by Laura Rowley of Money & Happiness
Every year around this time, the New York Times prints a roundup of commencement addresses. I always find a little inspiration there to cut out and stick on my office wall. This year, its author J.K. Rowling's address to Harvard grads about the benefits of failure -- although if I were to nominate a group for the "least likely to fail" award, it would probably be that audience.
In any case, I had some thoughts for my own commencement address. Here's what I would tell the class of 2008 about money.
Believe the Clichés
Personal finance advice is so similar, and so often repeated, it's become a cliché:
• Live within your means.
• Set up an emergency fund with three months of living expenses.
• Stay out of debt.
• Join your company's 401(k) plan or open an individual retirement account; set aside at least 10 percent of your pre-tax income every year.
• Invest in a diversified portfolio of mutual funds to help your money grow over time, and make sure you're not paying too much in fees.
Clichés are easy to take for granted and easy to tune out. But here's the truth: Believe these clichés. Because if you actually follow the advice, it will transform your life.
The Roaring 20s
I'm convinced that real happiness comes from identifying your values, and then being brave enough to expend your strongest talents and best energy in their service. I think genuine happiness comes from naming what you care about most deeply, setting priorities around those values, and then translating them into real, concrete goals. Money is one instrument in the toolbox of resources and people and experiences that help you journey down that path toward the person you were meant to be.
Your 20s represent a personal finance paradox: You have the most financial power that you may ever have because of the phenomenon of compounding. (Someone who saves $2,000 a year for retirement between age 21 and 30 and then stops will have a bigger nest egg than someone who starts at 31 and saves until they're 65.) At the same time, your 20s can be a bit of a bust in terms of figuring out why you were put on the planet.
It's a confusing decade -- you charge out of college knowing everything and ready to rule the world, and spend the next decade realizing you know almost nothing at all. Then, in your 30s and 40s, you recognize that it's OK to know almost nothing -- and is actually a finer way to approach life, because you really listen to and learn from other people, take risks, and benefit from mistakes and failure. (If you continue to simply know everything, you don't grow and become an arrogant bore.)
The Ghosts of Purchases Past
So here's the problem: Many people lurch around in their 20s trying to establish their identities. One day, you pick up a magazine or see a television show that suggests one can establish an identity by buying $500 designer shoes. Or $900 designer golf clubs. Or some other stupid thing that costs a whole lot less to manufacture than you paid for it. Because you weren't just paying for straps of leather or sticks of iron but for an identity attached to a lifestyle that somebody made up in a brainstorming session in an advertising firm somewhere in New York, or in a scriptwriting meeting in Los Angeles.
And this isn't entirely your fault. You're bombarded with signals to buy in a way previous generations were not. There are 1,000 cable channels telling you on a daily basis that your face, body, home, and possessions are in need of an extreme makeover. Technology and credit card companies have made it effortless to act on those impulses.
And then you get into your 30s and 40s and have a better understanding of who you are and why you were put on the planet. You're now ready to use money as a tool to help walk down that road. That's when your 20s can come back to haunt you. Maybe you're still paying the credit card for the $500 shoes and the $900 golf clubs (or for all the money spent in chic bars showing off the shoes, and at golf courses showing off the clubs).
Reality Bites
So you had some fun, but now you're playing catch up. That's usually when the magical thinking starts. You do things like buy a house with an adjustable rate mortgage (because you didn't save up a home down payment). Or you listen to some guru who tells you to put everything you have in gold or oil, or to buy stocks on margin or speculative real estate with no money down.
And maybe you have a couple of kids, and the media that told you to buy the shoes and golf clubs is now suggesting you invest in Suzuki violin lessons, private tutors, and traveling sports teams.
You're scrambling to save for retirement, scrambling to meet your rising mortgage payments, getting in deeper on that credit card to take a few fun vacations with your kids before they grow up and leave you, and God knows how you'll pay for college (since the gold-oil-stocks-real estate thing didn't work for you the way it did for the guru).
And it's really hard to follow your deepest values, and pursue that thing you were meant to do and become that person you were meant to be, because you're really stressed out about money.
Happiness Gained
I was a naïve kid from the Midwest living in New York City in my 20s -- naïve enough to believe all those clichés my father told me about staying out of debt and saving for retirement. So I did both -- it was just something I made a requirement, as routine as brushing my teeth. (And I had a lot of fun at the same time; I just bought my shoes at sample sales, frequented bars with free happy-hour buffets, and traveled to Europe on a shoestring.)
And when I was 37 (which happened a hell of lot sooner than I expected) and working 14 hours a day in television with two kids under age three, I could walk away from my full-time job and start my own thing. My values had shifted, and I knew I had to find a better balance between work and family. I had the luxury of using money to journey down the road in pursuit of my values -- not because I had a big win in oil or gold or sold a bazillion get-rich-quick books, but because I had stayed out of debt and consistently saved for almost two decades.
And that has made me happy.
Commence with Being Happy
So here's my advice:
• Live within your means.
• Set up an emergency fund with three months of living expenses.
• Stay out of debt.
• Join your company's 401(k) plan or open an individual retirement account, and save at least 10 percent of your pre-tax income every year.
• Invest in a diversified portfolio of stocks and bonds to help your money grow over time, and make sure you're not paying too much in fees.
Believe in the clichés. Follow the advice, make it as routine as brushing your teeth. Because one day it will open up a world of options, and transform money from a potentially huge source of stress into a resource to help you follow your values -- and hopefully figure out why you're on the planet.
2008年6月26日 星期四
2008年1月2日 星期三
How to Cash in on a Warming Planet
By Adam Aston
Set aside, for now, the really complex and costly financial implications of climate change. Ignore the tricky abstractions of carbon trading. Forget the worries over flooded cities and the ins and outs of renewable energy.
Instead, consider just a few everyday money-making ideas created by the warming of our planet. For example, oenophiles could short the stocks of vintners in drought-prone areas such as Australia or California and bet on upstarts in Canada and England, where new wineries are sprouting as temperatures rise. Or, since ski resorts are seeing less and less snow, it might make sense to buy and hold manufacturers of snowmakers.
Of course, the potential of climate-change investing goes far beyond mere curiosities. A growing number of advisers to big institutional investors and high-net-worth types are sizing up companies based on how likely they are to benefit from rising energy prices, stricter regulations, and changes to the natural world ranging from freshwater shortages to new disease patterns and more chaotic weather. Since public opinion is increasingly driving U.S. policymakers to act, analysts' climate predictions need not be perfectly prescient to pay off. "Perception drives valuations," says Edward M. Kerschner, chief investment strategist for Citi Global Wealth Management (C), who recently made public a list of some 90 "climate consequences companies" he believes could excel as the climate changes and limits on carbon emissions multiply.
If there's a whiff of familiarity to investing in climate change, that's because some of its key elements have already attracted attention. Pure-play renewable energy stocks, for example, make up a big slice of the new climate change offerings and have seen meteoric gains over the past year. The difference is that climate change strategists make their picks from a larger pool, including everything from small-cap alternative energy startups to globe-spanning conglomerates, as well as a few decidedly nongreen plays. Given the breadth of companies in this space, "there's significant opportunity for actively managed funds," says Michael Herbst, a mutual fund analyst at Morningstar (MORN).
HOT OPTIONS
Consider HSBC's (HBC) Global Climate Change Benchmark Index, which tracks 300 equities, spans 34 countries (11 of which are emerging markets), and includes small, medium, and big companies. Simulations of the 45 months prior to its September debut show the index would have beaten the Morgan Stanley (MS) Capital International (MSCI) global index by 70%. In November, HSBC launched a fund in Europe that focuses on a subset of about 60 companies from the index. A U.S. version, the GIF Climate Change Fund, is due by April.
Deutsche Bank's (DB) DWS Climate Change Fund beat HSBC to the American market last November. It mirrors the German DWS Klimawandel fund, which since its launch last February is up 10.4%. For DWS's U.S. offering, expect somewhat pricey expense ratios of 1.75% to 2.5% of assets.
For a lower-cost approach, stock pickers can follow the pros' logic and make their own calls. Luckily, evaluating equities on their potential to capitalize on climate change is easier than untangling the complexities of global warming. A useful approach is to split the opportunities into two broad groups, explains Mark Fulton, climate-change strategist at Deutsche Bank Asset Management: mitigation and adaptation.
The first basket includes products and services that slow the flow of greenhouse gases by using less energy or by substituting clean energy for fossil fuels. That's why so many renewables such as solar and wind show up in the new climate-change funds and indices.
As of September, for example, the top 10 holdings in DWS Climate Change Fund included nine that either produce carbon-free energy or help conserve fossil fuels: solar energy (LDK Solar (LDK), SolarWorld, Umicore, and First Solar), wind energy (Acciona Energia and Gamesa), electric efficiency specialists (ABB (ABB) and Emerson Electric (EMR)), and an electric vehicle maker, Tanfield Group.
Fulton's second category includes opportunities to help the world adapt to the effects of the changing climate. This group may offer hidden values in some more obscure sectors. DWS's fund, for example, owns Veolia Environment, a water-services specialist that can help parched regions adjust. Citi's Kerschner, likewise, predicts growth for Leighton Holdings, an Australian engineering contractor that is building a growing number of plants that make seawater drinkable.
SHADES OF GREEN
If anything, the greenest of investors may be put off by aspects of climate-change investing. Citi likes big nuclear plant operators such as Entergy (ETR) and Exelon (EXC), despite worries over their waste, since their reactors crank out huge volumes of juice with virtually no greenhouse gases. Fluor (FLR), a U.S. engineering construction giant, makes the cut since it's positioned to benefit from demand for new power plants, regardless of whether they're powered by clean gas, controversial nuclear, or even not-so-clean coal.
Many of the top picks among the adaptation plays are cheaper than mitigation stocks. Ormat Technologies (ORA), a leader in renewable geothermal energy, has a pricey p-e ratio of 41, based on 2008 earnings. But in the less glamorous auto sector, makers of mileage-boosting technologies may outsell competitors more reliant on gas guzzlers. By this logic, France's PSA Peugeot Citroën, which builds Europe's most fuel-thrifty fleet, stands to beat out U.S. rivals as global demand for eco-vehicles rises. Its p-e is just 9.
An upside to these broad climate-change funds is that they expose investors to plays of all sizes, in both developed and emerging markets. But tracking such a diverse portfolio requires unusually broad expertise in complex energy, technology, and cross-border markets, notes Angus McCrone, chief editor at New Energy Finance, which tracks green markets. Regulatory reversals can also dent returns. As U.S. lawmakers debated the recent energy bill this fall, renewable stocks were whipsawed on each rumor that beneficial tax credits would disappear or expand.
Set aside, for now, the really complex and costly financial implications of climate change. Ignore the tricky abstractions of carbon trading. Forget the worries over flooded cities and the ins and outs of renewable energy.
Instead, consider just a few everyday money-making ideas created by the warming of our planet. For example, oenophiles could short the stocks of vintners in drought-prone areas such as Australia or California and bet on upstarts in Canada and England, where new wineries are sprouting as temperatures rise. Or, since ski resorts are seeing less and less snow, it might make sense to buy and hold manufacturers of snowmakers.
