Almost every single 401k retirement plan has a loan option, but that does not mean that you should use it and take a loan out against it. In fact, borrowing money early in your career from your retirement plan can rob you of hundreds of thousands of dollars in lost retirement income later in life.

Stunted Growth. I took out a loan from my 401k one time to consolidate some credit card debt and other consumer loans, and it was one of the worst financial mistakes that I have ever made. The amount of money that you borrow is taken out of your 401k balance. So, that amount of money will not be present in your account to earn interest. You might think that that is a no brainer, and you might consider that not such a big deal because we are only talking about three to five years of your early working life. But, the interest that you did not earn during those years will never make you interest. It might be a hard concept to grasp. But, the best thing that any investor has going for him or her is the awesome power of compounding interest. Your interest will earn interest, and that is how you can get your money to double every nine years or so increasing your retirement nest egg exponentially. Taking out a loan will rob you of future interest…pure and simple.

For example, if you take out a $10,000 loan for three years, you will forgo roughly $800 in interest every year for a total of $2,400 in lost interest (assuming 8% annual growth). $2,400 would grow to a little over $24,000 over a 30 year career. That is $24,000 lost from your retirement nest egg that you will never be able to get back. That is the real cost of your 401k loan.  

The Only Good Point. The one good thing about taking out a 401-k loan is that you are paying yourself back with interest. I always though my balance was shooting up because I was still contributing to my 401k plan while making my monthly loan repayments. So, it seemed on paper that I was contributing double for a few years. Some loans do not let you contribute while you are paying your loan back. So, you should check the fine print on your plan before borrowing money.

There Are Fees. One thing to consider that many people do not talk about is fees. There is an amount of fees that are associated with taking out the loan. The investment company that sponsors your employer’s program will not do this for free. While most plans’ fees are not much in the grand scheme of the loan, it does cost an investment company something to issue the money, track payments, and comply with government regulations. So, you can expect to pay fees to set up a loan.

Leaving Your Job. If you leave your job, whether you quit or you are fired, before the 401k loan is completely repaid, you only have 60 days to repay the entire loan before the IRS considers it a regular withdraw and not a loan. An early withdraw from the plan will be hit with a lot of penalties and taxes that can further erode your return. If you withdraw your money before the age of 59 ½, you will be faced with a 10% penalty. That penalty is on top of the tax that you would owe the government as well because money in a 401k is used with pre-tax dollars and hasn’t been taxed yet. All of the amount of the loan outstanding would then be considered ordinary income and taxed as such. So, if the loan is large enough, you could even find yourself in a brand new tax bracket. Taxes and penalty could quickly eat up almost half of your money.

Last Resort. Taking a loan against your retirement plan should only be used as an option of last resort. There are so many other options available. You might want to consider borrowing from family members, asking the bank for a loan instead, consider peer-to-peer lending online, sell stuff on eBay and Half.com, or even take a second job in order to raise the money you need. Any of these options would probably make better choices than taking the money from your retirement. A loan against your 401k plan should not be taken lightly or used for small purchases.

Almost 97% of 401k retirement plans in a recent Hewitt Associates study had provisions in the plan that allowed their workers to borrow from their 401k retirement plans. But, just because you can, does not mean that you should do it. Loans from your retirement funds should be used as a last resort when all other options have been exhausted. The consequences of a poorly timed and haphazard 401k loan can haunt you all the way into your Golden Years of retirement.

Related posts:

1. Roth IRA vs. 401k Retirement Plan – Which Is Better? Should American workers invest in a Roth IRA or their...
2. Reader Question – “What Are The Consequences Of Rolling Over A 401k Into A Roth IRA?” Frank recently contacted me to ask this question… “Could you...
3. The First Questions You Should Ask Your Employer About Your Retirement Plan You should fully understand your employer’s retirement plan in order...

In baby step 3, of Dave Ramsey’s seven step plan in the “The Total Money Makeover“, Ramsey advises that you complete your emergency savings account. Once you have established and completed this, you are ready to direct your money towards investing for retirement.

