Archive for Emergency Fund

HOW MUCH 20-SOMETHINGS SHOULD SAVE

How much 20-somethings should save!

Your 20s may seem like an odd time to think of saving for retirement, but it’s actually the perfect moment to start planning for your later years. That’s because the earlier you start saving, the more time your money has to grow.

Savers who begin setting aside 10% of their earnings at 25, for example, could amass significantly more by retirement age than those who wait just five more years to start saving. You can use a retirement calculator to see how much you should start saving now to reach your retirement goal.

Building a nest egg on a starter salary and a shoestring budget can seem daunting, though. Focusing on the incremental savings, rather than the goal, can help your savings objectives feel more manageable.

HOW MUCH TO SAVE FOR RETIREMENT

For those earning around $25,000 a year, the median income for 20 to 24 year olds in 2015, saving the recommended sum of 10% amounts to a little more than $200 a month.

It may seem like a reach, but consider this: If you start saving $100 a month at age 25 and invest it to return 7.7% a year — the average total return of the Standard & Poor’s 500 Index of U.S. stocks over the past decade — you’ll have more than $378,000 available at retirement age. And it could be tax-free.

If you wait until you’re 30  to start and save the same monthly amount at the same rate of return, you’ll wind up with less than $253,000.

Several vehicles can help you build a retirement fund. A 401(k) plan, typically offered by your employer, is often the most convenient and easily accessible of these. Contributions you make usually aren’t taxed, which helps reduce your income tax liability.

Pre-tax 401(k) accounts make up around 80% of retirement plans offered by employers, according to the American Benefits Council. Roth 401(k) accounts are another option, though these are less widely available, and money contributed to a Roth 401(k) account goes in after it’s taxed. Money withdrawn from this type of account — including earnings — is usually tax-free.

Companies that offer a 401(k) plan often match employee contributions, up to a certain percentage. This is essentially free money toward your retirement.

If your employer will match your contributions, try to take full advantage and commit a large enough percentage to get the full benefit.

Beyond a 401(k), individual retirement accounts, commonly referred to as IRAs, offer another solid option. There are two types: traditional and Roth.

Money put into a traditional account is tax-deferred, similar to funds put in a traditional 401(k) plan. That means those funds aren’t taxed until they’re taken out. But typically any earnings you make with the money are also subject to income taxes on withdrawal.

Money put into a Roth IRA has already been taxed when you earn it, so there’s no immediate tax benefit. When it’s time to withdraw the cash, however, you usually don’t pay taxes on it. And anything the money earns also can be taken out tax-free.

Contributions to both types of IRAs are currently capped at $5,500 a year for those under age 50, and $6,500 for older workers.

HOW MUCH TO SAVE FOR EMERGENCIES

In addition to retirement, it’s also wise to save for a rainy day. Ideally, your emergency fund should be enough to cover three to six months of living expenses.

Some experts suggest setting aside even more for savings and investments: 20%. That’s roughly $415 a month on an annual income of $25,000.

That’s not always feasible, especially if a big chunk of your monthly income goes to student loan and credit card payments. Consider saving what you can, even if it’s just $10 a month.

Making a habit of saving now could serve you well down the road. And, as your income increases, the percentage you save can as well.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

7 Banking Tips for Young Millennials

Just received your first few pay checks? Here are the 705 suggestions for success!

Banking Best Practices

Once you start receiving your first paychecks after graduation, knowing how to spend or save your money wisely can be tough. While you may be able to do your banking with just a few taps on your phone, managing money well is much more complicated. Here are a few tips to help you get started.

1. BUDGET USING APPS

Tracking how much you spend weekly and monthly shows you where your money goes and how you can save more. You can use a budgeting app that tracks your cash automatically or one where you enter information manually. Choose an app that lets you spend as little or as much time on budgeting as you want. From there, you can identify your total fixed expenses, such as rent and car payments, and more-flexible costs such as shopping and dining out.

2. SET UP AUTOMATIC TRANSFERS TO SAVINGS

When you have a rough idea of how much you can save regularly, create a recurring transfer from your checking account to a savings account. By making savings automatic, you can get used to spending “below your means” and never have to worry about remembering to transfer.