Of course, the potential of climate-change investing goes far beyond mere curiosities. A growing number of advisers to big institutional investors and high-net-worth types are sizing up companies based on how likely they are to benefit from rising energy prices, stricter regulations, and changes to the natural world ranging from freshwater shortages to new disease patterns and more chaotic weather. Since public opinion is increasingly driving U.S. policymakers to act, analysts' climate predictions need not be perfectly prescient to pay off. "Perception drives valuations," says Edward M. Kerschner, chief investment strategist for Citi Global Wealth Management (C), who recently made public a list of some 90 "climate consequences companies" he believes could excel as the climate changes and limits on carbon emissions multiply.
If there's a whiff of familiarity to investing in climate change, that's because some of its key elements have already attracted attention. Pure-play renewable energy stocks, for example, make up a big slice of the new climate change offerings and have seen meteoric gains over the past year. The difference is that climate change strategists make their picks from a larger pool, including everything from small-cap alternative energy startups to globe-spanning conglomerates, as well as a few decidedly nongreen plays. Given the breadth of companies in this space, "there's significant opportunity for actively managed funds," says Michael Herbst, a mutual fund analyst at Morningstar (MORN).
HOT OPTIONS
Consider HSBC's (HBC) Global Climate Change Benchmark Index, which tracks 300 equities, spans 34 countries (11 of which are emerging markets), and includes small, medium, and big companies. Simulations of the 45 months prior to its September debut show the index would have beaten the Morgan Stanley (MS) Capital International (MSCI) global index by 70%. In November, HSBC launched a fund in Europe that focuses on a subset of about 60 companies from the index. A U.S. version, the GIF Climate Change Fund, is due by April.
Deutsche Bank's (DB) DWS Climate Change Fund beat HSBC to the American market last November. It mirrors the German DWS Klimawandel fund, which since its launch last February is up 10.4%. For DWS's U.S. offering, expect somewhat pricey expense ratios of 1.75% to 2.5% of assets.
For a lower-cost approach, stock pickers can follow the pros' logic and make their own calls. Luckily, evaluating equities on their potential to capitalize on climate change is easier than untangling the complexities of global warming. A useful approach is to split the opportunities into two broad groups, explains Mark Fulton, climate-change strategist at Deutsche Bank Asset Management: mitigation and adaptation.
The first basket includes products and services that slow the flow of greenhouse gases by using less energy or by substituting clean energy for fossil fuels. That's why so many renewables such as solar and wind show up in the new climate-change funds and indices.
As of September, for example, the top 10 holdings in DWS Climate Change Fund included nine that either produce carbon-free energy or help conserve fossil fuels: solar energy (LDK Solar (LDK), SolarWorld, Umicore, and First Solar), wind energy (Acciona Energia and Gamesa), electric efficiency specialists (ABB (ABB) and Emerson Electric (EMR)), and an electric vehicle maker, Tanfield Group.
Fulton's second category includes opportunities to help the world adapt to the effects of the changing climate. This group may offer hidden values in some more obscure sectors. DWS's fund, for example, owns Veolia Environment, a water-services specialist that can help parched regions adjust. Citi's Kerschner, likewise, predicts growth for Leighton Holdings, an Australian engineering contractor that is building a growing number of plants that make seawater drinkable.
SHADES OF GREEN
If anything, the greenest of investors may be put off by aspects of climate-change investing. Citi likes big nuclear plant operators such as Entergy (ETR) and Exelon (EXC), despite worries over their waste, since their reactors crank out huge volumes of juice with virtually no greenhouse gases. Fluor (FLR), a U.S. engineering construction giant, makes the cut since it's positioned to benefit from demand for new power plants, regardless of whether they're powered by clean gas, controversial nuclear, or even not-so-clean coal.
Many of the top picks among the adaptation plays are cheaper than mitigation stocks. Ormat Technologies (ORA), a leader in renewable geothermal energy, has a pricey p-e ratio of 41, based on 2008 earnings. But in the less glamorous auto sector, makers of mileage-boosting technologies may outsell competitors more reliant on gas guzzlers. By this logic, France's PSA Peugeot Citroën, which builds Europe's most fuel-thrifty fleet, stands to beat out U.S. rivals as global demand for eco-vehicles rises. Its p-e is just 9.
An upside to these broad climate-change funds is that they expose investors to plays of all sizes, in both developed and emerging markets. But tracking such a diverse portfolio requires unusually broad expertise in complex energy, technology, and cross-border markets, notes Angus McCrone, chief editor at New Energy Finance, which tracks green markets. Regulatory reversals can also dent returns. As U.S. lawmakers debated the recent energy bill this fall, renewable stocks were whipsawed on each rumor that beneficial tax credits would disappear or expand.
Some Financial New Year's Resolutions
by Anya Kamenetz of Generation Debt
It's 2008 - and time to make a fresh financial start.
Simply ringing in the new year at midnight just doesn't do it for me anymore. I have a six-year tradition of greeting the dawn on New Year's Day. There's nothing like a cold, clear January sunrise to make you really believe in new beginnings.
Not that new beginnings are in short supply during the Gen Debt stage of life. Most of the young adults I know already have lives that are jam-packed with transitions: graduating college, starting grad school, changing roommates, changing jobs, changing cities, changing relationships. Even relatively small shifts like taking out a loan, getting a promotion at work, or dealing with the holidays can add stress to our lives. Check out this scale to see just how many "Life Change Units" you've piled up in the last year.
No matter what changes you might be experiencing, the new year is an excellent time to take stock of your personal, professional, and financial lives. According to a Harris Survey commissioned by Yahoo!, 65 percent of Americans who make a financial New Year's resolution vow to eliminate or reduce debt. Here are some of my own monetary resolutions for the year.
Spend lean and green
With the Bali climate conference taking place in December, a big energy bill in the Senate, and Al Gore accepting the Nobel Peace Prize for his efforts to help solve the climate crisis, awareness of our impact on the environment is at an all-time high. Recently, I had an inspiring conversation with TLC's Peter Walsh (the host of that cable network's "Clean Sweep") in which he pointed out that every purchase we make includes "buying in" to the manufacturing, transportation, and packaging of the product.
The earth's future belongs to young people like us, and that's why I'm trying hard to buy less, buy used, buy local, and buy green. This doesn't always mean purchasing the cheapest thing in the store - certainly not if it's going to wear out and need to be replaced right away. It means making conscious spending decisions, choosing items that are beautiful enough to give you joy and well-made enough to last a lifetime.
For more motivation, watch this very informative animated Web lecture, "The Story of Stuff."
Monitor your credit score
I had a ding on my credit score early last year due to a missed bill while I was out of the country, so I've been ordering my credit scores from MyFico.com for $15.95 a pop every six months.
This is an excellent place to start getting a handle on your financial life. (You can also go to Annualcreditreport.com to get your free credit report as required by federal law, but it doesn't include your score.) The credit report shows all the revolving accounts you have, such as credit cards, student loans, and car loans. It shows your payment history and the number of credit inquiries made in the last year -- for example, if you signed up for a new cell phone account or applied for a car loan, a company may have pulled your file.
If you see any mistakes on your account, you'll need to send a letter disputing the charge. MyFico does a good job of explaining which actions (like paying off your cards) can help your score and which actions (like maxing out your cards) can hurt it. But don't sign up for the extras like credit-score monitoring services (which alert you monthly, weekly, or even daily to changes in your credit) -- they're of dubious value.
Rediscover pencils, paper, and cash
Financial management is increasingly taking place online. This fall I've been trying out some of the different free online financial planning services aimed at younger folks, such as Mint, Geezeo, and Wesabe.
These sites centralize all of your accounts in one place, which makes things easier for you if you have multiple credit cards or student loans. For me, what works best is to have one bank account, one credit card that I use, and one brokerage account. Each of these institutions sends me a monthly e-statement, reminding me to go over the books.
As useful as online tools can be, 2008 is going to be the year of the analog for me. Just last week I was trying to figure out a discrepancy in my credit card bill, and I ended up writing down and adding up all the charges for the last three months. I was shocked to realize that on the credit card I "never use," I had made over $250 worth of purchases. There's nothing like pen and paper to make money clear and concrete.
I also vow that January 2008 is going to be the month I try out the envelope trick. If you want to get a clue about how much you're spending on incidentals, go to the ATM at the beginning of the week and distribute the cash into envelopes marked Food, Travel, Entertainment, Pharmacy, and Miscellaneous. When you go to a store, take out the cash from the right envelope and put in the receipt. No more cash? No more movies or pizza slices until next week.
Get proactive about saving
Pay yourself first. Your first priority is paying down high-interest debt. Then you want a $2,000 emergency fund (invested in a money market or e-savings account earning 4 percent-plus) and a retirement account. If you're a savings pro, purchase a 12-month CD (topping out at 5 percent interest) as a way to save for medium-term purchases like a vacation or a car. If you devote 10 percent of your income to savings, you'll be a happy camper.
Take control of retirement planning
If you're in your 20s and you don't have a 401(k) through your employer, do not pass go. Open a Roth Individual Retirement Account right now. There is no minimum amount to open the account.
Once you open it, there is the question of how to invest the funds. This can be surprisingly simple. I originally opened my IRA with my bank in 2004. I had asked for my retirement savings to be invested in "low-cost" mutual funds and trusted the friendly, helpful representative at the bank to provide them.
This year, in an attempt to diversify, I also purchased some overseas mutual funds with Vanguard, the market leader in low-cost investing. In the process, I learned that I should be looking to invest in "no load" mutual funds with an "expense ratio" of 0.75 percent or less.
It turns out that for an average, long-term investor, low administrative costs and commissions are far more important to your returns than the "performance" of the fund or how well your stocks do in any one year.
In fact, those who simply purchase very low-cost index funds -- a broad sampling of stocks from the entire market -- are far ahead of the game.
"I have yet to meet a retiree that couldn't have met his or her retirement goals just with market returns," Paul Merriman, the editor of FundAdvice.com and an investment adviser at Merriman Berkman Next in Seattle, told "The New York Times" earlier this fall.
So I decided to switch my IRA into low-cost, no-load index funds. It was very frustrating to learn that my existing account didn't provide no-load options, and that the "low cost" mutual fund I was signed up for actually had a high expense ratio of 1.75 percent.
I'm now in the process of moving my IRA over to Vanguard so I can keep my investing costs as low as possible, and opening a SEP IRA (Simplified Employment Pension IRA) so I can increase the amount I put away. Fidelity is another often-recommended broker with lots of resources for retirement planning.
Get ahead of tax time
An old-fashioned receipt spike, like you see in a restaurant, will help collect business-related receipts for better filing in chronological order, whether you use an online tool to record expenses or not.
Set conscious goals
It's natural to get stressed out when thinking about money. What helps me deal is to picture positive long-term goals. What's your vision for the year? Improving your credit score 20 points into the "good" range? A fully funded retirement account? Getting into "good standing" with Sallie Mae? Opening your bills right away instead of tossing them?