Suggestions and Recommendations

By this point in the Total Money Makeover, you have probably developed some pretty good habits with respect to saving money. Therefore, investing will be easier and be viewed with more specific goals in mind. Now, with all of your debts paid off, you will have a lot more disposable income that can be used to fund your retirement investing. For baby step 4, Ramsey prescribes that you set aside 15% of the money you earn and put part of it into good growth stock mutual funds. He suggests that you diversify your investments among a variety of funds. Ramsey goes on to recommend that you direct your retirement money, first and foremost, in any retirement vehicle that has an employer match such as a 401-k and then place the remaining 15% in a Roth IRA and other selected investments.

Benefits of a Roth IRA

Obviously, it is easy to understand why Dave Ramsey indicates investing part of your retirement money into a Roth IRA. Roth IRAs have a number of distinct advantages:

• Contributions are made with after-tax dollars. Therefore, you do not have to worry about taxs when you withdraw money from a Roth IRA account as long as you have held the account for 5 years or more and are 59 ½ when the withdrawals are made.
• Unlike a regular Traditional IRA, which requires you take distributions at 70 ½ years old, a Roth IRA does not include this feature. You can make distribution at your discretion, there is no age limit, and you can bequeath a Roth IRA to heirs.
• Typically, if your modified adjusted gross earnings are under $110,000 annually, you can open a Roth IRA account. You can contribute any earned income, such as salaries, wages, and self-employment income up to $5,000 per year if you are 50 years-old or younger ($6,000 limit if older than 50). However, you cannot fund a Roth account with passive income, such as interest, rental income or dividends.
• In the majority of cases, you can use the funds from a traditional IRA and roll them over into a Roth IRA account. Just remember, if you do so, you will have to pay taxes on the rolled over amount.

Diversification and the Roth IRA

There are many options to investing for retirement that provide you with great diversification opportunities. A Roth IRA is an excellent way to save for retirement. With such an account, you can buy any investment of your choosing in a self-directed IRA, such as:

• Options
• CDs
• Stocks
• Mutual Funds
• Bonds

The contribution limit for a Roth IRA for 2010 is $5,000. If you’re over the age of 50, you are able to contribute an additional $1,000 as a catch-up contribution. This option is provided for any investor who is nearing retirement age assuming that you are within the income limits. Joint filers can participate in Roth IRA investments if they have an earned income up to $166,000 to qualify for a full contribution. Those couples who have an income of $166,000-$176,000 are eligible to make a partial contribution. If you earn over $176,000 as a couple or $120,000 as a single filer, you are not eligible to participate in a Roth IRA.

Dave Ramsey’s seven step plan in the Total Money Makeover helps you dig out of debt, save for emergencies, and invest for the future. After paying off all your consumer debts (except your home), you will have a large disposable portion of your income that can be allocated towards investing for retirement. Saving 15% of your income for retirement is not an amount that experts pulled out of a hat. That number will help you save and invest enough to help ensure that the odds are against you to run out of money in your golden years of retirement.

A Review of the Basic Steps for Saving, Eliminating Debt, and Building Wealth

Ramsey’s program and book, “The Total Money Makeover“, include the following baby steps to financial freedom…

• Step One: Save $1,000 for an emergency fund
• Step Two: Use the debt snowball method to pay off your debt
• Step Three: Complete the emergency fund
• Step Four: Invest 15% for retirement
• Step Five: Save for your Children’s college
• Step Six: Pay off your mortgage
• Step Seven: Start building wealth

For the next seven days, I will be detailing each one of these baby steps in more details. So, please check back or sign up to get all of the posts in this series in your favorite RSS Reader or by E-Mail.

Related posts:

1. The Total Money Makeover by Dave Ramsey – Baby Step Seven Building Wealth In a previous posts, we reviewed the first six steps...
2. The Total Money Makeover by Dave Ramsey – Baby Step One Save $1,000 For An Emergency Fund The Total Money Makeover plan does indeed work as the...
3. The Total Money Makeover by Dave Ramsey – Baby Step Five Save For Your Children’s College Once you have made a commitment to get rid of...

At first glance, I thought that “Your Money Ratios – 8 Simple Tools For Financial Security“ by Charles Farrell would be too simplistic. But, I learned a few things from the book and reaffirmed some financial planning wisdom and methods thanks to the book which focuses on beginners and relies heavily on rules of thumb to ensure that you are on track for financial security and prosperity.

For Beginners. “Your Money Ratios – 8 Simple Tools For Financial Security“ provides a baseline to help people learn to save, invest, and manage your financial life. The book also provides a way to get your life back in order. “Your Money Ratios” focuses on eight simple financial ratios based on your household income, debt, age, etc. I have listed them all below and what they will help you calculate.

