Grow Your Financial Skills at Home using LifeCents!
Building assets that increase in value over time is an important component of building financial fitness. As an initial component of asset building, the financial challenge measures increases in savings and investing as a factor for success.
Building assets that increase in value over time is an important component of building financial fitness. As an initial component of asset building, the financial challenge measures increases in savings and investing as a factor for success.
Why Save?
According to a study by the Consumer Federation of
America, people with savings even as small as $500 can experience significant
benefits such as:
·
Fewer penalty and late fees
·
Improved credit score
·
Improved housing stability
·
Improved health and sleep
Types of Savings
Emergency Fund: Provides a safety cushion for unexpected expenses
such as a job loss, accidents and uninsured damages. Emergency savings is your first layer of
financial protection and works together with insurance to provide for losses
beyond what your budget could support.
Periodic Expense Fund: Is for predictable expenses that
don’t occur monthly. Examples include
car maintenance, back to school supplies, moving expenses, holidays and special
events.
Goal-getter Fund: Is tied directly to your
goals detailed in the goals section of your Passport.
Investments: Can include long-term goals like retirement funding. Investments typically have risk associated
with them in exchange for the opportunity for a higher return.
ROTH IRA vs. Traditional IRA
Individual Retirement Accounts (IRA) are retirement savings set
apart from your employer. These accounts
can be set up at almost any financial institution. Both forms of the IRA are
great ways to save for retirement, although each offers different advantages.
The biggest difference between the Traditional and Roth IRA is
the tax treatment.
Traditional
IRA example:
If you earn $50,000 a year and put $2,000 in a traditional
IRA, you will be able to deduct the contribution from your income taxes (meaning
you will only have to pay tax on $48,000 in income to the IRS). There are penalties for removing your money
prior to age 59 ½. At 59 1/2, you may
begin withdrawing
funds, but will be forced to pay taxes on both your investment and its
earnings. This is a tax-deferred
retirement savings account; in other words, taxation is delayed until
withdrawal.
Roth IRA example:
If you put the same $2,000 in a Roth IRA, you would not receive the income tax
deduction. If you needed the money in the account, you could withdraw the
principal at any time (note: you will pay penalties if you withdraw any of the
earnings your money has made). When you reach retirement age, you can withdraw
your funds tax free. You pay taxes on
the initial investment because you don’t get any reduction of income at tax
time, but the growth in the account is 100% tax free.
How Much Should I Save for Retirement?
Use the Ballpark Estimate at www.choosetosave.org/ballpark to
estimate the monthly savings needed to provide for your retirement needs.
Waiting to Save:
Research has shown that beginning savings early in
life allows you to accumulate the most wealth with the least amount of impact
on your monthly spending plan. Waiting
can put you at a financial disadvantage compared with someone in their early
20s who makes retirement savings a priority.
Example 1:
At age 20, you decide to invest $2,000 per year in
a retirement account and earn 10% on your investment. You invest for 10 years and make your last
contribution at age 29. You retire at
age 65 with more than $1.3 million with only a $20,000 contribution!
Example 2:
You wait to invest in your retirement until you are
30. You invest $2,000 per year in a
retirement account earning 10%. You
continue to invest throughout the remainder of your career until retirement at
age 65. You contribute $70,000 and
accumulate approximately $598,000.
Cost of waiting in these examples is over $700,000!
If you have waited to begin retirement savings,
consider using any lump sums received from taxes and bonuses to “catch up” and
get back on track for your retirement goals.
Virginia 529
Program College Savings:
Virginia 529 has a number of savings programs
to help you avoid costly student loans and establish tax advantaged savings for
education for yourself or for those you love.
This is a great way to provide educational opportunities for your
children or grandchildren. To learn more,
visit www.virginia529.com
Virginia
Individual Development Account (VIDA):
Fast track your success with VIDA.
VIDA offers matched savings of $2 for every $1 saved toward education,
home ownership and small business development.
Income limits apply and you must be actively employed and saving
regularly. To learn more, contact
Brendan Vigorito of Money Management International (Brendan.vigorito@moneymanagement.org (866)
702-4172) or Willard Pretlow of STOP Organization (wpretlow@stopinc.org (757)
858-1371).
Bank
On Website:
A resource
for asking questions, getting worksheets and materials and staying informed of
the latest news for Bank On. Visit http://www.bankonhr.org for more
information.
Mutual Funds
Questions Investors Should Ask
Virginia Saves
Virginia Saves is a savings campaign to encourage you to build savings and reduce debt. Join the league of savers and get great strategies for accelerating your savings plan. www.virginiasaves.org
Ballpark Estimate
Find out how much you need to save to meet your retirement needs. Interactive webpage allows you to put in current and future expenses, estimated investment return and expected social security to determine monthly savings needed for retirement. www.choosetosave.org/ballpark
My Money
My Money is a one-stop shop for financial information on virtually any financial topic. It is organized to point you to the array of financial educational resources available through the federal government. Information includes free resources for education, credit, scams, debt collection, identity theft and money management.
From Financial Planning Association:
Starting Your Financial Plan: A Beginner’s Road Map
Financial planning starts with setting goals and this free guide will help you get started.
Budgeting: Managing Your Money with a Spending Plan This guide explains how a simple budget can help you take control of your financial life, get better use of your money and achieve your financial goals.
Financial Planning: Secure Your Retirement
This free guide offers suggestions from financial planners on how to take a big picture, financial planning approach to your retirement plan.
Planning for the Stages of Retirement
This brochure addresses various stages of retirement planning, from starting out in the work world to retirement, in order to help you achieve your dream of a comfortable, fulfilling, financially secure retirement.
Financial planning starts with setting goals and this free guide will help you get started.
Budgeting: Managing Your Money with a Spending Plan
This free guide offers suggestions from financial planners on how to take a big picture, financial planning approach to your retirement plan.
Planning for the Stages of Retirement
This brochure addresses various stages of retirement planning, from starting out in the work world to retirement, in order to help you achieve your dream of a comfortable, fulfilling, financially secure retirement.
Articles and Tools:
Mutual Funds
Questions Investors Should Ask
No comments:
Post a Comment