Write your goals on Post-It Notes and stick them next to your desk or on your bedside table. Or set up an online calendar reminder to pop up in a month or two.
When my reminder comes up on Feb. 1, I'll re-read this column to see how on-track I am. If anyone else has financial resolutions, please leave them in the comments; you're more likely to keep a public pledge.
It's 2008 - and time to make a fresh financial start.
Simply ringing in the new year at midnight just doesn't do it for me anymore. I have a six-year tradition of greeting the dawn on New Year's Day. There's nothing like a cold, clear January sunrise to make you really believe in new beginnings.
Not that new beginnings are in short supply during the Gen Debt stage of life. Most of the young adults I know already have lives that are jam-packed with transitions: graduating college, starting grad school, changing roommates, changing jobs, changing cities, changing relationships. Even relatively small shifts like taking out a loan, getting a promotion at work, or dealing with the holidays can add stress to our lives. Check out this scale to see just how many "Life Change Units" you've piled up in the last year.
No matter what changes you might be experiencing, the new year is an excellent time to take stock of your personal, professional, and financial lives. According to a Harris Survey commissioned by Yahoo!, 65 percent of Americans who make a financial New Year's resolution vow to eliminate or reduce debt. Here are some of my own monetary resolutions for the year.
Spend lean and green
With the Bali climate conference taking place in December, a big energy bill in the Senate, and Al Gore accepting the Nobel Peace Prize for his efforts to help solve the climate crisis, awareness of our impact on the environment is at an all-time high. Recently, I had an inspiring conversation with TLC's Peter Walsh (the host of that cable network's "Clean Sweep") in which he pointed out that every purchase we make includes "buying in" to the manufacturing, transportation, and packaging of the product.
The earth's future belongs to young people like us, and that's why I'm trying hard to buy less, buy used, buy local, and buy green. This doesn't always mean purchasing the cheapest thing in the store - certainly not if it's going to wear out and need to be replaced right away. It means making conscious spending decisions, choosing items that are beautiful enough to give you joy and well-made enough to last a lifetime.
For more motivation, watch this very informative animated Web lecture, "The Story of Stuff."
Monitor your credit score
I had a ding on my credit score early last year due to a missed bill while I was out of the country, so I've been ordering my credit scores from MyFico.com for $15.95 a pop every six months.
This is an excellent place to start getting a handle on your financial life. (You can also go to Annualcreditreport.com to get your free credit report as required by federal law, but it doesn't include your score.) The credit report shows all the revolving accounts you have, such as credit cards, student loans, and car loans. It shows your payment history and the number of credit inquiries made in the last year -- for example, if you signed up for a new cell phone account or applied for a car loan, a company may have pulled your file.
If you see any mistakes on your account, you'll need to send a letter disputing the charge. MyFico does a good job of explaining which actions (like paying off your cards) can help your score and which actions (like maxing out your cards) can hurt it. But don't sign up for the extras like credit-score monitoring services (which alert you monthly, weekly, or even daily to changes in your credit) -- they're of dubious value.
Rediscover pencils, paper, and cash
Financial management is increasingly taking place online. This fall I've been trying out some of the different free online financial planning services aimed at younger folks, such as Mint, Geezeo, and Wesabe.
These sites centralize all of your accounts in one place, which makes things easier for you if you have multiple credit cards or student loans. For me, what works best is to have one bank account, one credit card that I use, and one brokerage account. Each of these institutions sends me a monthly e-statement, reminding me to go over the books.
As useful as online tools can be, 2008 is going to be the year of the analog for me. Just last week I was trying to figure out a discrepancy in my credit card bill, and I ended up writing down and adding up all the charges for the last three months. I was shocked to realize that on the credit card I "never use," I had made over $250 worth of purchases. There's nothing like pen and paper to make money clear and concrete.
I also vow that January 2008 is going to be the month I try out the envelope trick. If you want to get a clue about how much you're spending on incidentals, go to the ATM at the beginning of the week and distribute the cash into envelopes marked Food, Travel, Entertainment, Pharmacy, and Miscellaneous. When you go to a store, take out the cash from the right envelope and put in the receipt. No more cash? No more movies or pizza slices until next week.
Get proactive about saving
Pay yourself first. Your first priority is paying down high-interest debt. Then you want a $2,000 emergency fund (invested in a money market or e-savings account earning 4 percent-plus) and a retirement account. If you're a savings pro, purchase a 12-month CD (topping out at 5 percent interest) as a way to save for medium-term purchases like a vacation or a car. If you devote 10 percent of your income to savings, you'll be a happy camper.
Take control of retirement planning
If you're in your 20s and you don't have a 401(k) through your employer, do not pass go. Open a Roth Individual Retirement Account right now. There is no minimum amount to open the account.
Once you open it, there is the question of how to invest the funds. This can be surprisingly simple. I originally opened my IRA with my bank in 2004. I had asked for my retirement savings to be invested in "low-cost" mutual funds and trusted the friendly, helpful representative at the bank to provide them.
This year, in an attempt to diversify, I also purchased some overseas mutual funds with Vanguard, the market leader in low-cost investing. In the process, I learned that I should be looking to invest in "no load" mutual funds with an "expense ratio" of 0.75 percent or less.
It turns out that for an average, long-term investor, low administrative costs and commissions are far more important to your returns than the "performance" of the fund or how well your stocks do in any one year.
In fact, those who simply purchase very low-cost index funds -- a broad sampling of stocks from the entire market -- are far ahead of the game.
"I have yet to meet a retiree that couldn't have met his or her retirement goals just with market returns," Paul Merriman, the editor of FundAdvice.com and an investment adviser at Merriman Berkman Next in Seattle, told "The New York Times" earlier this fall.
So I decided to switch my IRA into low-cost, no-load index funds. It was very frustrating to learn that my existing account didn't provide no-load options, and that the "low cost" mutual fund I was signed up for actually had a high expense ratio of 1.75 percent.
I'm now in the process of moving my IRA over to Vanguard so I can keep my investing costs as low as possible, and opening a SEP IRA (Simplified Employment Pension IRA) so I can increase the amount I put away. Fidelity is another often-recommended broker with lots of resources for retirement planning.
Get ahead of tax time
An old-fashioned receipt spike, like you see in a restaurant, will help collect business-related receipts for better filing in chronological order, whether you use an online tool to record expenses or not.
Set conscious goals
It's natural to get stressed out when thinking about money. What helps me deal is to picture positive long-term goals. What's your vision for the year? Improving your credit score 20 points into the "good" range? A fully funded retirement account? Getting into "good standing" with Sallie Mae? Opening your bills right away instead of tossing them?
Write your goals on Post-It Notes and stick them next to your desk or on your bedside table. Or set up an online calendar reminder to pop up in a month or two.
When my reminder comes up on Feb. 1, I'll re-read this column to see how on-track I am. If anyone else has financial resolutions, please leave them in the comments; you're more likely to keep a public pledge.
Reluctant Retirement Savers May Be Scared Straight by These Stats
by Robert Powell, provided by MarketWatch
What's the best way to motivate Americans to save, invest and prepare for retirement? Some behavioral finance experts suggest using the carrot. Others suggest using the stick. And still others suggest using a combination of carrot and stick.
As for me, I suggest the use of statistics. Consider just a sampling of the numbers that have been released this year:
IRAs and 401(k)s
There's $4.23 trillion in individual retirements accounts, but that figure hides the fact that very few Americans contribute to an IRA and even when they do the amount is small.
On average, just 10% of eligible Americans contributed to an IRA for the years 2000 to 2002, according to the latest issue of EBRI Notes. And in 2004, the median contribution to a traditional IRA was just $2,300, according to the Investment Company Institute. The maximum you could contribute to an IRA in 2004, by the way, was $3,000 or $3,500 for those 50 and older.
Now you might say that's not so bleak given that working Americans are presumably saving for retirement using an employer-sponsored plan, such as a 401(k), 403(b), 457 or Thrift Savings Plan. But again, the numbers are somewhat depressing.
There are nearly 100 million Americans age 21 to 64 working full-time, full-year. But of that number, just 60% or 58.4 million work for an employer that sponsors a retirement plan, and only 52.7%, or 50.8 million participate in a retirement plan.
That means roughly half of all working Americans don't participate in a retirement plan or don't have an employer-sponsored plan in which to participate. It also means that a huge number of adult Americans -- by my estimate 150 million of a potential 200 million -- aren't saving for retirement in any meaningful way, if at all.
Retirement risks
According to the Society of Actuaries' 2007 Risks and Process Retirement Survey, roughly half to 60% of retirees worry about three things: the cost of health care, the effect of inflation on their nest eggs and not being able to maintain a reasonable standard of living for the rest of their life.
Those worries are justified given the lack of savings in America. But what's really bothersome is the degree to which those who aren't worried should be.
Consider, for instance, health-care costs. Fidelity Investments estimated earlier this year that a 65-year-old couple retiring today would need $215,000 set aside just to pay for medical expenses over a 20-year span. And if that wasn't depressing enough, other estimates are even higher.
Paul Fronstin of the Employee Benefit Research Institute, for instance, said a 65-year-old couple retiring today would need, assuming average life expectancy of 82 for men and 85 for women, more than $300,000 set aside to pay for health-care costs (premiums and out-of-pocket expenses) in retirement, and more than $550,000 if the couple lives to age 92.
What's even more depressing is that neither the EBRI nor Fidelity estimates factor in the cost of nursing homes, long-term care or assisted-living facilities, or home health aides. And those costs are staggering.
According to the MetLife Mature Market Institute, it costs $69,000 per year for a semiprivate nursing-home room, $35,628 per year for a unit in an assisted-living facility, $19 an hour for a home health aide and $61 per day for an adult day care center. Where's that money going to come from?
Retirement expenses
Retirees and would-be retirees are also right to fret about maintaining their standard of living. Consider, for instance, these numbers: The median household income (half above, half below) in America is $48,451 and the average is $65,527, according to the U.S. Census Bureau. But in retirement, income falls dramatically.
The average total income for those 65 and older in America is $25,610, and the median was a meager $16,770, according to EBRI Notes. That means retirees are living on roughly one-third of their preretirement income. And that's a far cry from the 70% to 80% income replacement experts suggest Americans need to maintain their preretirement standard of living.
Besides not having the income to maintain a similar standard of living, retirees will face expenses that are certain to rise faster than the average rate of inflation.
Consider, for instance, the results of the 2002 Consumer Expenditure Survey. On average, retirees spent 32.6% on housing, 14% on food, and 13% on health care. But that's the average. What's interesting is the degree to which money spent on health care in retirement changes over time.
For instance, those 55 to 64 spend 6.8% on health care, those 65 to 74 spend 11.2% and those 75 and older spend 15.1%. That percentage rises in part because the cost of health care is rising twice as fast as the core rate of inflation (less energy and food), 5% vs. 2.3%, according to the U.S. Bureau of Labor Statistics. But it also rises because older retirees tend to spend more on health care than younger retirees.
Source of retirement income
So where do retirees get their income once in retirement? Again, the numbers are depressing (and deceiving). On average, retirees get 39.8% from Social Security, 23.7% from earnings, 19.4% from pensions and annuities, 15.4% from assets (IRAs and the like) and 1.9% from other sources, according to EBRI Notes.
