Sorry for the delay, but I’m back. Today we are going to finish up the discussion of retirement planning for thirty year old’s. I’ll discuss how to save money with Tax-Deferred savings, what interest cost vs interest earned is, workplace contribution matching, credit scores, and how to plan to pay for your children’s future education costs.
Keeping it brief, a Tax-Deferred savings account allows you deposit money into a 401K or IRA, and then deduct the money tax free after you turn 59 1/2 years old. Tying into this is an employer match, which is a set percentage your employer will match of your contribution to your savings account. This is “FREE MONEY.” My employer matches up to 5% of my contribution, and I put in that full 5%. Its advised to put at least the amount your employer matches into your savings account. Also, if you do get a raise in pay at work, give your 401K a raise as well. If you earn $40,000 a year, and get a 2 percent raise, add 1 percent ($400) to your savings. It may not seems like a lot now, but after 30 years of grown and addition raises you could be looking at an extra $60,000 in savings.
Most of us these days have some sort of line of credit out that has a interest cost associated with it. Credit cards these days can go up 29.99% interest rate. Now compare that to a savings account that has a 2% rate on it. Big difference right? This is were interest cost vs interest earn comes in. If you currently are making minimum payments on lines of credit, but putting a large percentage of money into a savings account, are you really saving money? In the long run, you’ll be paying 2 or 3 times the amount of the loan if you make only minimum payments. So the $500 flat screen you put on your Visa will eventually turn out to be a $1500 flat screen that you probably don’t even own anymore after paying off that credit card. Now if you are aggressive at paying off those high interest accounts, and only put minimum amount of money into savings, you can get back a lot of that extra $1000 and put in into your savings.
Speaking of high interest lines of credit, one can obtain these by having a low credit score. With a low credit score, banks view you as a higher risk of not paying your debt back. In punishment, they make you pay more to get their money. This can be a big set back to people in our age range to help save money. Most of us have gone through college and acquired a large amount of student loan debt. On top of that, most of us need cars to get to our job, houses to live in, and have other debts that are in repayment. That plays in to how your credit score is calculated. The other key player in your credit score calculation is how good are you in paying that debt back. Missed payments equal lower credit score. There are some other factors out there that go into your credit score, but if you can get those debts paid off fast and don’t miss your payments, you be on the right track to that higher credit score, and more money in your pocket.
Wrapping up lets talk about our children, and how someday they will go off to college, and you’ll be back to those student loans again. Your child may old be a few years old, but that doesn’t mean you shouldn’t start saving for college now. This is were Education Savings Accounts come in handy. These accounts let you deposit up to $2000 a year into an account that is not taxed on earnings. These contributions must be made though before your child turns 18. This money then can be withdrawn for educational expenses for your child up to their 30th birthday. This equals savings you for by not having to take out so many, or maybe no, parent loans. Also, if you wanted to send your child to private elementary or high school, this money can be used for that as well. This is another tax deferred savings that I believe is a smart investment for all parents.