Saturday, May 14, 2011, AM | Leave Comment
Every one of us has faced major events in our lives that may require some new initiatives and adjustments in our finances. Only folks that don’t care for their future and their offspring will avoid these fixes. Having said that, there are people who worry about today than tomorrow because they think they cannot afford any day in the future. They can’t save because they have nothing to save.
But if you have a good job and making good money, then save and invest for tomorrow. It will do you good in retirement. I say that from experience because I have nothing in my name now. I collect only Social Security and I have no other source of income. I got some tax refund that will hopefully last me a few months. My personal expenses are less than $25 a week. My wife and kids’ expenses are another story.
If you are younger and have many years to retirement, consider saving in 401(k), IRA or some other retirement plan. The following are some major events that you might want to plan for. It’s your responsibility and obligation to yourself and your family. Preparing for the financial aspects of these events can help you reduce the stress and anxiety that often accompanies major changes.
Buying a home
One of the largest financial decisions in your life may be buying a new home. Searching for a home that suits your needs can be a daunting experience all by itself. Before you choose to buy, investigate different mortgage options. It can help you focus on a home you can really afford. In addition, it can also help keep you focused on the purchase negotiations. Talk to a mortgage lender for pre-qualification. Learn what the current interest rates are. Also discuss how much your monthly payments would be for different mortgage options.
Major home repairs
For home improvements and major repairs, most folks get home equity loans and lines of credit. The funds are often available only when needed. It enables you to avoid paying interest on funds you don’t immediately need. Home equity loans and lines of credit usually have lower interest rates. In addition, the interest is tax-deductible.
Presently unemployment rate is around 9%. It is seldom easy to change employers especially in today’s economic environment. You would face new responsibilities, new co-workers and a new working environment that at times can be stressful. Also, you might get a distribution from your old 401(k) or other employer-sponsored retirement plan if you have them.
To avoid paying taxes on the distribution, you must move the funds into another qualified plan or IRA within 60 days. Distribution from your retirement plan is often the largest single sum an individual ever has to invest at one time. So when changing job, investigate your options early to make the transition less stressful.
Funding a child’s college education
The cost of a four-year private college education can easily exceed $30,000 a year. The cost of state schools can be staggering as well. Paying those college bills can be tough if you do not start saving early. Establishing a regular savings program and taking advantage of some of the new tax-advantaged programs like Coverdell Education Savings Accounts (CESA) also known as Education IRAs. Then there is Section 529 Plans.
After a fulfilling career, starting your life into retirement brings many financial challenges. Along with Social Security benefits, your existing assets ought to pay for a major portion of your living expenses. We all know chances are it will likely fall somewhat, perhaps by 20 to 30 percent. At retirement, you will probably want to modify your investment strategies to be more conservative.
When you are young and still saving to accumulate assets, it can be easier to absorb a reduction in the value of your portfolio because you have time to recoup your losses. But once you are in retirement, a significant fall in your portfolio can be troubling. Consider a more conservative asset allocation with more of your funds in cash and shorter-term, fixed-income investments.
In a Nutshell
The above 5 major financial events to plan and prepare for are the real American dream. It’s hard to accomplish them these days but definitely not impossible. It needs discipline and consistent saving. In addition, a good strategy for investment will help as well.