But the composition of the income changes dramatically based on income. Retirees in the bottom fifth of income, those with less than $8,261 in 2006, got 87.6% of their income from Social Security while those in the top fifth of income, those with greater than $34,570, got 36.4% from earnings, 22.6% from pensions, 20.5% from assets, and just 18.5% from Social Security.
The moral of story
If you are among the 150 million who are not saving for retirement, now would be a good time to do so. If you are among the 50 million who are saving for retirement, now would be a good time to save more.
If you are among those who aren't worried about health-care costs, inflation or maintaining a standard of living in retirement, now would be a good time to start worrying.
If you are among those who worry about retirement risks, now would be a good time to do something about it: Set aside money for health care, for instance.
And if you are among those who don't know what your sources and composition of retirement income will be, now would be a good time to figure that out. After all, waiting to see how things might work out isn't the world's best plan.
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.
What's the best way to motivate Americans to save, invest and prepare for retirement? Some behavioral finance experts suggest using the carrot. Others suggest using the stick. And still others suggest using a combination of carrot and stick.
As for me, I suggest the use of statistics. Consider just a sampling of the numbers that have been released this year:
IRAs and 401(k)s
There's $4.23 trillion in individual retirements accounts, but that figure hides the fact that very few Americans contribute to an IRA and even when they do the amount is small.
On average, just 10% of eligible Americans contributed to an IRA for the years 2000 to 2002, according to the latest issue of EBRI Notes. And in 2004, the median contribution to a traditional IRA was just $2,300, according to the Investment Company Institute. The maximum you could contribute to an IRA in 2004, by the way, was $3,000 or $3,500 for those 50 and older.
Now you might say that's not so bleak given that working Americans are presumably saving for retirement using an employer-sponsored plan, such as a 401(k), 403(b), 457 or Thrift Savings Plan. But again, the numbers are somewhat depressing.
There are nearly 100 million Americans age 21 to 64 working full-time, full-year. But of that number, just 60% or 58.4 million work for an employer that sponsors a retirement plan, and only 52.7%, or 50.8 million participate in a retirement plan.
That means roughly half of all working Americans don't participate in a retirement plan or don't have an employer-sponsored plan in which to participate. It also means that a huge number of adult Americans -- by my estimate 150 million of a potential 200 million -- aren't saving for retirement in any meaningful way, if at all.
Retirement risks
According to the Society of Actuaries' 2007 Risks and Process Retirement Survey, roughly half to 60% of retirees worry about three things: the cost of health care, the effect of inflation on their nest eggs and not being able to maintain a reasonable standard of living for the rest of their life.
Those worries are justified given the lack of savings in America. But what's really bothersome is the degree to which those who aren't worried should be.
Consider, for instance, health-care costs. Fidelity Investments estimated earlier this year that a 65-year-old couple retiring today would need $215,000 set aside just to pay for medical expenses over a 20-year span. And if that wasn't depressing enough, other estimates are even higher.
Paul Fronstin of the Employee Benefit Research Institute, for instance, said a 65-year-old couple retiring today would need, assuming average life expectancy of 82 for men and 85 for women, more than $300,000 set aside to pay for health-care costs (premiums and out-of-pocket expenses) in retirement, and more than $550,000 if the couple lives to age 92.
What's even more depressing is that neither the EBRI nor Fidelity estimates factor in the cost of nursing homes, long-term care or assisted-living facilities, or home health aides. And those costs are staggering.
According to the MetLife Mature Market Institute, it costs $69,000 per year for a semiprivate nursing-home room, $35,628 per year for a unit in an assisted-living facility, $19 an hour for a home health aide and $61 per day for an adult day care center. Where's that money going to come from?
Retirement expenses
Retirees and would-be retirees are also right to fret about maintaining their standard of living. Consider, for instance, these numbers: The median household income (half above, half below) in America is $48,451 and the average is $65,527, according to the U.S. Census Bureau. But in retirement, income falls dramatically.
The average total income for those 65 and older in America is $25,610, and the median was a meager $16,770, according to EBRI Notes. That means retirees are living on roughly one-third of their preretirement income. And that's a far cry from the 70% to 80% income replacement experts suggest Americans need to maintain their preretirement standard of living.
Besides not having the income to maintain a similar standard of living, retirees will face expenses that are certain to rise faster than the average rate of inflation.
Consider, for instance, the results of the 2002 Consumer Expenditure Survey. On average, retirees spent 32.6% on housing, 14% on food, and 13% on health care. But that's the average. What's interesting is the degree to which money spent on health care in retirement changes over time.
For instance, those 55 to 64 spend 6.8% on health care, those 65 to 74 spend 11.2% and those 75 and older spend 15.1%. That percentage rises in part because the cost of health care is rising twice as fast as the core rate of inflation (less energy and food), 5% vs. 2.3%, according to the U.S. Bureau of Labor Statistics. But it also rises because older retirees tend to spend more on health care than younger retirees.
Source of retirement income
So where do retirees get their income once in retirement? Again, the numbers are depressing (and deceiving). On average, retirees get 39.8% from Social Security, 23.7% from earnings, 19.4% from pensions and annuities, 15.4% from assets (IRAs and the like) and 1.9% from other sources, according to EBRI Notes.
But the composition of the income changes dramatically based on income. Retirees in the bottom fifth of income, those with less than $8,261 in 2006, got 87.6% of their income from Social Security while those in the top fifth of income, those with greater than $34,570, got 36.4% from earnings, 22.6% from pensions, 20.5% from assets, and just 18.5% from Social Security.
The moral of story
If you are among the 150 million who are not saving for retirement, now would be a good time to do so. If you are among the 50 million who are saving for retirement, now would be a good time to save more.
If you are among those who aren't worried about health-care costs, inflation or maintaining a standard of living in retirement, now would be a good time to start worrying.
If you are among those who worry about retirement risks, now would be a good time to do something about it: Set aside money for health care, for instance.
And if you are among those who don't know what your sources and composition of retirement income will be, now would be a good time to figure that out. After all, waiting to see how things might work out isn't the world's best plan.
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.
2007年12月30日 星期日
Thirty-Five Minutes to Riches
by Asa Fitch, Amanda Gengler, Josh Hyatt, and Ismat Sarah Mangla
Find out your credit score
Time it takes: 7 minutes
Know how lenders see you. Take seven minutes to download a free credit report at annualcreditreport.com. (For year-round monitoring, get a report from one of the three major credit bureaus every four months.) If you spot an error, notify the bureau (online, by phone or by mail) and the creditor (call and also send a letter). You won't find your credit score here, so when you request a report from Equifax, pay $7.95 for your FICO score, the most commonly used score. The range is 300 to 850 - 700 and above is good.
Raise your credit score
Time it takes: 8 minutes
It takes time to recover from major credit lapses, but you can do two things fast that will improve your credit score. Both will lower the size of your outstanding debt as a percentage of your total borrowing power.
1. Pay down a balance. 2. Call your issuer and ask for a higher credit limit. And don't spend it.
Triple the return on savings
Time it takes: 10 minutes
Do you have cash going nowhere in a checking or savings account? Bank money-market accounts typically pay less than 1%. You can open a savings account with HSBC Direct that recently paid 5.05%. No minimum balance is required.
With your driver's license and Social Security number handy, visit hsbcdirect.com and click on Sign Me Up. You'll be walked through screens to enter personal information. Want to fund your account immediately? Have a check with your bank account number and routing code handy to authorize an electronic transfer.
Stop junk mail
Time it takes: 5 minutes
Call 888-5OPTOUT to remove your name from credit issuers' mailing lists. The result of that five-minute talk with a computer? Fewer temptations and a mailbox filled with letters, not offers for pre-approved cards.
Most important, you'll cut the risk of an identity thief raiding your mailbox or garbage can and applying for credit in your name. Stolen paper mail accounts for 9% of identity fraud cases, according to Javelin Strategy & Research.
Note: Because we're talking credit bureaus, you'll have to provide your Social Security number. It's okay.
Freeze your credit
Time it takes: 25 minutes
Doing this prevents anyone from issuing credit in your name. (You, of course, can temporarily lift the freeze when you need a loan.) Nearly 30 states allow freezes even if you haven't been an ID theft victim. In some states you'll pay about $30 to place or remove-temporarily or permanently- the freeze. Go to consumersunion.org/securityfreeze.htm for instructions.
Haggle down your credit rate
Time it takes: 8 minutes
Dial your issuer and ask for a lower rate. If your credit score tops 720, do not be satisfied until your rate is less than 10%, says Curtis Arnold of CardRatings.com. Your biggest weapon: Make it clear that you'll stop using the card if the issuer refuses. Our reporter, helped by the fact that she's been a good customer for seven years, got the rate on her Discover card cut by four percentage points.
Upgrade to a better card
Time it takes: 30 minutes
Rewards, rates and fees change often. So search CardTrak.com to make sure you have the best deal. Among the lowest-rate cards on the site recently: Simmons First National Bank in Arkansas (800-636-5151) offers a fixed rate as low as 7.25% with no annual fee to consumers who have excellent credit.
Add to your 401(k)
Time it takes: 3 minutes
You signed up for your plan right after you found the office vending machines. Now do more: Raise your contribution by a point. Save 10% of a $50,000 salary in your 401(k) and you'll have $1.4 million in 35 years, assuming 8% returns and 4% annual raises. Ramp that up to 11% and you'll earn around $140,000 more.
Call your plan or visit your 401(k)'s website. At 401(k)s administered by Fidelity, for example, raising your contribution takes all of three minutes.
Manage like a pro
Time it takes: 4 minutes
If you have a diversified portfolio, a run-up in one asset class can throw your mix out of line, increasing risk and eroding returns. An unrebalanced $10,000 portfolio of 80% stocks and 20% bonds would have grown to $21,620 over the past 10 years.
If you'd rebalanced annually, you'd have $22,213, or $593 more - and taken less risk to get there. Retooling a 401(k) is easy: With a big plan administrator like Fidelity or Hewitt, rebalancing online takes minutes. In a taxable account, simply direct new money into the lagging fund categories.
Buy a forever portfolio
Time it takes: 25 minutes
Putting together a complete fund portfolio was once a time consuming chore. Nowadays target-date funds, which adjust the stock and bond allocation to smooth returns as you near a "target" retirement year, do it for you in minutes. Many 401(k)s offer them.
For direct investments, use the low-cost options from Vanguard (800-851-4999) or T. Rowe Price (800-638-5660). At vanguard.com, click on the tab labeled Research Funds and Stocks. Find the fund that corresponds to your planned retirement year, then download and look over the prospectus. Next click on the Buy This Fund link and follow the instructions. Have your checkbook ready to deposit funds electronically.
Find promising funds
Time it takes: 5 minutes
You can cut through the 8,000 or so mutual funds out there by sticking to the MONEY 70. Or run a screen for similar funds at morningstar.com (click on the Funds tab and go to the Mutual Fund Screener link). Pick a category, and then limit expenses to less than the category average. Next screen for funds whose managers have five years of tenure or more - greater experience is linked to better performance. Cut funds that failed to beat their five- or 10-year category averages.
