Step Four: Create An Emergency Fund Account

Creating an Emergency Fund:

None of us knows what the future holds, and being prepared for the unexpected is smart business. We’ve all heard that having six months of living expenses put away for a job layoff. However, this amount might not be best for you. It depends of course, what kind of emergency is it could be a catastrophic medical emergency or layoff and wordy put the money. Unfortunately there are no written rules. It just depends on everyone’s particular situation. We suggest having different amounts for every family or individual at least three months living expenses. If you have other resources such as close friends or perhaps family members stocks and bonds or even of 401(k) that you can make good use of in an emergency situation his make sense if you have stable employment or income.

Problems do arise in life, particularly in our economic lives; and protect your money and your financial standing is as important to protecting your hard earned money as is working down any existing debt and working to erase debt from your life. Remember, our goal was not to simply show you how to erase debt… our goal is to help you erase debt forever.

In some cases up to six months of living expenses is appropriate if you don’t have a 401(k) or a hog load of cash in the stock market or family and friends to turn to in the event of an emergency. It’s more important for you to have a little bit more of us — built-up in case of an emergency in some cases as much as up to one year living expenses if your line of work is seasonal or fluctuates. One year to the next many of us have high risk jobs. They can be in demand one day and gone the next maybe you’re in a profession where it’s not easy to find a new job. It could take months that combined with the fact that you don’t have anywhere to turn for alone. These individuals are served best by a large emergency fund.

Emergency Fund Accounts Should Be Started Regardless of Your Current Situation:

Now, if you’re just starting out and trying to decide whether you should save up for a house for you and your family or put money into a retirement account. This can be a difficult decision. We all know that owning real estate; especially your own home or your primary residence is a wise financial decision on the other hand, saving more sooner. For retirement makes reaching that glorious day when you say goodbye to your boss, all that much sooner. Let’s presume that both of these things are equally important. You should be doing polls if you’re looking forward to owning a home. You can use your savings towards that goal and temporarily put your retirement on hold. Or you can save for both of these goals at the same time if you’re not in a hurry.

Let’s face it, some of us are more fortunate than others and can accomplish both of these tasks at the same time. Some employers also allow borrowing against your 401(k). So while saving money in your diet retirement account. You can borrow against it and use it for a down payment on your for home but be careful and take into consideration that these loans traditionally need to be paid back within a set number of years. You need to check with your company or in some cases. If you leave your job or are relieved these loans need to be paid back immediately Uncle Sam does it allow for a one time, penalty free withdrawals from an individual retirement account of up to $10,000 towards the purchase of your first home.

Now let’s talk about putting money aside for your children’s future education wanting to provide for them is a respectable and perfectly natural task but doing so before you saved enough for your own goals is not wise. The college financial system penalizes you for saving money outside retirement accounts and more so if the money is invested in the child’s name. So remember, you need to take care of you first take advantage of saving through your tax-sheltered retirement accounts before you set aside money for the children’s education don’t think of this as selfish. Do you really want to look to your children when you’re old and incapable of earning for yourself, because their educational expenses came before your own all too often parents make this simple mistake and find themselves in a sticky situation when it’s time for retirement.

Now let’s say you want to make a purchase less involved with your future. Like plane tickets to France or new car, or that cool new mountain bike you’ve had your eye on for months. Do not buy these things on credit and carry the debt month to month. These types of things are not wealth building investments such as businesses or real estate or card depreciates the moment you drive it off the lot and plane tickets to Europe are worthless.

The moment you’re back home, memories are priceless, but they don’t pay the bills paying for high interest revolving debt can put a real damper on your ability to save for long-term goals and make major purchases in the future. Interest on this type of debt is obscenely expensive as I’m sure many of you reading this already know. Credit cards can exceed 20%. So when you’re thinking about making a purchase. That is not wealth building take a moment to calculate the interest. You will end up paying and calmly way that price tag against the satisfaction you will get out of the purchase. Use your best judgment and decide whether or not. It’s really worth it.

Now, we’re not recommending that you deny yourself all the simple pleasures not at all just good behavior and good habits. You can learn how to delay and get into the habit of saving for these types of trips or pleasures, but the most important thing you can do for your future is avoid at all costs paying for these items with high interest consumer credit. If you’re saving up for a new car, a money market account or a short-term bond is a great place to park some savings for these kinds of purchases.

Set Financial Goals

Many people grind away at work dreaming about a future in which they have no commute or get out from the daily barrage of abuse from the boss and live a life of financial freedom and most people often mistakenly assume that that day will arrive without any financial planning or changes in their financial habits may be I’ll win the lottery? Or I’ll just wait until I retire? Well this can be a long wait for many of us, and it wouldn’t hurt to start making the changes now that will make our futures brighter and more comfortable not only for us but our loved ones and our families. Good financial habits benefit everyone around you, not just you.

Let’s face it, being able to retire, while you’re still young enough to travel and enjoy life. Maybe it’s your dream to travel with your spouse for years after retirement or go to every one of your grandchildren’s sporting events no matter what your goal is for the future. It is the American dream to retire early to retire sooner. We all want to retire, and the sooner the better of Horsey earlier we retire. The more money we need to have put away and the sooner we need to start saving. Yet half of the working class in America has not saved a single cent towards retirement. So if you’re like most everyone else you need to start setting money aside for retirement. And if you’re setting money aside and saving you need to save more. Let’s face it. We all need to put more a way for retirement and half of us need to start saving for retirement for the very first time.