3. AVOID OVERDRAWING YOUR CHECKING ACCOUNT

Before you pay rent or spend any other big chunk of money, take a look at your checking account’s available balance. This can prevent you from spending more than you have in your account. If you overdraw, you may be charged a fee.

4. ESTABLISH CREDIT

Student loans and credit cards can help you build good credit — as long as you stay current on monthly payments and don’t overuse your cards. Your credit score, which shows how responsible you are with credit, is an important factor that lenders check before approving car loans and mortgages. The better your score, the lower the interest rate you may be eligible for.

5. REPAY DEBTS STRATEGICALLY

If you have debts from multiple credit cards and student loans, pay the minimum on each and then contribute more to your higher-interest debts. By making those a priority, you can reduce how much interest you’re paying faster than by treating all debts the same.

6. START AN EMERGENCY FUND

Being financially prepared in case of health emergencies or unexpected unemployment can save you from going into debt. Have a separate savings account just for this purpose; don’t mix it up with your regular savings. A good rule of thumb is to save enough to pay three to six months’ worth of living expenses.

7. SET LONG-TERM SAVINGS GOALS

Consider saving for retirement in an employer-sponsored 401(k) plan or individual retirement account. When you start saving early, you take advantage of compounded returns to make more money off your contributions overall.

From smart budgeting to setting goals, make good money choices now. Since time is on your side, you can benefit from building credit and saving early to be ready for big financial decisions in the future.

© Copyright 2017 NerdWallet, Inc. All Rights Reserved

7 New Year’s Resolutions For A Richer 2017

New Year, New You!

fireworks

Photo Credit: http://ow.ly/44VN30j5jgg

The New Year is a great time of renewal. That makes it a good time to make bold, decisive changes in your life. Leave behind the baggage that was 2016 and start fresh with a blank slate in 2017. If you’re looking for some resolutions to improve your personal finances, we’re pleased to offer seven ways to make 2017 the year of the dollar!

 

1.) Track your spending

Determine where your money goes. Carefully record every dollar you spend for a month; apps like Mint can make this process automatic. Keeping track of where your money ends up may ultimately encourage you to spend more judiciously.
 

2.) Make a budget

70% of Americans live financially spontaneous lives, without planned spending. This is a circular problem: If your budget doesn’t include setting aside money for long-term expenses and savings, you’ll end up spending everything on unplanned things and events. Stop the cycle by creating a budget that modifies your spending to be more in line with your priorities.
 

3.) Get out of debt

The biggest stumbling block to financial security and saving towards long-term goals is debt. Make the move towards debt reduction this year by adding an extra $50 or $100 to your credit card payments. Alternatively, focus all your payment resources on the highest-interest debt until it’s paid off, then move on to the next highest.
 

4.) Start an emergency fund

The best way to avoid going into debt is to have some money available to handle the occasional, yet inevitable, emergency. Set a specific goal, like adding $10 per month to a savings account. At the end of the year, you’ll have more than $100 available in case something goes wrong.
 

5.) Start a retirement account

When you have a retirement account, your monthly statements serve as reminders to think about and plan for your retirement. The challenge, though, is taking that first step. Don’t get hung-up on perfection; any kind of retirement account is better than none. If your job offers a 401(k) matching program, sign up to get at least the full matching funds amount – it’s free money. Do a bit of research, then open the account that seems like the best idea.
 

6.) Automate your savings

Fighting that impulse to spend what you’ve earmarked for savings is a constant struggle; it’s easiest to take the decision out of your hands. Change your direct deposit to put some of your paycheck directly into a savings account, where you won’t even think about spend it impulsively.
 

7.) Get educated

Knowledge is power, and that’s especially true in the world of personal finance. There’s loads of information out there; resolve to read one personal-finance article a week. This will give you great ideas for improving your financial situation.

Happy New Year from all of us at Section 705 Federal Credit Union. We hope you have a safe, happy, and prosperous 2017!

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