Your Money Ratios:

• Capital To Income Ratio - How much should you have at certain ages in your nest egg to retire at age 65?
• Savings Ratio - Are you saving enough money every month?
• Mortgage To Income Ratio - Are you borrowing more money than you can afford?
• Education Debt Ratio - Are you borrowing too much money relative to the amount of money you are going to make in your new career?
• Investment Ratio - Do you have a safe enough split in your asset allocations between stocks and bonds?
• Disability Insurance Ratio - Do you have enough disability insurance relative to your income?
• Life Insurance Ratio - Do you have enough life insurance?
• Long Term Care Insurance Ratio - Do you have enough long term care insurance?

For More Experienced Investors. I liked how the book gave you a quick look or snapshot of how you are doing and whether or not you are on track. In the Army, Soldiers call it an azimuth check named after when Soldiers look down at their compass to ensure that they are still heading in the correct direction out in the woods. “Your Money Ratios – 8 Simple Tools For Financial Security“ provides an excellent azimuth check to your personal finances. I will not spoil all of the ratios’ calculations for you. You should definitely check out the book for details on all of them. But, I wanted to share with you how the Capital To Income Ratio reaffirmed that I was on track to save for retirement.

For example, Farrell uses the rule of thumb in the calculation of the Capital To Income Ratio that a 25 year-old income earner should have 10% of his or her annual income saved for retirement. A 30 year-old should have 60% of his annual income saved in retirement accounts, and a 35 year-old should have 140% of his annual income saved. So, for example, if you and your wife earned a combined income of $100,000 per year when you are 35 years-old, the rule of thumb and Capital To Income Ratio suggests that you should have $140,000 saved in your 401k, Roth IRAs, and other investments by that age.

One Thing I Did Not Like. One thing that I did not like was the Investment Ratio. I am going to go ahead and spoil this one because I do not agree with it at all. Farrell is very conservative….very! He recommends in his Investment Ratio for everyone 55 years-old and below to have 50% of their money invested in stocks and mutual funds and the other 50% invested in bonds and bond funds. When the author says that a 55 years-old and below, he means everyone below the age of 55. A 50/50 stock and bond split for a 25 year-old investor is too conservative. Farrell seems to have been traumatized by the market’s recent collapse in 2008. The old rule of thumb used to recommend having 100 minus your age allocated as a percentage in stocks and the rest in bonds. So, for example under that rule of thumb, a 25 year-old investor would have 75% invested in stocks and 25% in bonds, not the 50/50 split that Farrell recommends.

401-k vs. Roth IRA. I have discussed before the pros and cons of investing in a 401-k or a Roth IRA and which one is better. A lot of investors are in a low income tax bracket when they first graduate from college or high school and then usually move into a higher tax bracket towards the end of their careers and in retirement. Because 401k money is taxed when you withdraw it, you would then end up paying more in taxes using a 401k retirement plan rather than a Roth IRA in most scenarios. There is a distinct tax advantage to maxing out your contributions to a Roth IRA first, and then investing in a 401k plan with any additional savings after that. Farrell makes the argument in his book that it does not matter which type of account you use. He says that there is no difference or benefits to picking one plan or the other. His premise is based on the assumption that your tax rates will be the same in retirement as they are in your working lifetime. You are only shifting when you pay your taxes. With a Roth IRA, you pay your taxes now but earn less money in total towards retirement. With a 401-k or traditional IRA, you are spared the tax when you start investing, the money grows to a large sum over the course of your working life, and then it is taxed when you withdraw it. He likens it to shifting numbers around in an arithmetic problem.  

“Your Money Ratios – 8 Simple Tools For Financial Security“ is a great resource to help you learn how much you should have for total savings at each age, what tax and investments vehicles can help you maximize your savings, how much you should be saving each year, how much mortgage debt you should have, how much insurance you need, and other key metrics in your financial life. I would definitely recommend this book for those just starting out or those investors who want to reaffirm that they are heading in the right direction towards retirement. But, I caution readers to take some of the author’s recommendations with a grain of salt.