If you hope to someday spend less time at work or quit working altogether. You need a considerable savings account to support you in your family. Many people, particularly the young working class have a difficult time even thinking about retirement as they are invincible. And they as most of us did underestimate the amount of money it takes to retire to figure out how much you need to put away every month to reach your retirement goals requires just a few simple calculations. Most people need about 75% of their pre-retirement income throughout retirement to maintain the standard of living. They have become accustomed to, for instance, if you made $50,000 a year before retirement. You’re going to need about $35,000 a year during retirement to live the way you’re used to living. Some people need more some people will need less. You can adjust that number, according to your planned standard of living.

Building a sizable retirement account for your future is a lot like building a skyscraper. You need a strong solid foundation. Then you work your way up from there. If you have a solid foundation less and less is required as you age, to meet your financial goals. The later you start the increasingly more difficult it becomes to build a strong foundation and requires you to save a larger and larger percentage of your income the longer you put it off.

Many Americans today are counting on Social Security benefits to carry them through their golden years. We all know that our social security infrastructure is in trouble. So you should plan for retirement as if there is no social security, because there may not be and if there is. It will be a nice benefit, and a welcome addition to your retirement package. Please also keep in mind Social Security is not enough to live on and less you plan on living in the trunk of your car. Social security is intended to be a supplement to your retirement income. Social Security was never intended to be your sole means of income upon retirement. Unfortunately, many elderly people are fully dependent on Social Security, a full 25% of America’s seniors live solely on Social Security and for another third of its recipients.
It amounts for at least half of their total retirement income.

There are few working people that can maintain their current lifestyle in retirement without supplementing company retirement plans and Social Security. The money you’re putting away for retirement can include the cash in your safe your 401(k) stocks, and non-retirement investment accounts equity in your home and of course rental properties if you own them can count towards retirement as well if you don’t want to count on the equity of your primary residence in your retirement. You do not have to do that when you tally up the final numbers. However, many people sell their primary residence and relocate to a more affordable part of the country and retirement in order to live a more comfortable lifestyle however many of today’s elderly are having to lean on their equity through reverse mortgages to make ends meet in retirement.

Few of us are fortunate enough to have a pension these plans are given by some employers, mostly large companies and government agencies. Even if you’re current employer does not offer a pension plan. You may have earned some pension benefits through a previous employer. These are also known as defined benefit plans with these plans. You qualify for a monthly benefit amount to be paid to you in retirement. Based on your years of service, every company is different, and they all calculate benefits differently. But these plans can be very valuable. Some employers put away the equivalent of 10% of your salary that you never see in your paycheck undercurrent. Government regulations, an employee does not have to put in 30 years of service. You’re entitled to receive full benefits after five years of full-time service.

These plans are becoming rare for a couple reasons one, they are very costly to employers, and many employees have no idea of how these plans work and why they are so valuable. So companies are not getting mileage out of their expenditures. Employees don’t see the money, and they don’t appreciate the generosity of the company. So the job market is responding with less and less companies offering pensions. Most of the new jobs that are being created today in America are from smaller companies that do not offer these types of benefit plans.

Most employers nowadays will offer a 401(k) in which an employee decides to save a portion out of their own paycheck. These plans allow you to save for your retirement at your own expense rather than your employer’s expense. Some companies will match a portion of the employee contributions. But these types of plans, shoulder the majority of the responsibility and burden on you the employee. So it is important to understand how these plans work.

There are several ways to give your savings and retirement accounts a boost. The more simple ways are to make more money or spend less money if you’re like most Americans. We don’t put nearly as much spot into spending money as we do earning it. First off, let’s be realistic about the age we plan to retire. If you extend the age at which you plan to retire. You have increased benefits, you’re saving money. For more years and you are earning money for more years. And of course you’re spending your retirement for fewer years.

You also have the option of using some of your primary residence equity. You probably worked for many years to pay off your primary residence and you’re happy not to be sending that monthly check to the bank anymore, but what’s the point of owning a home mortgage free. If you do not have sufficient reserves for retirement and all the money is tied up in the house. The equity in your primary residence can increase your standard of living in retirement.

There are several ways you can get a hold of your home’s equity. You can sell it and downsize to a more affordable location and pull some equity that way. Another option is a reverse mortgage in which you receive a monthly check. As you build a loan balance against the value of your home, and the loan is either paid at the sale of the home or when the owner dies.
Let’s face it, the faster rate at which your money grows, the less you need to put away to reach your retirement goals earning a few extra points on your investments can dramatically slash the amount you need to save the younger you are when you start saving. The more you’ll harness the effect of compounding interest, which can be quite powerful. If you’re in your mid-30s and your investments are appreciating at 6% a year rather than 4% a year. The amount you need to save from month to month to reach your retirement goals is reduced by about 40%. That is considerable and significant.

Even if you’ve had the same job for decades clearly, you have skills that can be put to use pick up something you’re good at. Or you enjoy develop a business plan; get smart about how you market yourself and your services. Be creative and think outside the box. You just may be surprised at what you can come up with. Always keep in mind when investing to seek tax-free investments. This way you can boost your effective rate of return without taking on additional risk. In addition to tax benefits, and employers offering 401(k) s with money matching government also offers additional tax benefits and credits for low and moderate income earners who utilize these retirement accounts.

As for money outside of your tax sheltered retirement counts. Most of us are in a high tax bracket. You can earn more by investing in tax-free investments and other vehicles that minimize highly taxed investments. You also need to think about inheritances. You should never count on an inheritance, like Social Security. However, you may inherit money someday. All these things need to be taken into consideration when retirement has become number one in the priority of your savings habits.