HOW TO: Save Money and Pay Off Debt

By Olivia Sandham

Although the two don’t seem to logically go hand-in-hand, saving money while also paying off debts is certainly possible.  With a few simple adjustments to your lifestyle and budget, you can create a comfortable and debt-free future.

 

The first step to saving while paying off debt could be to create a household budget that trims unnecessary expenses.  This budget will only be feasible if it allows for some discretionary spending to avoid feeling trapped or “broke”.  Examples of areas that could easily be trimmed without too much lifestyle shock include eating out one less night a week, consuming one or two less high-priced beverages (such as cutting back on a latte or cocktail), and switching groceries to generic brands.  Think about how much you could save each week by making these changes, then multiply that by 4-5 times per month!  These small changes can certainly impact the amount of additional money you will have to put toward paying off debts and increasing your savings.

 

The second step to saving while paying off debt is to consider designing a debt payoff strategy that best suits your needs.  Paying off debts utilizing the “snowball” effect is a popular method of paying your debts in a specific order.  You could choose to either 1) Pay off the smallest balance first, which can be motivating in a short period of time because you see the number of debts you owe drop, or 2) Pay off the highest interest rate first, which makes the most sense from a pure financial approach, since you will keep more of your money in the long-term.  Choosing the best debt payoff strategy will be a personal choice so that you find a strategy that you will want to maintain over the long-run.

 

The last step to saving while paying off debts is to build your emergency fund and future investments.  Once you have designed a trimmed budget and chosen your debt strategy, you can plan to have additional money placed into an easy-to-access emergency savings account.  Although this account will not produce much (if any) interest, there will be no penalty for taking the money out should you absolutely need it.  However, once you are able to build your savings to a sufficient amount (three to six months of expenses is typically recommended), you can then start to invest part of your monthly additional money into accounts that will produce higher return rates, such as an investment account or an IRA holding diversified mutual funds.

Make Getting into Financial Shape Your New Year's Resolution

By Olivia Maragna

 

One of the most popular New Year's resolutions is to get into shape with an exercise program.  So, why not also apply this to your financial health?  We found these six steps to be motivational toward getting your financial fitness looking better than ever in 2014.  Click here to read the full blog posted on brisbanetimes.com.au

1.  Follow a program - Set yourself a budget and stick to it.

2.  Trimming down - Minimize your debts.

3.  Bulking up - Contribute into retirement funds.

4.  Cross training - Invest in multiple types of retirement accounts.

5.  Injury prevention - Adequately insure yourself.

6.  Endurance training - Prepare your estate to ensure your loved ones are taken care of in the future.

Superfunding a 529 College Savings Plan

According to a Reuters article shared by CNBC.com earlier this week "Should You Superfund Your 529 College Savings Plan?", college costs have reached an average of $40,917 a year for a private four-year college and $18,391 for a state school, as researched by the College Board.  These high numbers along with ever-increasing tax rates have affluent families and wealthy grandparents considering strategically "superfunding" a 529 college savings plan as a way to aggressively cover college costs while also saving on taxes.

If you are interested in finding out about the benefits of contributing to a 529 plan, click here to read the full article.

5 Ways to “UP” Your 401(k) Plan

By Olivia Sandham

1. “BUMP UP” your deferral rate.
The average 401(k) deferral rate lingers near 4%, but this doesn’t mean your investment has to.  Increase your deferral to 10% of your paycheck, and your deferral combined with the company match will build an income base that can last in retirement.  Find out if your plan has an auto-escalation feature, which will allow you to automatically raise your deferrals incrementally over time.

2. “CHANGE UP” your fund allocation.
Over the long term, it takes time and skill to choose 401(k) funds successfully.  What seemed like the proper allocation when you were 25 will most likely change when you are 10-15 years older.  If periodically assessing your funds seems time-consuming, a target date fund or asset allocation fund may be more appropriate.

3. “SAVE UP” your account.
There may be a handful of valid reasons for pulling cash from your 401(k), such as a new home or business purchase, or for an emergency situation.  But you could be charged a 10% tax penalty on early distributions taken before you are 59½, and you may have to repay the loan within 60 days.  Instead, consider your 401(k) strictly as a retirement savings account: money goes in and stays in until retirement.  If you do have to take a loan, repay it as soon as possible so your money can get back to work for you in the market.

4. “FOLLOW UP” on your investments.
Make a plan for your 401(k) and keep an eye on it to ensure you are still on track to meet your savings goals.  A 401(k) is a long-term investment, which means there will be highs and lows in performance, so you should periodically check to make sure you’re on track.  Review and keep your quarterly statements, but don’t preoccupy yourself with looking at your account every day.  An appropriate time to reevaluate your 401(k) plan on an annual basis would be during re-enrollment so you can make any necessary adjustments.

5. “LINE UP” your future budget.
Once you’ve retired, you will rely on your 401(k) savings as a stream of income.  Before reaching too near to that point, get an idea of what your future expenses will be.  Understanding how your lifestyle will be during retirement will help you make sure your 401(k) plan will be able to cover these costs.