Related posts:

1. Book Review: One Year To An Organized Financial Life By Regina Leeds My home office looks like a filing cabinet (or two)...
2. Book Review: The Citi Commonsense Money Guide For Real People The Citi Office of Financial Education has written a personal...
3. Young Americans Cannot Count on Social Security for Your Retirement When my wife and I review our retirement accounts and...

We are all bad with our finances at one time or another in our lives. We have all made mistakes with money, but some errors have a greater impact on our lives at different ages. Below are a ten mistakes that older investors and savers tend to make…

1. Underestimating Your Life Expectancy. The good news is we are living longer than ever.  The bad news is our money now has to stretch twenty, possibly thirty years in retirement.  According to the National Center for Health Statistics, the average life expectancy in America is 77.8 years.  Be sure to take this, as well as family history into consideration when planning distributions from your retirement accounts.

2. Underestimating Health Care Costs. Health care expenditures are rising almost twice as fast as inflation. The National Coalition on Health Care reports that in 2005 health care rose 6.9% and the average cost for health care per person was around $6,700. Pair rising health care costs with rising life expectancy and you see the danger many seniors are facing.

3. Not Having An Updated Will. Married, single, grown kids, no kids, it doesn’t matter…everyone needs a will. If you die without a will, the court will decide how to distribute your assets. It’s likely the court won’t distribute them the way you wanted. For example, the court will not distribute assets to friends or charity, though that may be your intention.

4. Having An Outdated Estate Plan. The objective of a good estate plan is to transfer the property you want, to the people you want, in the most tax efficient manner. This includes much more than simply having a will. If it has been awhile since you last reviewed your estate plan, or if you don’t have one in place, now might be the time to meet with an estate planning specialist.

5. Getting The Wrong Advice. When you turn 55, your mailbox gets flooded with financial professionals sending you all sorts of information. While “Free Dinner at Ruth’s Chris!” might get your attention, be careful from whom you get your advice. Educate yourself on financial topics that affect you, or take a long a family member when meeting with a financial professional for the first time.

6.  Focusing On The Wrong Goals. Unless you have enough savings to cover all your retirement years (including rising health care and nursing home costs) retirement should be your number one goal.  Paying for a child or grandchild’s education, adding on to your home, or helping out family members should all be secondary.  Your child or grandchild can get a loan for school…you can’t get a loan for retirement.

7. Underestimating The Impact of Inflation. Seniors tend to be more conservative in their investment options because retirement is so near.  The real risk to your retirement, however, could be running out of money.  If your fixed income portfolio is yielding 4% a year and inflation is at 3%, your real return is only 1%.  You must find a balance of both bonds and equities that fit your risk tolerance level and also provides you with enough income.

8.  Not Taking Advantage Of Senior Discounts. We all know about the usual senior discounts to movies and restaurants. But there are more to take advantage of. AARP offers discounts on gym memberships, hotels, airlines, prescriptions, internet services, Home Depot, and more. You can check out discounts specific to your area at www.seniordiscounts.com

9.  Misunderstanding Medicare. Many seniors think Medicare will pay for long term care…it won’t.  Medicare will not cover custodial care, or care for help with daily activities such as eating, bathing, dressing. Medicaid will pay for some of these expenses, however only certain people are eligible for Medicaid. For those who don’t qualify, private long term care insurance could be an alternative.

10.  Making Important Decisions At The Wrong Time. Your death bed is not the time to write a will. When a spouse dies is not the time to find a financial advisor you trust.  Thinking about a Power of Attorney shouldn’t wait until you are incapacitated. Proper planning will ensure you are not rushed to make important decisions during an emotional time period. 

What mistakes have you made? Are there any that I missed? Leave a comment below…

This is a weekly featured post on Own The Dollar from Sara Peak, a Certified Financial Planner and a veteran of the finance industry. In addition to her monthly “Money Matters” column in Kentucky Living magazine, she also writes about money and personal finance topics on her blog.

Be sure to look for more great featured articles every week from Sara.  If you have a question or topic that you would like for her to discuss, please contact us.

Related posts:

1. What Is Long Term Care Insurance and Why You Need It With more an more people living longer, we must all...
2. A Few Quick and Easy Ways To Reduce Your Auto Insurance Costs Everyone wants to lower their auto insurance. While there are...
3. The Four Critical Financial Products Everyone Should Have In Their Estate Plan Everyone needs to have certain items in the estate plan....

