At this point I am assuming you understand the importance of getting out of debt and building a small savings account in addition to an emergency fund. So the next steps to building wealth is investing and here are some small introductions to investing and building wealth.
Invest 15 % of your household income into Roth IRA’s and pre tax retirement as a way to begin the investment portfolio. If you invest more than that you won’t have enough to complete the next two steps. Many people don’t make this investment because they want their cash to go towards college or to pay off the house but your kids college fund won’t feed you at retirement and what good is a paid off house you have to sell because you have nothing else to live on?
College savings plans are often the most common goals among parents many of whom didn’t go to college themselves, so start with a plan and know how much you will need. You need to calculate what you need to save per month to hit your goal with 12% interest, that way with 4% inflation you are ahead of the curve by 8%. Never save for college with insurance, savings bonds, zero coupon bonds or any type of prepaid college because those accounts average interest rates so low that you won’t ever earn enough.
The most recommended funds are Education Savings Accounts and 529 plans because of their safety and return.
Paying off your home can be done and you will use all the left over extra money to go into the mortgage. If you are asking yourself where all this extra money is coming from you should already be out of debt with your small emergency funds in hand and only have fixed expenses, home, utilities, food, gas etc. So anything you can do to lower those will help your financial goals. So if you make $55,000 a year you take home about $3,300 per month. If you are debt free then $900 should go to retirement accounts, leaving you $2,400 for expenses and mortgage. If you can’t take $2,400 and pay all your expenses including the mortgage and still have $500 left over than you missed a step or your house is too big. If retirement is right around the corner than consider or even purchase structured settlement.
Saving money is a life strategy and if you aren’t on the boat because you want to keep up with the Jones than you will deserve whatever you get in the end.
Steps out of debt and into wealth
At this point I am assuming you understand the importance of getting out of debt and building a small savings account in addition to an emergency fund. So the next steps to building wealth is investing and here are some small introductions to investing and building wealth.
Invest 15 % of your household income into Roth IRA’s and pre tax retirement as a way to begin the investment portfolio. If you invest more than that you won’t have enough to complete the next two steps. Many people don’t make this investment because they want their cash to go towards college or to pay off the house but your kids college fund won’t feed you at retirement and what good is a paid off house you have to sell because you have nothing else to live on?
College savings plans are often the most common goals among parents many of whom didn’t go to college themselves, so start with a plan and know how much you will need. You need to calculate what you need to save per month to hit your goal with 12% interest, that way with 4% inflation you are ahead of the curve by 8%. Never save for college with insurance, savings bonds, zero coupon bonds or any type of prepaid college because those accounts average interest rates so low that you won’t ever earn enough.
The most recommended funds are Education Savings Accounts and 529 plans because of their safety and return.
Paying off your home can be done and you will use all the left over extra money to go into the mortage. If you are asking yourself where all this extra money is coming from you should already be out of debt with your small emergency funds in hand and only have fixed expenses, home, utilities, food, gas etc. So anything you can do to lower those will help your financial goals. So if you make $55,000 a year you take home about $3,300 per month. If you are debt free then $900 should go to retirement accounts, leaving you $2,400 for expenses and mortgage. If you can’t take $2,400 and pay all your expenses including the mortgage and still have $500 left over than you missed a step or your house is too big.
Saving money is a life strategy and if you aren’t on the boat because you want to keep up with the joneses than you will deserve whatever you get in the end.
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