Track your returns
Time it takes: 35 minutes
It's a pain to figure out how your investments are doing, especially if your money is scattered among several accounts. Spend 35 minutes setting up the portfolio tracker at portfolio.morningstar.com (you must first register at the site) so that you can start calculating your own rate of return. For a Web tool that can be clunky, Morningstar's tracker is particularly well designed and easy to use. You will, however, have to update it when you reinvest dividends or buy more shares.
Find out if you're paid enough
Time it takes: 15 minutes
Before you can make your case for a raise, you need something to measure yourself against. Salary.com offers Salary Wizard for free. Plug in your title and zip code and you'll get the median pay in your area for comparable positions. Or spend 10 minutes filling out a questionnaire with more variables, such as the size of your employer, and get 12 pages of data by buying a Personal Salary Report for $29.95 to $79.95 (the price varies by title).
Run a retirement plan
Time it takes: 5 minutes
On the road to riches, the key question is whether you're on track for financial independence. So pull out your retirement and investment account statements, plus projections for any pensions. Running that simple math can be surprisingly valuable: Researchers have found that people who plan for retirement have a higher net worth than those who do nothing.
Estimate your life insurance
Time it takes: 35 minutes
How much coverage is enough? For a fast ballpark estimate, multiply your annual income by five. With 35 minutes you can use the detailed calculator from the Life and Health Insurance Foundation for Education (life line.org). You'll be asked for your assets and debts, plus answers to tough questions like how long your family would need income after your death. If you find you need more coverage, get a quote on a term policy in five minutes at accuquote.com.
Learn your tax bracket
Time it takes: 20 minutes
Knowing what rate you pay on the last dollar you earn can help you to, among other things, pick a taxable vs. a municipal bond fund. Pull out your most recent 1040 and look for taxable income (line 43 in 2006). Adjust for any big changes in your income or the deductions you expect to take this year, then find where you fit in at irs.gov (search for "2007 federal tax rate schedule").
To choose between a muni and a taxable fund, divide the muni's yield by 100% minus your tax rate. If that number is higher than the taxable yield, go tax-free.
Escape late fees
Time it takes: 6 minutes
Why mess with checks and trips to the post office? Why risk a late payment when, according to Consumer Action, 85% of credit-card issuers impose penalty rates that average 24.5% if you're late on one or two bills? Pay bills online at your bank. First register at the site. Then gather your bills. Many bank sites have a pull-down menu of merchants; select yours and enter your account number. Or plug in the name, address and account number manually.
Write bounce-proof checks
Time it takes: 9 minutes
The median fee for bouncing a check recently hit $27.50, according to Bankrate.com. Call your bank or visit its website to sign up for overdraft protection. With that service, the bank will cover your check with money from a linked savings account. It may cost you $10, but that's less than half the charge for insufficient funds - not to mention what the payee demands.
Get bank alerts
Time it takes: 4 minutes.
Avoid bounced checks and spot ID theft early by having your bank notify you when your balance falls below a certain level or when there's unusual activity in your account. Citibank, for example, offers alerts via e-mail or text message. To activate them, log into your online account and select Account Info and then E-mail and Wireless Alerts. You can add up to two e-mail addresses and a mobile-phone number for alerts. Use the menu of options to designate what updates you want.
Pay less in auto insurance
Time it takes: 7 minutes
Simply raising your deductible can save you up to 30%. With an old car, drop your collision and comprehensive coverage when the car is worth less than 10 times what you pay for the insurance. Or shop for a lower premium at insweb.com, an easy-to-navigate comparison site. You'll be guided through five screens of information such as driving history, car make and model. A few minutes later the site will give you the lowest quote from its database (which doesn't include all the biggest insurers). Agents will also e-mail or call you with quotes from other insurers.
Double-check your taxes
Time it takes: 35 minutes
Next April remember this: Before you seal the envelope or tap the key that whisks your return to the IRS, spend 35 minutes looking for easy-to-spot errors. Overlook a dependent (the one at college may count) and you could owe an extra $1,000 in taxes. Transpose your Social Security number and your refund may never arrive. Did you sign your return?
Keep more of your paycheck
Time it takes: 30 minutes
A generous tax refund means you are overpaying the government. To have fewer dollars plucked from your paycheck, claim more exemptions on your W-4 form (to see if you can, use the withholding calculator at irs.gov). Print out a W-4 at the IRS site or from your company's intranet. With last year's tax return, a pay stub and a calculator handy, filling out the worksheet on page 2 takes about half an hour.
Get a tax break for day care
Time it takes: 35 minutes
Make this the fall that you finally sign up for a flexible spending account for healthcare and dependent-care expenses. Your boss takes pretax dollars from your paycheck; you tap the account for contact lenses, day care and the like.
Pay less for your cell
Time it takes: 1 minute
Know what your employer hates? Raises. What he likes? Perks that cost him nothing. At some firms, employees qualify for cell-phone discounts of up to 20%. To see if you get a Verizon discount, go to verizonwireless.com/getdiscount and plug in your e-mail address; for AT&T, go to wireless.att.com/home.
Cut drug costs
Time it takes: 16 minutes
Many employers use a pharmacy benefit manager (PBM) such as Medco or Caremark to administer prescription drug coverage. Call your PBM or go to its website (have your prescription drug coverage card handy) to check mailorder prices and sign up.
No more waiting rooms
Time it takes: 15 minutes
Can't get in and out of the doctor's office in 35 minutes? You can see a physician's assistant or a nurse practitioner in about 15 minutes, or so, says MinuteClinic, one of the largest of the chains of walk-in medical centers cropping up in pharmacies or stores such as Target or Wal-Mart. That's fine for basic ailments like earaches, strep throat and pinkeye. Your insurance may not be accepted, which could leave you footing the entire $59 ear-infection fee. But you can stop by at lunch and not miss hours, or even a day, of work.
Burn more calories
Time it takes: 30 minutes
Nibbling an extra 100 calories a day will pack on 10 pounds in a year. Doing moderate exercise for 30 minutes a day will prevent that gain - and save you money. Obese Americans spend 26% more out of pocket on health care than normal-weight workers, according to a study in Health Affairs. They also take nearly twice as many prescriptions and earn $1.42 less per hour.
Be like Buffett
Time it takes: 35 minutes
It takes seven seconds on a high-speed Internet connection to download Berkshire Hathaway's annual report (available at berkshirehathaway.com/reports.html). Reading Buffett's letter to shareholders might take a full 35 minutes. The wisdom therein could put your investing head on straight for 35 years.
Save for college
Time it takes: 35 minutes
A state 529 college savings plan is the best way to invest for your kid's higher education. With one check, you can buy a diversified portfolio that becomes more conservative as your child nears school. See Money Magazine's guide to 529s in every state (link below).
Stick with your local 529 if it's a Money pick. But if your homegrown options are fee-laden and offer no local tax breaks, go with the Utah Educational Savings Plan (800-418-2551; uesp.org). Click on the Forms tab and download the program description and "form 100." Figure on 15 minutes to read, 19 minutes to fill out the agreement, one minute to fax.
Automate your savings
Time it takes: 10 minutes
If a $10,000 minimum investment is keeping you out of mutual funds, you have a quick work-around. Lots of funds let you in for much less if you agree to have your investment automatically taken out of your bank account. With T. Rowe Price's automatic asset builder (troweprice.com), you can invest in T. Rowe Price Blue Chip Growth (TRBCX), T. Rowe Price New Era (PRNEX) and many other exemplary funds with just $50 a month.
Get credit, even in a crunch
Time it takes: 15 minutes
Apply for a home equity line of credit. Don't tap it now unless you must (average rates are 8.75%). But in an emergency - say, when you've lost your job - you may find it tougher to qualify. Start by calling your bank, but go to bankrate.com to compare its offer with those from other nearby lenders.
Read your mortgage
Time it takes: 30 minutes
Only now are many borrowers with risky loans finding that they misunderstood the terms. First pull out the one-page Truth in Lending Disclosure your lender gave you: The APR on it is the best estimate of what you are paying. Lower rates mentioned in other loan documents are likely come-on offers. If your rate is variable, scan the adjustable-rate disclosures section of your mortgage for the date it changes and the highest it can go. Examine every page for the words "prepayment penalty."
Stop overpaying on your mortgage
Time it takes: 9 minutes
If you carry private mortgage insurance but now have 20% equity in your home, see whether you can cancel. Your mortgage servicer (the phone number is listed on your bill) usually must oblige if your down payment and principal payments exceed 20% of your home's original value. Many will do so if rising prices have pushed your equity to 20%.
In this case, canceling will take longer: Most mortgage companies require an appraisal, which costs around $300. But at homegain.com, realestateabc.com or zillow.com you can get an idea of whether your home value has risen enough to justify a call.
Create an insurance record
Time it takes: 29 minutes for a 2,200 sq ft home
Walk around your house with a camera. Shoot closeups of your jewelry, artwork and other valuables. If disaster strikes, this proof of what you owned will speed your claim and help you get a better settlement. Keep copies of the video or photos in your safedeposit box or elsewhere outside your home.
Curb impulse buys
Time it takes: 10 minutes
By one estimate, two-thirds of all purchases are unplanned. To keep impulse shopping in check, ask the clerk to hold your wished for item, then take a 10-minute stroll. Next ask yourself whether you truly need this sweater/video game/golf club and how you'll pay for it.
Spend consciously
Time it takes: 35 minutes
At the grocery store, you're up against tempting displays and smells in every aisle. To avoid being ambushed, you need to follow a strict plan. Take 35 minutes to make a shopping list that follows the layout of the store (no straying) and calls for stocking up on sales items. To see the specials at stores nearby, enter your zip code atmygrocerydeals.com.
Slash recurring charges
Time it takes: 10 minutes
It seemed like a good idea - for just $16.99 a month, you could rent three DVDs at a time as often as you wanted. But how often is that really? Scan your credit-card statement for those automatic monthly charges you normally just pay. Ask yourself whether you're getting your money's worth. How often do you go to the $75-a month gym? How about that cheese-of-the-month club? Cancel what you're not using.
Boost your mileage
Time it takes: 7 minutes
About half of car owners don't test the air pressure on their car tires often enough, according to the Rubber Manufacturers Association. The recommendation: Do it once a month or before any long trip. The payoff: Properly inflated tires improve your fuel economy by 3.3%. You can buy a pencil tire gauge for less than $10. Check the pressure when your tires are cold. If they need air, head to a gas station within a mile of home.
Find it cheaper online
Time it takes: 30 minutes
Before you buy anything on the Web (or at a mall), spend a few minutes at a comparison shopping site. Shopping.com and Shopzilla.com both scour the Net for bargains at a large number of online stores, but their results can vary. Looking to buy a Garmin GPS for your car? Shopping.com found one from a top retailer for $357.95; Shopzilla's find was $212.54.