I have talked a lot in this blog about investing and saving, but what is our goal in the end? What are we sacrificing now in order to have in the future? Too many people, both young and old, see retirement as nothing more than a pipe dream that they will never reach. They think that they will have to work until the day they die. That is incredibly sad. When I retire, I want to do something that I love or work that I have always wanted to do.

In My Retirement Dream I Want To:

1. Teach part-time at a local community college
2. Start my own small business
3. Invest in residential real estate as a landlord
4. Visit all 50 states and travel overseas more
5. Play golf every day (yes….every single day!)

What is your retirement dream? You need a long term goal to aim for now no matter how close or far away you are from retirement. Everyone needs a goal to aim at, a mark on the wall. You can change it along the way, but you still need something to motivate you now to keep you on track saving and investing.

In 2001, my parents got up one day, sold their house, and bought a houseboat. I have to tell you that most of my family thought that they were a little crazy, but they did not care. Like debt guru, Dave Ramsey, says…you know that you are well on track to live like no one else when people think that you are a little crazy. But, I have never seen my parents happier. Their goal is to one day soon sail the “Great Loop”, a 7,500 trip up the eastern seaboard, into the Great Lakes, down the Hudson, Tennessee, Ohio, and Mississippi Rivers, and back around Florida forming a huge long loop. It is an awesome idea and a fantastic retirement dream. Because my step-dad invested carefully, planned, and never lost sight of their goal, they are now living “The Dream” in retirement. I can only hope and pray that we are all so lucky and blessed one day.

Do not waste one second more. Figure out your retirement dream with your spouse or loved ones (you can change it as your life changes), tell a lot of people (peer pressure is a great way to keep you on track), and never lose sight of your goal in the end. It will make all the sacrifices along the way well worth it.

Related posts:

1. Is Home Ownership Still Part of the American Dream? Should It Be? Thomas Jefferson wrote that Americans have the right to life,...
2. You Should Save For Your Retirement First and Your Children’s College Second Make no mistake about it.  You should save for your...
3. The First Questions You Should Ask Your Employer About Your Retirement Plan You should fully understand your employer’s retirement plan in order...

Can you list your ten closest friends? When was the last time that you talked to them or even sent them an email? Do you remember their birthdays without the help of Facebook? We are all so busy with our own careers and families. But, have we forgotten our friends?

The guy who was my Best Man in my wedding was my best friend all through high school and middle school. We played soccer together for almost a decade and were inseparable. Even though I still list him as one of m best friends, we went our separate ways to different colleges and then took jobs in different states. Like many adults, we have drifted apart. I am ashamed to say that I cannot even remember his daughter’s name or the name of the new company where he works. I have not been as good of a friend as I could have or should have been.

So, why do I care so much? A recent article in Money Magazine actually got me thinking about it. What am I going to do with my life in retirement? I know that it is a long way away, and I have a great family base. But, eventually, my family is going to get tired of seeing my ugly mug everyday, day in and day out during those golden years. And, who am I going to get play golf with me every morning. Yes, you read that right…every morning. Hey! Everyone has to have retirement dreams. It is what gets me up in the morning and keeps me going at the day job. And, you need friends to spend time with during those dreams.

Most of us focus on the money aspect of retirement.  Are we saving enough?  Will I have enough to play a round of golf everyday? Or, am I going to have to hit a bucket of balls four days a week instead of walking the “good walk spoiled” everyday? We focus on the money but neglect the unquantifiable aspects of retirement. What and who are really important to you?

The Money Magazine article suggested checking out the Retirement Circle Worksheet at www.retirementwellbeing.com.  It is a good resource for just this subject.

Related posts:

1. What Is Your Retirement Dream? I have talked a lot in this blog about investing...
2. You Should Save For Your Retirement First and Your Children’s College Second Make no mistake about it.  You should save for your...
3. You Earn A Living Like Your Friends And The Company You Keep My old high school soccer coach used to say, “Birds...

In 2010, income and filing status restrictions have lifted to allow anyone to convert a Traditional IRA into a Roth IRA.  Converting  from a Traditional IRA to a Roth IRA means that while you will pay taxes on your pre-tax contributions and any earnings from a traditional IRA now, withdraws made from your new Roth IRA in retirement will be tax free.  Even better, Roth IRAs do not have mandated Required Minimum Distributions like Traditional IRAs have, making them a great tool for estate planning or as a long term tax deferred savings vehicle.

