Tag: smart money

Smart Money: Best Moves for 20-Something Investors

Investing early makes saving for retirement much easier!

When it comes to investing early in life, you likely have two things on your side: time and flexibility. Although a 2015 survey found that most millennials don’t think they’ll have enough money saved for retirement, investing is one way to help build wealth for the future. Here are some of the best investments you can make in your 20s.

Real estate

If you have enough money set aside for a down payment, consider buying a home with rentable space, so you can live in one section and rent out the rest. Any rent you receive can help cover the mortgage and other expenses; the tax benefits of homeownership are substantial, and the home’s value will likely rise over time.

However, owning property comes with added costs, such as insurance, taxes and maintenance, while related income can drop if rental space goes unoccupied. There’s also the risk that property values might decline or rise only slowly, and if you wind up with an unruly tenant, evictions can be time-consuming and expensive. Unlike selling stocks or investment funds, you might find it harder to sell a home, should that become necessary. Property ownership generally should be regarded as a long-term investment.

401(k) plans

If your employer offers a 401(k) plan, it’s a good idea to participate and see whether a Roth option is available. If it is, you can designate some or all of your contributions for a Roth 401(k), which means you forgo an immediate tax benefit, but withdrawals, including any investment gains, are generally tax-free. Younger investors are often in a better position to invest in riskier vehicles such as stocks as part of their retirement accounts, because they have more time to recoup any losses they may suffer.

Index funds, or funds that track the index of a specific financial market, are typically an easy-to-manage way for investing in the stock market. From 2005 to 2015, for example, the Standard & Poor’s 500 Index of U.S. stocks grew an average of roughly 8% per year. While past performance doesn’t indicate future returns, $5,000 invested in an S&P 500 index fund that gains 8% annually, with $60 a month added to the investment, would produce a nest egg of about $200,000 in 35 years.

Of course, there are other alternatives such as investing in individual stocks or commodity funds. As you get closer to retirement, it’s smarter to take a less-risky approach by shifting money to more conservative investments such as government bonds. (Some brokers offer mutual funds that will do the rebalancing for you, investing heavily in stocks when you’re younger and moving the money more toward bonds as you approach retirement age.)

Roth IRA

If you don’t have a Roth 401(k) option, then a Roth IRA can be another way to accumulate tax-free wealth. These come with a contribution limit of $5,500 annually, along with other income-based restrictions. These funds can be invested similarly to a 401(k).

Keep in mind that investing retirement funds can expose you to the risk of losses. If you prefer the lowest possible risk, certificates of deposit offered by banks and similar savings certificates available from credit unions are generally insured for up to $250,000 but deliver relatively low returns.

As you decide how to invest your money, remember that starting now can make a big difference in determining the amount of money you’ll end up with later on, as any retirement calculator will indicate. Assess what investments make sense for you based on the money you have and the risk you’re willing to take to give your financial future a good boost.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

Thanks to our friends at NerdWallet for this informative post.

YOUTH MONTH: How to Do Allowances Right, According to the Experts

Allowance rulesOne of the best ways to ensure your children grow up financially fit is to give them practice managing money with an allowance.

But what’s the best way to do an allowance? There are many theories on that.

Ron Lieber, personal finance writer for The New York Times, says he and his wife pay their 7-year-old daughter $3 a week, no chores necessary.

Lieber’s daughter puts $1 in a “save” jar and $1 in a “give” jar for a cause of her choosing. The final $1 she can spend as she wants. Lieber’s reasoning is that an allowance is a teaching tool, and making it contingent on chores muddies the issue. What if the children decide they don’t want money? Do they still have to do the chores?

Lewis Mandell, a financial economist and professor emeritus at the State University of New York, Buffalo, however, says unconditional allowances are a “terrible idea,” citing a 2000 study that showed kids who received a regular allowance left high school knowing less about personal finances than kids who received no allowance—though the differences were slight.

One problem may be that, like many Americans, kids aren’t the most diligent about saving. While 61% of parents pay an allowance, only 1% report that their children save any of it, according to a 2012 survey by the American Institute of CPAs.

The survey found that as children age, they receive a higher allowance, but across all ages the average take is $780 a year. That’s enough to buy an iPad or a good start for a college savings plan—if they were saving.

About 90% of the parents who paid their children an allowance required them to do chores to earn it, but only 81% had spoken to their kids about money management. More parents had spoken to their kids about good manners, their grades, and healthy eating habits than how to handle their money.

So how should you handle an allowance with your own children?FB_Poster Polaroid_1200_4

Use it as a teaching tool

Regardless of how your children earn an allowance, use it as a tool to reinforce good money habits from an early age. Talk about finances early and often, and set a good example.

Consider matching their savings

To encourage savings, tell your children for every $1 they set aside for long-term goals, you’ll match it in their Wauna Credit Union Jump Start Club youth savings account. Share the statements with them so they can see their money grow.

FB_Poster Polaroid_1200_1Gradually introduce them to financial products

Deposit their allowance into a Jump Start Club youth savings account, later a share draft/checking account, and help them manage them wisely. And we can help. Bring in your children to participate in Credit Union Youth Month at any of our branches, and we’ll help them pump up their savings.

Research shows that kids who learn to manage money at an early age are better prepared to handle their finances when they leave home. And, ultimately, teaching children good money skills is a sound investment for parents, who often are the ones helping their adult children when they run into real-world problems.

Learn More about Credit Union Youth Month in this previous blog: https://waunafcu.org/blog/its-credit-union-youth-month-coloring-contests-more/