Demand a lower cable bill
Time it takes: 15 minutes
Okay, it's not as simple as that - but almost. Call and complain that your bill is too high; repeat your message calmly ("This just isn't worth it to me anymore"). Make sure to casually use the words "satellite dish" (as in "I wonder how that compares with a satellite dish") or maybe "phone company." This strategy translated into a $20 monthly discount (for a year) in our test.
Save on drinking water
Time it takes: 4 minutes
At $1.50 a pop for a gallon of bottled water at the supermarket, the desire for healthy hydration adds up. By purchasing a water filter, you can cut your family's water costs to 19¢ a gallon. Order a Brita Riviera pitcher at amazon.com for $27. Replacement filters good for two months are $9 each.
Six 35-second solutions:
Time it takes: 35 seconds
1. Say no to a new store credit card.
With rates typically above 20%, interest can wipe out that initial 10% discount. The new credit application will hurt your credit score, and you'll have yet another temptation to spend.
2. Check yes to reinvesting your dividends.
If you'd put $10,000 in an S&P 500 index fund in 1997 and reinvested dividends all along, you'd have $22,446 at the end of 2006. If you didn't, you'd end with just $19,147.
3. Say no to an extended warranty.
It'll cost you $30 to $200, and with electronics so reliable nowadays, you're unlikely to need it. Besides, if your computer breaks in two years, you'll want the new model, not a replacement.
4. Fill your tank with regular.
Premium gas is about 8% more expensive, and no matter what the manufacturer says, cars don't need pricier gas to run smoothly and resist wear.
5. Swipe your debit rather than credit card.
If your purchase will further fatten your balance on a high-rate credit card, you're better off paying with the money that's in your bank account. If asked, say "credit" rather than "debit" and your debit card will be processed over the credit-card network. You'll have more liability protection and less chance of paying a fee.
6. Delete any e-mail asking for account information or your social security number.
It may be a scam. No reputable financial services firm will ask.
Very long read, but lots of useful information.
Find out your credit score
Time it takes: 7 minutes
Know how lenders see you. Take seven minutes to download a free credit report at annualcreditreport.com. (For year-round monitoring, get a report from one of the three major credit bureaus every four months.) If you spot an error, notify the bureau (online, by phone or by mail) and the creditor (call and also send a letter). You won't find your credit score here, so when you request a report from Equifax, pay $7.95 for your FICO score, the most commonly used score. The range is 300 to 850 - 700 and above is good.
Raise your credit score
Time it takes: 8 minutes
It takes time to recover from major credit lapses, but you can do two things fast that will improve your credit score. Both will lower the size of your outstanding debt as a percentage of your total borrowing power.
1. Pay down a balance. 2. Call your issuer and ask for a higher credit limit. And don't spend it.
Triple the return on savings
Time it takes: 10 minutes
Do you have cash going nowhere in a checking or savings account? Bank money-market accounts typically pay less than 1%. You can open a savings account with HSBC Direct that recently paid 5.05%. No minimum balance is required.
With your driver's license and Social Security number handy, visit hsbcdirect.com and click on Sign Me Up. You'll be walked through screens to enter personal information. Want to fund your account immediately? Have a check with your bank account number and routing code handy to authorize an electronic transfer.
Stop junk mail
Time it takes: 5 minutes
Call 888-5OPTOUT to remove your name from credit issuers' mailing lists. The result of that five-minute talk with a computer? Fewer temptations and a mailbox filled with letters, not offers for pre-approved cards.
Most important, you'll cut the risk of an identity thief raiding your mailbox or garbage can and applying for credit in your name. Stolen paper mail accounts for 9% of identity fraud cases, according to Javelin Strategy & Research.
Note: Because we're talking credit bureaus, you'll have to provide your Social Security number. It's okay.
Freeze your credit
Time it takes: 25 minutes
Doing this prevents anyone from issuing credit in your name. (You, of course, can temporarily lift the freeze when you need a loan.) Nearly 30 states allow freezes even if you haven't been an ID theft victim. In some states you'll pay about $30 to place or remove-temporarily or permanently- the freeze. Go to consumersunion.org/securityfreeze.htm for instructions.
Haggle down your credit rate
Time it takes: 8 minutes
Dial your issuer and ask for a lower rate. If your credit score tops 720, do not be satisfied until your rate is less than 10%, says Curtis Arnold of CardRatings.com. Your biggest weapon: Make it clear that you'll stop using the card if the issuer refuses. Our reporter, helped by the fact that she's been a good customer for seven years, got the rate on her Discover card cut by four percentage points.
Upgrade to a better card
Time it takes: 30 minutes
Rewards, rates and fees change often. So search CardTrak.com to make sure you have the best deal. Among the lowest-rate cards on the site recently: Simmons First National Bank in Arkansas (800-636-5151) offers a fixed rate as low as 7.25% with no annual fee to consumers who have excellent credit.
Add to your 401(k)
Time it takes: 3 minutes
You signed up for your plan right after you found the office vending machines. Now do more: Raise your contribution by a point. Save 10% of a $50,000 salary in your 401(k) and you'll have $1.4 million in 35 years, assuming 8% returns and 4% annual raises. Ramp that up to 11% and you'll earn around $140,000 more.
Call your plan or visit your 401(k)'s website. At 401(k)s administered by Fidelity, for example, raising your contribution takes all of three minutes.
Manage like a pro
Time it takes: 4 minutes
If you have a diversified portfolio, a run-up in one asset class can throw your mix out of line, increasing risk and eroding returns. An unrebalanced $10,000 portfolio of 80% stocks and 20% bonds would have grown to $21,620 over the past 10 years.
If you'd rebalanced annually, you'd have $22,213, or $593 more - and taken less risk to get there. Retooling a 401(k) is easy: With a big plan administrator like Fidelity or Hewitt, rebalancing online takes minutes. In a taxable account, simply direct new money into the lagging fund categories.
Buy a forever portfolio
Time it takes: 25 minutes
Putting together a complete fund portfolio was once a time consuming chore. Nowadays target-date funds, which adjust the stock and bond allocation to smooth returns as you near a "target" retirement year, do it for you in minutes. Many 401(k)s offer them.
For direct investments, use the low-cost options from Vanguard (800-851-4999) or T. Rowe Price (800-638-5660). At vanguard.com, click on the tab labeled Research Funds and Stocks. Find the fund that corresponds to your planned retirement year, then download and look over the prospectus. Next click on the Buy This Fund link and follow the instructions. Have your checkbook ready to deposit funds electronically.
Find promising funds
Time it takes: 5 minutes
You can cut through the 8,000 or so mutual funds out there by sticking to the MONEY 70. Or run a screen for similar funds at morningstar.com (click on the Funds tab and go to the Mutual Fund Screener link). Pick a category, and then limit expenses to less than the category average. Next screen for funds whose managers have five years of tenure or more - greater experience is linked to better performance. Cut funds that failed to beat their five- or 10-year category averages.
Track your returns
Time it takes: 35 minutes
It's a pain to figure out how your investments are doing, especially if your money is scattered among several accounts. Spend 35 minutes setting up the portfolio tracker at portfolio.morningstar.com (you must first register at the site) so that you can start calculating your own rate of return. For a Web tool that can be clunky, Morningstar's tracker is particularly well designed and easy to use. You will, however, have to update it when you reinvest dividends or buy more shares.
Find out if you're paid enough
Time it takes: 15 minutes
Before you can make your case for a raise, you need something to measure yourself against. Salary.com offers Salary Wizard for free. Plug in your title and zip code and you'll get the median pay in your area for comparable positions. Or spend 10 minutes filling out a questionnaire with more variables, such as the size of your employer, and get 12 pages of data by buying a Personal Salary Report for $29.95 to $79.95 (the price varies by title).
Run a retirement plan
Time it takes: 5 minutes
On the road to riches, the key question is whether you're on track for financial independence. So pull out your retirement and investment account statements, plus projections for any pensions. Running that simple math can be surprisingly valuable: Researchers have found that people who plan for retirement have a higher net worth than those who do nothing.
Estimate your life insurance
Time it takes: 35 minutes
How much coverage is enough? For a fast ballpark estimate, multiply your annual income by five. With 35 minutes you can use the detailed calculator from the Life and Health Insurance Foundation for Education (life line.org). You'll be asked for your assets and debts, plus answers to tough questions like how long your family would need income after your death. If you find you need more coverage, get a quote on a term policy in five minutes at accuquote.com.
Learn your tax bracket
Time it takes: 20 minutes
Knowing what rate you pay on the last dollar you earn can help you to, among other things, pick a taxable vs. a municipal bond fund. Pull out your most recent 1040 and look for taxable income (line 43 in 2006). Adjust for any big changes in your income or the deductions you expect to take this year, then find where you fit in at irs.gov (search for "2007 federal tax rate schedule").
To choose between a muni and a taxable fund, divide the muni's yield by 100% minus your tax rate. If that number is higher than the taxable yield, go tax-free.
Escape late fees
Time it takes: 6 minutes
Why mess with checks and trips to the post office? Why risk a late payment when, according to Consumer Action, 85% of credit-card issuers impose penalty rates that average 24.5% if you're late on one or two bills? Pay bills online at your bank. First register at the site. Then gather your bills. Many bank sites have a pull-down menu of merchants; select yours and enter your account number. Or plug in the name, address and account number manually.
Write bounce-proof checks
Time it takes: 9 minutes
The median fee for bouncing a check recently hit $27.50, according to Bankrate.com. Call your bank or visit its website to sign up for overdraft protection. With that service, the bank will cover your check with money from a linked savings account. It may cost you $10, but that's less than half the charge for insufficient funds - not to mention what the payee demands.
Get bank alerts
Time it takes: 4 minutes.
Avoid bounced checks and spot ID theft early by having your bank notify you when your balance falls below a certain level or when there's unusual activity in your account. Citibank, for example, offers alerts via e-mail or text message. To activate them, log into your online account and select Account Info and then E-mail and Wireless Alerts. You can add up to two e-mail addresses and a mobile-phone number for alerts. Use the menu of options to designate what updates you want.
Pay less in auto insurance
Time it takes: 7 minutes
Simply raising your deductible can save you up to 30%. With an old car, drop your collision and comprehensive coverage when the car is worth less than 10 times what you pay for the insurance. Or shop for a lower premium at insweb.com, an easy-to-navigate comparison site. You'll be guided through five screens of information such as driving history, car make and model. A few minutes later the site will give you the lowest quote from its database (which doesn't include all the biggest insurers). Agents will also e-mail or call you with quotes from other insurers.
Double-check your taxes
Time it takes: 35 minutes
Next April remember this: Before you seal the envelope or tap the key that whisks your return to the IRS, spend 35 minutes looking for easy-to-spot errors. Overlook a dependent (the one at college may count) and you could owe an extra $1,000 in taxes. Transpose your Social Security number and your refund may never arrive. Did you sign your return?
Keep more of your paycheck
Time it takes: 30 minutes
A generous tax refund means you are overpaying the government. To have fewer dollars plucked from your paycheck, claim more exemptions on your W-4 form (to see if you can, use the withholding calculator at irs.gov). Print out a W-4 at the IRS site or from your company's intranet. With last year's tax return, a pay stub and a calculator handy, filling out the worksheet on page 2 takes about half an hour.