Remember that the tax liability for conversions done in 2010 can be spread out over years 2011 and 2012 as well.  After 2010, taxes will be due in full the year the conversion is made.

So should you consider converting?  Think about the following…

Market Value of Your IRA. If you have experienced significant losses in your retirement account, now might be a good time to consider converting your Traditional IRA to a Roth IRA.  This is because you will be paying taxes on a smaller amount of money.  As the market hopefully improves, you can enjoy your tax free ride inside the Roth.

Time Period. In general, the longer you plan to keep funds invested in your Roth, the more beneficial it becomes to convert.  There are calculators online to illustrate “break even points” of a conversion, or ask your tax advisor or financial planner to assist you with this.

Tax Bracket. If you believe you are in a lower tax bracket now than you will be at retirement, it could make sense to pay taxes now rather than later. This is the same argument as to why young workers should invest in a Roth IRA before they invest in a 401-k retirement plan or Traditional IRA.

Diversification. It could be advantageous to hold various types of tax advantaged retirement plans such as both pre-tax and post-tax accounts for diversification purposes.

So, is converting your IRA right for you? You can try these online calculators to help you see various conversion options:

http://moneycentral.msn.com/investor/calcs/n_roth/main.asp

http://www.calcxml.com/do/qua04

This is a weekly featured post on Own The Dollar from Sara Peak, a Certified Financial Planner and a veteran of the finance industry. In addition to her monthly “Money Matters” column in Kentucky Living magazine, she also writes about money and personal finance topics on her blog.

Be sure to look for more great featured articles every week from Sara.  If you have a question or topic that you would like for her to discuss, please contact us.

Related posts:

1. Reader Question – “What Are The Consequences Of Rolling Over A 401k Into A Roth IRA?” Frank recently contacted me to ask this question… “Could you...
2. Roth IRA vs. 401k Retirement Plan – Which Is Better? Should American workers invest in a Roth IRA or their...
3. Roth IRA Contribution Limits For 2010 The IRA contribution limits will stay the same in 2010...

Lets face it…there are some things that you need to do now if you want to be rich in the Golden Years of your life.  If you want to retire and eat something other than Ramen noodles and live solely off of your Social Security benefits, you need to start planning for your retirement now.  There are things that you need to do with your money, personal finances, and investing in order to set yourself up for success later in life.  It is a shame that you have to think about these things right after graduating from college and/or entering the workforce, but you do.  The sooner you start making these essential money moves in the early portion of your life, then you will be positioned for success later when you actually have and need money for retirement.

Top 83 Money Moves To Make Right Now….

