Tag Archives: retirement

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college educationWith their children facing an average student loan debt of $33,000 when they graduate from college, some parents are helping by saving for their kids' college education in various accounts.

They mean well, but they may be doing themselves and their children a disservice with less money saved and less tax relief.

Along with the traditional ways of saving for college with a 529 or a Coverdell Education Savings Account, parents are also saving for a college education through savings accounts and their retirement plans.

45% save for college in savings account

A recent study by T. Rowe Price found that 45 percent of parents saving for their kids' college education are using a regular savings account, and 30 percent are using their 401(k) retirement account.

The study found that 31 percent are using a 529 account that's designed to give them the most taxable savings when saving for college. ...continue reading

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financial lessonAnother personal finance blogger recently asked me to contribute to a post he was writing about money mistakes people in their 30s make and how to avoid them. I was happy to help with my best financial lesson.

As with most finance questions I come across, this one got me thinking about my own money mistakes and the financial lessons I wish I had taken full advantage of in my 30s. Here are six financial lessons, most of which I followed:

Buy real estate ASAP

Owning a home isn't for everyone. Renting makes more sense if your job is mobile and you're not sure where you'll be living in a few years. Renting also makes sense if it's a lot cheaper than owning a home.

My answer to the curious blogger about financial lessons was to buy real estate when you get the chance to. I don't mean just when it fits into your finances and lifestyle — such as having a steady job and being married. My point, which I didn't elaborate on in my quick response to him, was that buying real estate as an investment when you're young can be a smart move many years later if you bought at a time when the real estate market was down.

You don't necessarily have to live in the house you're buying, though that does have good tax benefits.

For example: About 15 years ago a relative bought a townhouse in a nearby city. The townhouse was next to a major shopping center that would only get bigger in the coming years as more people moved to the area. Even back then, it was obvious to me that it was a growing area and that home prices would only go up. They did, and are now worth 10 times what they were 15 years ago.

I didn't buy a townhome there then, but wish I had taken out a bank loan and got a second job, if needed, to buy one and then have tenants pay the mortgage from then on. That's the first financial lesson I'd offer.

Save for investments

One thing I wish I did more of in my 30s financially was save more money for investing. Like everyone else, I'm busy working so I can pay the bills and hopefully have a little extra each month to enjoy dinner out or something, along with saving money for retirement and an emergency fund.

But if you can afford it in your 30s, it can help to save some fun money that you're willing to put into an investment. The caveat is you have to be willing to lose that money. While that obviously isn't the main objective, it's a possibility to consider in this financial lesson.

You don't want to look back years later and regret that you didn't buy Apple stock at $10 a share when it was being beaten down and you knew it was going to bounce back. (Yes, this happened to me.)

While any amount is good, I'd recommend $5,000. It's enough to hurt your bank account and enough to make you think hard about the potential investment. As you'll see from other financial lessons I offer here, having money set aside for investments or something else is key to making the most of your finances in the long run. ...continue reading

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Analysis colorful stock chart on monitor. finance concept.Having an extra $1,000 in your bank account can seem like a small windfall that can easily be spent. A quick vacation, expanded wardrobe or a few fancy dinners out can deplete that extra $1,000 in a few months.

But long-term savings can turn that extra $1,000 into thousands more, protecting you in retirement, as an emergency fund or as a down payment on a car or house.

I'm focusing on this extra $1,000 figure because it's roughly the amount I wrote about recently that could be saved by making coffee at home. The annual savings was $1,077.12, to be exact, for one person, and $2,154.24 per couple.

I asked financial experts, mostly financial planners, for their ideas on what to do with that extra $1,000 to $2,000 other than spend it.

Try automatic transfers

The trick, however, is to put aside that extra $1,000 or so saved each month by making coffee at home. As anyone who has tried to save money probably realizes, any savings from eliminating an expense can easily get lost in your checking account and be spent elsewhere. But automatically transferring $90 a month to a savings account or some other account will easily get you to that extra $1,000 annual total.

And $1,000 can be just the start. For a couple, saving $167 per month will add up to $2,000 in a year.

If you have a federal tax refund coming, you could put it all into savings and start earning money on it immediately. The average tax refund is around $2,500, according to the IRS.

What to do first

Each person's financial situation differs, but there are some first steps to take with that extra $1,000-$2,000 before saving it, says Kate Holmes, a certified financial planner:

  • Pay off credit card debt first, and put the extra money you're saving toward the principal.
  • Boost your 401(k) retirement plan savings if you're not already taking full advantage of your 401(k) match. Then you won't have that money in your take-home pay to tempt you as you pass coffee shops!
  • If you're saving for a big trip or fun adventure, set up automatic transfers to savings each month to supercharge that account.
  • Look at each line item in your expenses and ask how much happiness it brings, Holmes says. You may find other areas to easily cut back, freeing up more money for your "maximum happiness" items.

Here are some ways to save that extra $1,000 or more: ...continue reading