Get a tax break for day care
Time it takes: 35 minutes
Make this the fall that you finally sign up for a flexible spending account for healthcare and dependent-care expenses. Your boss takes pretax dollars from your paycheck; you tap the account for contact lenses, day care and the like.
Pay less for your cell
Time it takes: 1 minute
Know what your employer hates? Raises. What he likes? Perks that cost him nothing. At some firms, employees qualify for cell-phone discounts of up to 20%. To see if you get a Verizon discount, go to verizonwireless.com/getdiscount and plug in your e-mail address; for AT&T, go to wireless.att.com/home.
Cut drug costs
Time it takes: 16 minutes
Many employers use a pharmacy benefit manager (PBM) such as Medco or Caremark to administer prescription drug coverage. Call your PBM or go to its website (have your prescription drug coverage card handy) to check mailorder prices and sign up.
No more waiting rooms
Time it takes: 15 minutes
Can't get in and out of the doctor's office in 35 minutes? You can see a physician's assistant or a nurse practitioner in about 15 minutes, or so, says MinuteClinic, one of the largest of the chains of walk-in medical centers cropping up in pharmacies or stores such as Target or Wal-Mart. That's fine for basic ailments like earaches, strep throat and pinkeye. Your insurance may not be accepted, which could leave you footing the entire $59 ear-infection fee. But you can stop by at lunch and not miss hours, or even a day, of work.
Burn more calories
Time it takes: 30 minutes
Nibbling an extra 100 calories a day will pack on 10 pounds in a year. Doing moderate exercise for 30 minutes a day will prevent that gain - and save you money. Obese Americans spend 26% more out of pocket on health care than normal-weight workers, according to a study in Health Affairs. They also take nearly twice as many prescriptions and earn $1.42 less per hour.
Be like Buffett
Time it takes: 35 minutes
It takes seven seconds on a high-speed Internet connection to download Berkshire Hathaway's annual report (available at berkshirehathaway.com/reports.html). Reading Buffett's letter to shareholders might take a full 35 minutes. The wisdom therein could put your investing head on straight for 35 years.
Save for college
Time it takes: 35 minutes
A state 529 college savings plan is the best way to invest for your kid's higher education. With one check, you can buy a diversified portfolio that becomes more conservative as your child nears school. See Money Magazine's guide to 529s in every state (link below).
Stick with your local 529 if it's a Money pick. But if your homegrown options are fee-laden and offer no local tax breaks, go with the Utah Educational Savings Plan (800-418-2551; uesp.org). Click on the Forms tab and download the program description and "form 100." Figure on 15 minutes to read, 19 minutes to fill out the agreement, one minute to fax.
Automate your savings
Time it takes: 10 minutes
If a $10,000 minimum investment is keeping you out of mutual funds, you have a quick work-around. Lots of funds let you in for much less if you agree to have your investment automatically taken out of your bank account. With T. Rowe Price's automatic asset builder (troweprice.com), you can invest in T. Rowe Price Blue Chip Growth (TRBCX), T. Rowe Price New Era (PRNEX) and many other exemplary funds with just $50 a month.
Get credit, even in a crunch
Time it takes: 15 minutes
Apply for a home equity line of credit. Don't tap it now unless you must (average rates are 8.75%). But in an emergency - say, when you've lost your job - you may find it tougher to qualify. Start by calling your bank, but go to bankrate.com to compare its offer with those from other nearby lenders.
Read your mortgage
Time it takes: 30 minutes
Only now are many borrowers with risky loans finding that they misunderstood the terms. First pull out the one-page Truth in Lending Disclosure your lender gave you: The APR on it is the best estimate of what you are paying. Lower rates mentioned in other loan documents are likely come-on offers. If your rate is variable, scan the adjustable-rate disclosures section of your mortgage for the date it changes and the highest it can go. Examine every page for the words "prepayment penalty."
Stop overpaying on your mortgage
Time it takes: 9 minutes
If you carry private mortgage insurance but now have 20% equity in your home, see whether you can cancel. Your mortgage servicer (the phone number is listed on your bill) usually must oblige if your down payment and principal payments exceed 20% of your home's original value. Many will do so if rising prices have pushed your equity to 20%.
In this case, canceling will take longer: Most mortgage companies require an appraisal, which costs around $300. But at homegain.com, realestateabc.com or zillow.com you can get an idea of whether your home value has risen enough to justify a call.
Create an insurance record
Time it takes: 29 minutes for a 2,200 sq ft home
Walk around your house with a camera. Shoot closeups of your jewelry, artwork and other valuables. If disaster strikes, this proof of what you owned will speed your claim and help you get a better settlement. Keep copies of the video or photos in your safedeposit box or elsewhere outside your home.
Curb impulse buys
Time it takes: 10 minutes
By one estimate, two-thirds of all purchases are unplanned. To keep impulse shopping in check, ask the clerk to hold your wished for item, then take a 10-minute stroll. Next ask yourself whether you truly need this sweater/video game/golf club and how you'll pay for it.
Spend consciously
Time it takes: 35 minutes
At the grocery store, you're up against tempting displays and smells in every aisle. To avoid being ambushed, you need to follow a strict plan. Take 35 minutes to make a shopping list that follows the layout of the store (no straying) and calls for stocking up on sales items. To see the specials at stores nearby, enter your zip code atmygrocerydeals.com.
Slash recurring charges
Time it takes: 10 minutes
It seemed like a good idea - for just $16.99 a month, you could rent three DVDs at a time as often as you wanted. But how often is that really? Scan your credit-card statement for those automatic monthly charges you normally just pay. Ask yourself whether you're getting your money's worth. How often do you go to the $75-a month gym? How about that cheese-of-the-month club? Cancel what you're not using.
Boost your mileage
Time it takes: 7 minutes
About half of car owners don't test the air pressure on their car tires often enough, according to the Rubber Manufacturers Association. The recommendation: Do it once a month or before any long trip. The payoff: Properly inflated tires improve your fuel economy by 3.3%. You can buy a pencil tire gauge for less than $10. Check the pressure when your tires are cold. If they need air, head to a gas station within a mile of home.
Find it cheaper online
Time it takes: 30 minutes
Before you buy anything on the Web (or at a mall), spend a few minutes at a comparison shopping site. Shopping.com and Shopzilla.com both scour the Net for bargains at a large number of online stores, but their results can vary. Looking to buy a Garmin GPS for your car? Shopping.com found one from a top retailer for $357.95; Shopzilla's find was $212.54.
Demand a lower cable bill
Time it takes: 15 minutes
Okay, it's not as simple as that - but almost. Call and complain that your bill is too high; repeat your message calmly ("This just isn't worth it to me anymore"). Make sure to casually use the words "satellite dish" (as in "I wonder how that compares with a satellite dish") or maybe "phone company." This strategy translated into a $20 monthly discount (for a year) in our test.
Save on drinking water
Time it takes: 4 minutes
At $1.50 a pop for a gallon of bottled water at the supermarket, the desire for healthy hydration adds up. By purchasing a water filter, you can cut your family's water costs to 19¢ a gallon. Order a Brita Riviera pitcher at amazon.com for $27. Replacement filters good for two months are $9 each.
Six 35-second solutions:
Time it takes: 35 seconds
1. Say no to a new store credit card.
With rates typically above 20%, interest can wipe out that initial 10% discount. The new credit application will hurt your credit score, and you'll have yet another temptation to spend.
2. Check yes to reinvesting your dividends.
If you'd put $10,000 in an S&P 500 index fund in 1997 and reinvested dividends all along, you'd have $22,446 at the end of 2006. If you didn't, you'd end with just $19,147.
3. Say no to an extended warranty.
It'll cost you $30 to $200, and with electronics so reliable nowadays, you're unlikely to need it. Besides, if your computer breaks in two years, you'll want the new model, not a replacement.
4. Fill your tank with regular.
Premium gas is about 8% more expensive, and no matter what the manufacturer says, cars don't need pricier gas to run smoothly and resist wear.
5. Swipe your debit rather than credit card.
If your purchase will further fatten your balance on a high-rate credit card, you're better off paying with the money that's in your bank account. If asked, say "credit" rather than "debit" and your debit card will be processed over the credit-card network. You'll have more liability protection and less chance of paying a fee.
6. Delete any e-mail asking for account information or your social security number.
It may be a scam. No reputable financial services firm will ask.
Very long read, but lots of useful information.
Retire a Millionaire
provided by Kiplinger
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65.
The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
AGE 25
You've saved: $0
To reach $500,000, what you need to save per month: $143
To reach $1 million, what you need to save per month: $286
To reach $2 million, what you need to save per month: $573
Get help from Uncle Sam: You may qualify for a retirement-savings tax credit of 10% to 50% of the amount you contribute to an IRA, 401(k) or other retirement account. The credit can reduce your tax bill by up to $1,000. To qualify, your income must be $25,000 or less if you're single, $37,500 or less if you're a head of household or $50,000 or less if you're married.
AGE 35
You've saved: $0
To reach $500,000, what you need to save per month: $335
To reach $1 million, what you need to save per month: $671
To reach $2 million, what you need to save per month: $1,342
You've saved: $25,000
To reach $500,000, what you need to save per month: $152
To reach $1 million, what you need to save per month: $488
To reach $2 million, what you need to save per month: $1,159
Get help from your boss: If your employer offers a matching contribution, contribute at least enough to your 401(k) to capture the full match. Otherwise, you're walking away from free money. Try to save 15% of your gross income for retirement, including your employer match.
AGE 45
You've saved: $0
To reach $500,000, what you need to save per month: $849
To reach $1 million, what you need to save per month: $1,698
To reach $2 million, what you need to save per month: $3,395
You've saved: $25,000
To reach $500,000, what you need to save per month: $640
To reach $1 million, what you need to save per month: $1,489
To reach $2 million, what you need to save per month: $3,186
You've saved: $50,000
To reach $500,000, what you need to save per month: $431
To reach $1 million, what you need to save per month: $1,280
To reach $2 million, what you need to save per month: $2,977
You've saved: $100,000
To reach $500,000, what you need to save per month: $12
To reach $1 million, what you need to save per month: $861
To reach $2 million, what you need to save per month: $2,559
Play catch-up: Aim to contribute the maximum $15,500 to your 401(k) this year or $4,000 to your traditional or Roth IRA. Once you turn 50, you can contribute an additional $5,000 in catch-up contributions to your 401(k) and an extra $1,000 to your IRA.
AGE 55
You've saved: $0
To reach $500,000, what you need to save per month: $2,733
To reach $1 million, what you need to save per month: $5,466
To reach $1 million, what you need to save per month: $10,932
You've saved: $25,000
To reach $500,000, what you need to save per month: $2,430
To reach $1 million, what you need to save per month: $5,163
To reach $2 million, what you need to save per month: $10,629
You've saved: $50,000
To reach $500,000, what you need to save per month: $2,126
To reach $1 million, what you need to save per month: $4,859
To reach $2 million, what you need to save per month: $10,326
You've saved: $100,000
To reach $500,000, what you need to save per month: $1,520
To reach $1 million, what you need to save per month: $4,253
To reach $2 million, what you need to save per month: $9,719
You've saved: $200,000
To reach $500,000, what you need to save per month: $306
To reach $1 million, what you need to save per month: $3,040
To reach $2 million, what you need to save per month: $8,506
Stay on the job: Working a few years longer can boost your savings.