1. Stop using credit cards
2. Pay off your credit cards and other consumer debt
3. Pay off your credit cards on time and avoid the high late fees
4. Never have a revolving balance on your credit cards again
5. Ask for a lower interest rate on your credit cards
6. Use a charge card you pay off every month and earn rewards points
7. Start investing in a mutual fund with a Roth IRA
8. Invest enough in a 401-k to get your company’s matching contribution
9. Invest in index funds
10. Invest in no load mutual funds with low fees
11. Spread your investments around with diversification
12. Invest using dollar cost averaging
13. Don’t invest in crazy, exotic investments
14. If you are going to use a CFP, find one you trust
15. Bounce ideas off of your CFP
16. Hire an accountant for your taxes if you get overwhelmed
17. Have a written monthly budget
18. Track what you spend ruthlessly every month in order to find places to save
19. Set financial goals and revisit them often
20. Double check your W-2 Tax Statements for needed changes
21. Spend any income tax refund wisely
22. Change your W-2′s to ensure that you do not get back much in the way of a tax refund
23. Spend less money than you earn every month
24. Make all your monthly bills automatic to pay
25. Check your credit report every year
26. Protect yourself against identity theft
27. Safeguard your personal information (on paper & on the internet)
28. Check all three credit reports when making a large purchase
29. Understand how your FICO credit score is calculated
30. Protect your FICO credit score
31. Stop bouncing checks
32. Pay yourself first with investments
33. Start tracking your net worth
34. Have three to six months of expenses in an emergency fund
35. Nickname your savings accounts for your goals
36. Write your goals down
37. Write notes on those little credit card sleeves to keep you from spending
38. Save for major purchases
39. Start saving in January for Christmas
40. Consider earning a greater rate of return on savings with Peer-to-Peer Lending companies such as Lending Club or Prosper.
41. Consider investing in Dividend Reinvestment Plans (DRIPS)
42. Don’t give up on renting an apartment in favor of buying a home
43. Consider a 15 year mortgage instead of a 30 year one if you can afford it
44. Negotiate your mortgage interest rate for a huge savings
45. Check out your neighborhood before moving to a new home
46. Try to marry the right spouse (divorce is expensive!)
47. If you are going to buy a new car, buy one, don’t lease
48. Buy a car with a 48 month note
49. Don’t buy an automobile extended warranty
50. Don’t go out to eat every night
51. Shop at the grocery store with a list and not while you are hungry
52. Shop around for disability insurance if it is not offered by your employer
53. Make sure that you have enough life insurance
54. Consider buying additional term life insurance
55. Avoid whole life insurance like the plague
56. Keep your resume polished at all times
57. Continue to network with peers, coworkers, professors, etc.
58. Join networking websites like LinkedIn
59. Learn etiquette for business dinners and interviews
60. Pick a career as soon as you can
61. Learn as much as you can about your career and become an expert
62. Work as hard as you can and don’t shirk at your job
63. Don’t borrow money from a payday lender
64. Bundle up your internet, phone, and cable
65. Use your cell phone and skip the landline
66. Do not use ATMs that are not your bank’s
67. Buy generic medication
68. Practice being frugal wherever you can
69. Be cautious when making home improvements in order to ensure you will earn your money back when you sell
70. Don’t beat yourself up about your financial mistakes that you make. Learn from them.
71. Don’t buy gold from late night television
72. Take a brown bag lunch to work
73. Continue learning and earning education, credentials, certifications, etc.
74. Don’t cash out a Roth IRA before you are 59 ½ years old
75. Try not to take out a 401-k loan unless absolutely necessary
76. Teach personal finance skills to your children as soon as you can
77. Open a 529 college savings plan for your children when they are born
78. Buy used books, movies, CDs, and video games from websites like Half.com
79. Earn points for everyday purchases you make through websites like Upromise
80.  Use coupons where you can
81.  Read as many books and educational materials as you can
82. Follow great people on Twitter
83. Read as many blogs as you can

Why eighty-three money moves? There is a few to add I am sure. Which tips did I miss that people need to know before they are 30 years-old?

Related posts:

1. 50 Important Personal Finance Moves to Make in Your 50s A few months ago I wrote a blog post about...
2. Book Review: Your Money Ratios – 8 Simple Tools For Financial Security At first glance, I thought that “Your Money Ratios –...
3. Kiplinger’s Personal Finance Lists Over 50 Simple Ways to Save $18,250 a Year In the new issue of Kiplinger’s Personal Finance Magazine that...

You should fully understand your employer’s retirement plan in order to maximize the amount of money you will have to live off of in your retirement. You need to know what entitlements you will receive in your Golden Years.  Knowing your plan inside and out will make your life a lot easier later in your career and will set you up for retirement success. So, if you are enrolled in a retirement plan at work, make sure you clearly understand how it works. 

Start Reading.  Get educated about your plan. Do not depend on anyone to tell you about what your company’s plan offers. And, do not trust your coworkers either. Many are just as clueless as you are and have not read the plan’s materials either. For starters, get a copy of your employer’s handbook outlining the provisions of your retirement plan’s benefits. Have any thing you do not understand explained to you. Does your employer match your contributions? Are your contributions made in before-tax or after-tax dollars? Is your spouse covered by your retirement plan’s benefits should you die before you retire? Many plans do not allow the surviving spouse rights to a pension until his or her deceased spouse reaches the age of retirement. 

Can You Take It With You? Take into consideration how being fired or being laid off may affect your rights that the rights to your money. How long does your investments have to vest before you can transfer them to another employer’s plan or a third party investment? Does the retirement plan address disability before retirement?

