| Introduction to 401ks, Roth IRAs, and Investments | • | Planning for Your First Major Purchase | • | The Basics of Mortgages |
| Good vs. Bad Debt | • | Preparing for Marriage and Family |
Job... house... travel... friends... family. Free time? Never heard of it? Always being on the move can take a toll on you. Let's make sure it doesn't take a toll on your finances too. Just like you find a way to make some time for the important stuff, make sure that you set aside some time to make sure that you keep moving toward your end financial goal.
Introduction to 401ks, Roth IRAs, and Investments
You're young and just trying to keep up with all the real world has thrown at you, but it is still important to start thinking about retirement – however far in the future it may seem. If you have not started contributing to a 401(k) or an IRA or a Roth IRA and have no investments, it's time to start. Investments push your money to its full potential, allowing you to have more money in the future, and with any luck, retire sooner!
401(k) plans can be an alternative to traditional pension plans. Considering many people change jobs a few times throughout their career, 401(k)s are very beneficial because workers can take their retirement savings with them instead of losing their pension plans. Look at your funds to see how much money you can put in your 401(k) and frequently evaluate your budget to see if you can start contributing more. Many people do not contribute enough to their plans, when it's easy and important to do so. Often 401(k)s are tax deductible and companies can match them. The plan also offers approximately 12 investment opportunities to get involved with. With so many reasons to contribute to a 401(k) plan, it's hard to turn it down. Calculate your 401(k) to decide how you should plan your savings.
An Individual Retirement Account (IRA) lets you save and invest your money each year, tax free until you withdraw it when you retire. There is a maximum amount that you can put away (you can put at least 3 times as much in a 401(k) plan), but an IRA account allows you to invest in many more mutual funds than a 401(k). If you decide to invest in a Roth IRA, you can make nondeductible contributions to an account, where the earnings are tax-free and penalty-free if the account is open for five years and you:
- Are at least 59 ½ years of age.
- Are purchasing your first home.
- Become permanently disabled.
Check to see if you qualify and learn more about IRA and 401(k) plans.
When it comes to other investments, you have many options. There are three main types of mutual funds to choose from:
- Money Market funds
- Bond funds
- Stock funds
Money market funds have low risks and have generally short term interest rates. They have inflation risks, but are usually successful for a short term.
Bond funds have higher risks than money market funds, usually because you can earn more money with them.
Stock funds are very popular and usually make the most money, but profit can rise and fall quickly and dramatically.
Whatever type of investment you decide to make, it is important to at least make one. Make an informed decision about what to invest in and watch your account accumulate more value. Whatever you do, don't let your money just sit there-do something with it! It will pay off in the end.
Planning for Your First Major Purchase
Buying your first car or home is a big investment and deserving of many considerations. How much will your budget allow you to spend? How much money can you offer for a down payment? Car options, realtors, insurance and mortgage can become very confusing and overwhelming. At the same time, once you have figured it all out, you'll finally have a home or a car to call your own.
When attempting to buy a home, most people cannot pay for it all at once. This is why a person receives a mortgage and must pay a certain amount every month. The more you are able to put down for a down payment, the lower your monthly payment will be. The person selling your house may ask to see documentation guaranteeing that you can pay. To receive more negotiating power, it helps to have a mortgage pre-qualification. Banks like Univest can work with you and your realtor to assure that you are a qualified buyer. Use our calculator to plan your budget or schedule your mortgage payments.
A real estate professional can be one of the most important tools for getting a good price on a home. Make sure your realtor is trained and experienced and part of the local board of realtors because otherwise he or she could just be licensed with a state, with no professional background. A realtor helps with negotiating deals and can give you tips on finances. He or she can also assist you in finding a home that suits you best, as well as inform you on the taxes and costs of the area that can affect the cost of the home.
Homeowner's insurance is another important aspect to take into consideration. Choose the policy that suits you and your home best. Some policies only have minimum coverage or do not insure your possessions or include earthquake and flooding insurance. There are about seven different basic policies to choose from, which you should take into consideration before buying a home and buying insurance.
Also, remember to take into consideration how much you spent on the house. If you spent a large amount but have a less expensive insurance policy, chances are you would not receive adequate insurance reimbursement in the event of a claim. Also, if you have a poor credit history, insurance companies might charge you higher premiums. Before you buy a house, it is important to not only focus on the price of the home, but also all the upkeep, taxes, closing costs and insurance that comes with it.
A car might be less costly than a home, but it is still a big investment. Like a home purchase, take into consideration the initial cost, but also any maintenance costs, gas prices and insurance. If you want to save money, you can consider buying a used car or even leasing. Like home insurance, car insurance plans vary in the amount of coverage you will receive. Make sure medical bills and cost of repairs is covered in your insurance in case of an accident. Insurance should also cover theft, vandalism and other non-auto related accidents and accidents caused by an uninsured driver. Take into consideration how much coverage you want from your insurance before purchasing a car because it can affect your overall budget.
Good vs. Bad Debt
Chances are, if you took out a student loan for college, you are still paying it off. If this is the only debt you're still paying off, consider yourself lucky. Not all debt is bad, though. If you budget your living expenses and are making a reasonable salary compared to your purchases, you will be able to pay off loans and debt in a reasonable amount of time. Debt from mortgage and student loans is normal – and very common among the recently post-college grads. What you must be careful about is owning too many credit cards and overspending on all of them. Budget your spending on the plastic and put the money towards the more important uses. Maybe choose only one or two cards to keep and cut up the rest. This will stop temptation to pay off one card with another and it will also give you less combined interest from all the credit cards.
Preparing for Marriage and Family
If you are considering marriage and family down the road, it is never too early to start preparing and saving for it. The first step is to make sure you are taking care of your debt. Bringing debt into a new marriage can make money issues stressful right off the bat. If you still decide to do so, at least try and pay back as much as possible before marriage and do not rack up any additional debt to worry about. Also, start a separate savings account for future plans, such as a wedding, buying a house or even children. Even putting away a little money and gaining interest can be a big help later on when any extra money can really help you out.
