Friday, June 8, 2007

Retirement

Currently, I have three different savings/investment accounts open. I have my 401(k) through work, a Traditional and Roth IRA, as well as a general savings account for Travel and Emergencies.

First and foremost, you should consider having some money set aside as a Nest Egg. This is why CDs and Mutual Funds are beneficial because they allow your money to grow at a better rate than a simple Savings account. More importantly though, they have penalties in place to prevent early withdrawal of your investment. This forces you to keep that investment separate and you are more apt to use it only for emergencies. They say the rule of thumb with the Emergency Fund is an amount enough to cover 3 to 6 months of bills should you be unable to work or earn money.

The second thing to focus on is starting a retirement fund. The earlier you begin, the faster you will build a hefty amount to keep you comfortable when you retire. I postponed putting money in to an IRA or 401K until I was 25 and I regret it. I should have started as soon as I was working. That would have given me an additional 7 to 8 years of money saved and interest earned. IRAs are retirement accounts that you can open using After-Tax money, as opposed to 401(k)s through your employer that save your money pre-tax. Either way you are going to pay taxes on that money, it is just a matter of paying before of after you reach retirement. But it's never too late to start, and a Financial Advisor can assist you with how aggressive your Investments should be based on the point you are at in your life. The closer you are to retirement, you may want to put aside more, but have less risky investments, that way you do not risk losing money on unstable stocks for example. When you are younger, and have more time to build your investment, the fluctuation of the market will not affect your money as much - over a long period of time, the peaks and valleys of the market even out and you usually come up ahead. Definitely enlist the aid of an advisor if you are serious about saving and investing.

Read up all you can - I like the MSN Money website. http://moneycentral.msn.com They have a lot of articles that are easy to understand about paying off debt, saving your money, preparing for your taxes, etc. I actually educated myself about the various investment vehicles because the amounts I was stockpiling were not great. Once I make a significant amount of money, I plan to utilize the expertise of a financial planner. That's what they get paid for, to study the market and understand what the best options are for your individual circumstance. Whatever amount you have to start with, even if it is in a savings plan which does not a huge interest rate, just start saving. At a later point you can transfer your funds in to more financially lucrative investment opportunities.

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