You just started a job or graduated college. Retirement can seem like very long way from where you are in life. But life can move fast and thinking ahead puts you in the drivers seat. Ask yourself three questions: Where do you want to be in 40 years? What type of lifestyle do you want? How much is that going to cost you?
Retirement is a life change that is impending so saving as soon as possible is ideal. If you're already spending 30 percent of your income saving, investing and paying off debt, then you're on a good track. Krista Neeley, the Regional Vice President of Appreciation Financial, answers questions you may have wondered about personal finances.
P: What's the basic difference between a 401k, and Roth IRA? What is each best for?
KN: The first difference is your employment, they also differ in tax strategies, one is post tax and one is pretax. Ideally you should have variety in your tax codes through retirement savings, so either of these strategies may be great and if coupled together in a financial portfolio, that would be best for the participant. Roth IRAs are a beneficial way to save post tax for retirement while 401ks/403bs/457bs may be eligible for matches from your employer or company, which make it a great mechanism to save through as well.
P: What are guidelines for picking the best option for an individual?
KN: The first thing to examine is contribution amounts, select a comfortable amount to contribute each month, then stretch it. Once the habit is formed you will surprise yourself with how much you can save! Down the road, you will never regret saving "too much" and it is extremely empowering to surpass your savings goals.
P: When do you need to begin planning for retirement?
KN: Yesterday. Probably not the answer anyone wants to hear, however every day you are only getting closer to that day so it makes sense to put aside a small amount each day to prepare for that important deadline that is rapidly approaching.
P: Regarding financial planning what do you need to be doing?
KN: Ideally you should be in the routine of saving per month.
$200 in your 20's
$300 in your 30's
$400 in your 40's
$500+ in your 50's
$500+ in your 60's
In your 70's: This is the distribution phase of retirement so hopefully at these ages you are enjoying your retirement!
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.