Source: Nuveen Investments
Copyrighted, Kiplinger Washington Editors, Inc.
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65.
The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
AGE 25
You've saved: $0
To reach $500,000, what you need to save per month: $143
To reach $1 million, what you need to save per month: $286
To reach $2 million, what you need to save per month: $573
Get help from Uncle Sam: You may qualify for a retirement-savings tax credit of 10% to 50% of the amount you contribute to an IRA, 401(k) or other retirement account. The credit can reduce your tax bill by up to $1,000. To qualify, your income must be $25,000 or less if you're single, $37,500 or less if you're a head of household or $50,000 or less if you're married.
AGE 35
You've saved: $0
To reach $500,000, what you need to save per month: $335
To reach $1 million, what you need to save per month: $671
To reach $2 million, what you need to save per month: $1,342
You've saved: $25,000
To reach $500,000, what you need to save per month: $152
To reach $1 million, what you need to save per month: $488
To reach $2 million, what you need to save per month: $1,159
Get help from your boss: If your employer offers a matching contribution, contribute at least enough to your 401(k) to capture the full match. Otherwise, you're walking away from free money. Try to save 15% of your gross income for retirement, including your employer match.
AGE 45
You've saved: $0
To reach $500,000, what you need to save per month: $849
To reach $1 million, what you need to save per month: $1,698
To reach $2 million, what you need to save per month: $3,395
You've saved: $25,000
To reach $500,000, what you need to save per month: $640
To reach $1 million, what you need to save per month: $1,489
To reach $2 million, what you need to save per month: $3,186
You've saved: $50,000
To reach $500,000, what you need to save per month: $431
To reach $1 million, what you need to save per month: $1,280
To reach $2 million, what you need to save per month: $2,977
You've saved: $100,000
To reach $500,000, what you need to save per month: $12
To reach $1 million, what you need to save per month: $861
To reach $2 million, what you need to save per month: $2,559
Play catch-up: Aim to contribute the maximum $15,500 to your 401(k) this year or $4,000 to your traditional or Roth IRA. Once you turn 50, you can contribute an additional $5,000 in catch-up contributions to your 401(k) and an extra $1,000 to your IRA.
AGE 55
You've saved: $0
To reach $500,000, what you need to save per month: $2,733
To reach $1 million, what you need to save per month: $5,466
To reach $1 million, what you need to save per month: $10,932
You've saved: $25,000
To reach $500,000, what you need to save per month: $2,430
To reach $1 million, what you need to save per month: $5,163
To reach $2 million, what you need to save per month: $10,629
You've saved: $50,000
To reach $500,000, what you need to save per month: $2,126
To reach $1 million, what you need to save per month: $4,859
To reach $2 million, what you need to save per month: $10,326
You've saved: $100,000
To reach $500,000, what you need to save per month: $1,520
To reach $1 million, what you need to save per month: $4,253
To reach $2 million, what you need to save per month: $9,719
You've saved: $200,000
To reach $500,000, what you need to save per month: $306
To reach $1 million, what you need to save per month: $3,040
To reach $2 million, what you need to save per month: $8,506
Stay on the job: Working a few years longer can boost your savings.
Source: Nuveen Investments
Copyrighted, Kiplinger Washington Editors, Inc.
Financial Goals and How to Reach Them
By Sue Stevens, CFA, CFP, CPA
We are a materialistic society. For many people, "fun" revolves around spending money in one way or another. We're looking for immediate gratification, and we're willing to tap any available source--credit cards, home equity lines of credit, retirement plans, and so forth--to get it.
Unfortunately, this type of behavior can get us in trouble. Bills we can't pay. Credit-card debt that may take years to pay off. You don't have to be a financial genius to see that there has to be a better, smarter way.
Our school systems should teach kids about setting financial goals and calculating how much to save to reach those goals. This is a basic life skill, and everybody should know how to do it.
Sorting Your Goals by Time Horizon
Almost everybody has financial goals. They can be longer-term goals like sending your kids to college or having enough money to eventually retire. Or they can be shorter-term, such as buying a new car or taking a trip to Costa Rica. Whatever you're dreaming about, it probably comes with a price tag. Start by writing down everything you want that costs money.
The decisions you make about how to save and invest will be driven in part by how long you have to reach your goals. Take the goals you've identified above and sort them by time horizon.
Prioritizing Competing Goals
Some financial goals may be more important to you than others. For example, while you may need a new car in the near future, you may feel that your child's college fund is even more important. Most of you will have multiple, competing goals.
Crunching the Numbers
There are many helpful calculators available online that can help you figure out the total costs for different goals. Let's go through some examples together so you get the idea.
Goal: College for 6-year-old daughter
Time Horizon: 12 years
Price Tag: $12,000 a year for four years
Using a college savings calculator at Choose to Save, I entered the above information plus a 7% investment rate of return, a 6% inflation rate for tuition (it's higher than the general inflation rate), a federal tax rate of 28%, and a state tax rate of 3%.
The results show that I'd need to save about $440 a month to reach this goal. (Most of you can ignore the other two results: The rate of return is wildly optimistic, and most of you won't be able to put away a lump sum today.)
Goal: Trip to Costa Rica
Time Horizon: 1 year
Price Tag: $2,500
This time I used a savings calculator at Choose to Save. I entered that I need $2,500 in 12 months and that I plan to save $100 a month initially. My investment rate of return is 5%, and my tax information is the same as above.
The results show that I need to increase my monthly savings to about $200 a month.
Goal: Retire at 62
Time Horizon: 12 years
Price Tag: $1.7 million
Using Vanguard's retirement calculator, I entered these inputs:
Annual income: $100,000 Percent of income needed in retirement: 90% Social Security estimate: $23,500 Pension: $0 Savings balance: $360,000 Annual retirement savings: $20,000 Investment return: 8% Years until retirement: 12 Years in retirement: 25
Results show I'll need to increase what I'm currently saving to $2,800 a month. (If any of these monthly savings goals is just too much, start with a smaller amount and work toward this goal.)
Investing for Your Goals
Now that you've got a better idea of how much you need to save each month to meet your goals, let's think about how you should invest that money. The shorter the time horizon for the goal, the safer the investment should be.
For goals for which you expect to pay within the next year, money markets or CDs will probably be your best bet. You'll probably earn in the 4%-5% range on your savings.
For goals for which you expect to pay within the next one to three years, you still shouldn't invest much in the stock market. With a balanced fund you can expect to earn about 6%-8%.
For goals for which you expect to pay within the next three to 10 years, you'll probably still want a balanced portfolio. If you are at the long end of this range, you may want to tilt your portfolio toward growth--maybe 60%-65% stocks, 35%-40% cash and bonds.
For goals for which you expect to pay longer than 10 years from now, you can afford to invest more in stocks. But your risk tolerance will dictate just how much of your portfolio you'll feel comfortable investing in stocks. As you get closer to your goal, you'll need to adjust your investment mix so that less is at risk in the stock market.
Now that you know how much to save, treat that amount as another bill you pay each month. And remember, don't get so caught up in buying things that you don't enjoy the simple things that life has to offer, too.
We are a materialistic society. For many people, "fun" revolves around spending money in one way or another. We're looking for immediate gratification, and we're willing to tap any available source--credit cards, home equity lines of credit, retirement plans, and so forth--to get it.
Unfortunately, this type of behavior can get us in trouble. Bills we can't pay. Credit-card debt that may take years to pay off. You don't have to be a financial genius to see that there has to be a better, smarter way.
Our school systems should teach kids about setting financial goals and calculating how much to save to reach those goals. This is a basic life skill, and everybody should know how to do it.
Sorting Your Goals by Time Horizon
Almost everybody has financial goals. They can be longer-term goals like sending your kids to college or having enough money to eventually retire. Or they can be shorter-term, such as buying a new car or taking a trip to Costa Rica. Whatever you're dreaming about, it probably comes with a price tag. Start by writing down everything you want that costs money.
The decisions you make about how to save and invest will be driven in part by how long you have to reach your goals. Take the goals you've identified above and sort them by time horizon.
Prioritizing Competing Goals
Some financial goals may be more important to you than others. For example, while you may need a new car in the near future, you may feel that your child's college fund is even more important. Most of you will have multiple, competing goals.
Crunching the Numbers
There are many helpful calculators available online that can help you figure out the total costs for different goals. Let's go through some examples together so you get the idea.
Goal: College for 6-year-old daughter
Time Horizon: 12 years
Price Tag: $12,000 a year for four years
Using a college savings calculator at Choose to Save, I entered the above information plus a 7% investment rate of return, a 6% inflation rate for tuition (it's higher than the general inflation rate), a federal tax rate of 28%, and a state tax rate of 3%.
The results show that I'd need to save about $440 a month to reach this goal. (Most of you can ignore the other two results: The rate of return is wildly optimistic, and most of you won't be able to put away a lump sum today.)
Goal: Trip to Costa Rica
Time Horizon: 1 year
Price Tag: $2,500
This time I used a savings calculator at Choose to Save. I entered that I need $2,500 in 12 months and that I plan to save $100 a month initially. My investment rate of return is 5%, and my tax information is the same as above.
The results show that I need to increase my monthly savings to about $200 a month.
Goal: Retire at 62
Time Horizon: 12 years
Price Tag: $1.7 million
Using Vanguard's retirement calculator, I entered these inputs:
Annual income: $100,000 Percent of income needed in retirement: 90% Social Security estimate: $23,500 Pension: $0 Savings balance: $360,000 Annual retirement savings: $20,000 Investment return: 8% Years until retirement: 12 Years in retirement: 25
Results show I'll need to increase what I'm currently saving to $2,800 a month. (If any of these monthly savings goals is just too much, start with a smaller amount and work toward this goal.)
Investing for Your Goals
Now that you've got a better idea of how much you need to save each month to meet your goals, let's think about how you should invest that money. The shorter the time horizon for the goal, the safer the investment should be.
For goals for which you expect to pay within the next year, money markets or CDs will probably be your best bet. You'll probably earn in the 4%-5% range on your savings.
For goals for which you expect to pay within the next one to three years, you still shouldn't invest much in the stock market. With a balanced fund you can expect to earn about 6%-8%.
For goals for which you expect to pay within the next three to 10 years, you'll probably still want a balanced portfolio. If you are at the long end of this range, you may want to tilt your portfolio toward growth--maybe 60%-65% stocks, 35%-40% cash and bonds.
For goals for which you expect to pay longer than 10 years from now, you can afford to invest more in stocks. But your risk tolerance will dictate just how much of your portfolio you'll feel comfortable investing in stocks. As you get closer to your goal, you'll need to adjust your investment mix so that less is at risk in the stock market.
Now that you know how much to save, treat that amount as another bill you pay each month. And remember, don't get so caught up in buying things that you don't enjoy the simple things that life has to offer, too.
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