In our previous blog, we provided the first seven financial strategies to help you come out on top. But we aren’t done yet! Here are seven additional actions to take now to secure your financial future.
Here are seven additional actions to take now to secure your financial future.
1. Fast-track any type of long-term saving: If your employer matches your 401(k) contributions, you should try to contribute the minimum amount to earn that free money. Hypothetically, let’s say you are 25 years old and have a $50,000 salary. If you save 4% ($2,000 per year), and your employer matches that same 4% (another $2,000 per year), and you have a 7% rate of return on your investments, you will have $828,522 at age 65. If you wait just five years and start at age 30, the ending value earning a 7% rate of return is only $573,708. So, by starting at age 25, investing the extra $10,000 over those five years, and receiving the employer match, you will make $254,814 more by the time you reach retirement age.
2. Budget and save using the “envelope method”: Some find it very helpful to set up “envelopes” and save cash from each paycheck to go towards their specific savings goals (e.g., a new house, vacations, an emergency fund, or a new car). You can do this electronically by setting up savings accounts for each of your goals. Go a step further by automating the transfer after each paycheck.
3. Don’t overpay for financial advice and investment management: The typical fee for financial advisors can range from 0.25% to 2% of assets under management per year. For an account that has $200,000, this can be as much as $3,000 annually … or even more. There are also options to pay a flat hourly fee or an annual flat retainer fee. Make sure you know what you are getting for your money. Is the fee just for managing your money, or does the advisor also provide financial planning and advice as part of the fee?
4. Time your major purchase spending: If you plan to make a major purchase in the upcoming year or two, time your purchases for when the best deals are available for that specific product. A quick Google search will help you find the time depending on the item. For example, the week before Labor Day is a great time to buy large appliances and December typically offers the best deals on new cars.
5. Don’t overpay for mutual funds: There are two types of mutual funds: active and passive. Active funds have costs associated with highly paid fund managers who research investment options in an attempt to outperform the market. Passive funds, on the other hand, mirror an index such as the S&P 500. This means their fees are much lower than active funds. Fees over a long period of time greatly diminish your returns. According to Morningstar, only one out of every four active funds topped the average of their passive rivals over the 10-year period ending December 2022.
6. Make sure you are taking advantage of your company benefits: Open enrollment is right around the corner for many employees. Are you leaving great benefits on the table by just keeping the same selection you had the previous year? Take time to review each option. Can you add a life insurance policy for your spouse? Would switching to a high-deductible health care plan be in your best interest? Should you be taking advantage of the flexible spending accounts offered? Benefits make up a significant portion of many compensation packages. Make sure you are taking advantage of all that you are offered.
7. Reduce your taxes: There are many ways to reduce your taxes by taking some simple steps. Contributing to any of the following can help: traditional IRA, traditional 401(k), health savings accounts (for those with high-deductible health care plans), and flexible savings accounts for health care and dependent care expenses. If you itemize your tax return, you also can make tax-deductible charitable contributions. If you choose to donate stock to a charity, you get the benefit of donating the fair market value of the stock at the time of donation without having to realize the tax gain.
There you go. If you have any specific questions about how these strategies could work for you, ask Tilly! We’re happy to help.