How Are Benefits Calculated? Make certain you are knowledgeable about how benefits are calculated. Generally, defined benefits are founded on the number of years of service, contributions made by the employer, and wages. Other variables figured into calculations include years required for vesting and provisions for those individuals opting for early retirement. Some retirement plans can dramatically reduce benefits if an employee chooses to retire before a specific age. Some plans also have changed the rules to their plans, and older workers are grandfathered into older calculation methods. Make sure you know how your retirement money is calculated. You should also check if medical benefits are offered upon early retirement as well. Also, find out if your retirement plan provides for an increase in the cost of living every year or every coupe years. A plan without an adjustment for cost of living increases will diminish over time thanks to inflation.

Once you better understand how your retirement plan at work operates, you can see what other retirement plans may best supplement your current plan. For example, a Roth IRA can offer you and your spouse income after retirement whose capital gains and distributions are completely tax free. In addition, there is no limit as to when you must stop making distributions. Therefore, you can still continue to invest after retirement and help delay when your money will run out. Also, you may save more money if you opt, for instance, to buy life insurance to cover your spouse upon your death versus, say, selecting the coverage at work. If you understand your retirement plan at work and how it operates, you will be better able to survey other retirement options such as a Roth IRA, traditional IRA, mutual funds, annuities, and life insurance.

Related posts:

1. Roth IRA vs. 401k Retirement Plan – Which Is Better? Should American workers invest in a Roth IRA or their...
2. 401k Loans – Borrowing Money From Your Retirement Plan Is A Bad Idea Almost every single 401k retirement plan has a loan option,...
3. It Is Never Too Late To Start Investing For Your Retirement No Matter Your Age I hear it time and time again from my coworkers. ...

Make no mistake about it.  You should save for your own retirement first by max out your Roth IRA (if you qualify) or getting your employer’s match to for your 401-k plan before you save a dime for your children’s college education.  I know that it is a hard choice to make because everyone want to give their children a better live than the ones that we lived.  But, not saving for your retirement will not only jeopardize your future but your children’s as well. 

College Is Expensive.  College is expensive but so is retirement.  According to SavingForCollege.com, the average public college costs an $18,326 per year and private schools cost $37,390 per year on average.  Financial planners, such as Dave Ramsey, estimate that you need to save approximately 15% of your income for retirement to ensure that your nest egg will have the greatest chance to outlive you in retirement.  So, for example, if you make $50,000 a year, you should be trying to save $7,500 for retirement.  You can save up to $5,000 per year in a Roth IRA (some restrictions apply), and your investment, capital gains, dividends, and interest can grow tax free even after your withdraw it in retirement.  I’m a big fan of Roth IRAs over 401-k plans if you do not have a company matching plan.

You Cannot Borrow For Retirement.  Lets face it.  While it is no one’s preferred course of action, college students can receive loans for the cost of their education.  The average college student graduates with a Bachelor’s Degree and an average of $23,186 in student loans.  No bank will ever loan you money to enable you to retire.  Think about it.  No one is going to give you money to quit your job and go play golf everyday at the country club.  That one fact alone should motivate you to stash money in your retirement accounts before you tackle the problem of funding college for your kids.

Do Not Rely On Children In Golden Years.  I love my children, but I do not want them to have to take care of me financially during my retirement.  My Golden Years are their prime years when they should be starting their own families and investing for their own retirements.  They should not be burdened by helping me in retirement because I did not plan properly.  As greedy and selfish as it sounds, you must take care of your own retirement needs by fully funding your retirement accounts and investments early in your children’s lives before you save for their educations.

There Are Other Options.  Children can work throughout college.  There is no hard and fast rule that says that parents have to pay every dime of the cost for our children’s college degree.  It would be nice, but it is not practical.  And, it should not bother you if you do not save 100% of the cost of their college tuition, room, and board.  There are also a plethora of scholarships and grants available to students lately that can be tapped into to help defray the cost of college. 

How should you prioritize saving for your children’s college education and funding your own retirement? The prioritization is a very personal thing. Typically retirement comes first and education is a close second.  It is a hard choice to make, without a doubt, but these are the choices that will make a very big difference in not only your life but your children’s for years to come.

Related posts:

1. A 529 College Savings Plan Is One of the Best Means to Save for Your Children’s Education There is no better tool for most people than a...
2. The Total Money Makeover by Dave Ramsey – Baby Step Five Save For Your Children’s College Once you have made a commitment to get rid of...
3. Finding Your Passion Early In College Can Save You and Your Parents Money and Heartbreak I finished college, earning a Bachelors Degree in four years. ...