unassisted.
We must take care of ourselves and our immediate families through planning, saving and investing. When we do that, we are in a better place. However, we must take care of the rest of our citizens, too. That's the best way to ensure that all the new changes we've adopted have the best chance for success.
The only defense against the onslaught of information and the warp speed at which we're expected to process it is still good old-fashioned simplicity and common sense.
