5 Ways to Get Your Kids Interested in Saving Money

If there’s one thing that’s true when it comes to kids and money, it’s that kids often let those bills burn holes in their pockets. However, with a little bit of encouragement and some guidance, it’s possible to get your kids interested in (and even excited about) saving their money, instead. Here are five tips to get you started.

#1 – Help Them Create Four “Piggy Banks”

Most kids have a piggy bank or jar that they use to collect the money they receive over time, whether that means coins they find on the ground or the birthday money they got from Grandma. Instead of one bank, create four, and label them “Save”, “Spend”, “Invest”, and “Give”. Encourage your child to put at least 50% of the money he or she receives in the “Save” bank and divide the rest as he or she sees fit. This way, your child will be proud of his or her accomplishments and more inclined to not only save, but to invest wisely and donate to charity in the future.

#2 – Help Them Set Goals

Is there something expensive that your child really, really wants? If so, use this as the perfect opportunity to get your child interested in saving his or her money. For example, if your child really wants a gaming console that costs $400, sit down and do the math to determine how long he or she will need to save in order to make the purchase. Tell your child that if he or she can earn just $10 a week, that’s the same as $40 a month. If your child saves that $10 a week every single week, he or she can have the console in ten months.

#3 – Set Up an Allowance System

If your child doesn’t receive money on a regular basis, then he or she doesn’t have much of an opportunity to save. Be sure that you take the time to set up some sort of allowance system that works for your budget and is age-appropriate. What’s more, don’t just hand out allowances on payday; have your child earn the allowance and keep track of the tasks he or she has done throughout the week so you can pay accordingly.

#4 – Set Up a Savings Account

You can set up a savings account for a child of any age, but children age eight and older will get the most benefit. Take your child with you to the bank along with his or her saved money, and set up the account together. Your child will love seeing his or her name on the account, and having “official” deposit slips for a real account gives children a sense of empowerment. In fact, you might find that your son or daughter wants to rush to the bank to make a deposit with every dollar he or she earns.

#5 – Offer Rewards for Meeting Savings Goals

Although you might think this sounds like bribery, think again. Doesn’t your bank reward you for keeping a certain balance in your savings account by paying you an annual interest rate? Why not do the same for your child? As an example, you could tell your child that you will give him or her $1 for every $20 saved. It’s not much, but it’s free money – and it’s a great way to get kids to stick to their guns.

Kids who learn how to save money at an early age are more financially responsible when they become adults. As such, implementing these tips is a great way to make sure that your child learns money management techniques that he or she can utilize for a lifetime.

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5 Reasons why People are Waiting Longer to Dive into Retirement

Reaching a certain age is no longer synonymous with retirement. People are waiting later than ever to retire, and many even intend to work for the rest of their lives if possible. Several factors have accounted for this trend, which is likely to continue in the years to come.

#1. They are Living Longer

A few decades ago, there was a sense of urgency for people to retire at age 65 or earlier. These days, that’s not so much the case, since people are living longer than ever before. Not only that, but they are enjoying better health and an overall higher quality of life during their senior years. As such, people can easily retire at age 70 or beyond and expect to enjoy 20 or more years of healthy activity.

#2. They are Waiting on Bigger Social Security Benefits

While it is entirely possible to retire at age 62, those who do so will notice lower retirement checks than those who wait until their mid-60s or beyond. Individuals who retire early may receive up to 30 percent less than those who wait. It’s a complicated formula, but the Social Security Administration generally reduces benefits by 5/9 of 1 percent for each month before full retirement age, and there may be limits on income as well.

#3. They’ve Lost their Retirement Accounts

For many people, waiting to retire isn’t an option-it is a necessity. During the housing crisis that began in 2008, many people noticed their life savings and/or retirement accounts drastically shrinking or even being eliminated altogether. A good number of them have been working diligently since then to restore their accounts, meaning they are now employed when they might have otherwise been retired.

#4. They Wish to Stay Active

People are increasingly noticing the mental and physical benefits of staying active. A number of studies show that mental stimulation can help prevent or delay the onset of Alzheimer’s disease or dementia. As such, those who work in industries that require cognitive thinking skills can greatly reduce their risk. Staying physically active can have numerous benefits as well, ranging from reducing the symptoms of arthritis to helping people maintain a healthy weight and reduce their risk of heart disease.

#5. They Need Healthcare Benefits

Even seniors who are in relatively good health are often surprised to find out their Medicare benefits do not cover all their healthcare expenses. Those who are concerned with rising healthcare expenses may therefore elect to continue working in order to take advantage of the medical plans and health savings accounts provided by their employers. This is particularly true for those who require certain medications that come with high Medicare co-pays, as many employer-sponsored drug plans offer free or low-cost prescriptions.

There is no one reason that is more common than others when it comes to extending retirement age. Instead, those who continue working later in life will likely cite two or more of the above reasons as justification for doing so.

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Why Diversifying your Retirement Portfolio is Important

When building a retirement portfolio, it can be tempting to focus solely on one type of investment. Diversifying your retirement portfolio is recommended in order to ensure you maximize profits and reduce risk. Here are a few reasons why you should strongly consider diversifying your own retirement portfolio.

Maximizing the Sequence of Returns

An important element of any retirement portfolio is the “sequence of returns”, which is the order in which returns occur. A portfolio based on a high number of low returns just shortly after a person retires will not allow for longevity. Wade Pfau, a professor of retirement income at The American College, advises people to “hold fixed-income assets to maturity or use risk-pooling assets such as annuities” when building a portfolio to reduce the sequence of return risk.

Avoiding the “Age in Bonds” Approach

Another approach to building a retirement portfolio is known as “age in bonds.” This concept requires people to build a portfolio containing a bond allocation that is equal to their current age. While this does reduce one’s risk, it does not allow for the growth that is required in order to build a successful retirement portfolio. A retirement portfolio should minimize risk while at the same time providing a reasonable amount of growth, something that cannot be achieved when investing in a single product such as bonds.

Accounting for Changes in Risk Tolerance

Everyone has a different “risk tolerance”, or comfort level with taking risks. It’s not unusual for your risk tolerance to change over time. You may feel very comfortable taking risks during your younger years, but as you approach middle age and beyond, the idea of taking risks may suddenly make you uncomfortable. Your attitude may also change after you have experienced a significant loss, or even if you find yourself unhappy with the amount of money your portfolio has earned. Diversification will help you adjust to these changes in attitude as time goes on much better than putting all your eggs in one basket will.

Adjusting for your Personal “Time Horizon”

Your time horizon is the number of years until you are expected to need the money. As you grow older, your time horizon will naturally change because there are fewer years until retirement. You may find that as your time horizon shrinks, so does your risk tolerance, in which case you may want to reallocate some assets. Investment experts recommend moving at least part of your portfolio into low-risk, stable investments that are capable of generating a small amount of income. This could require drastic changes to your portfolio unless it is already diversified somewhat.

Investing in a single commodity is not recommended for a number of reasons. Only when your retirement portfolio is as diverse as possible can you effectively mitigate risks while at the same time ensuring you have adequate funds available when needed. A diverse portfolio will also account for your changing needs both now and in the future.

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Smart Ways to Use your Tax Return

When your tax return comes in, it is always tempting to spend the entire thing on a shopping spree. As fun as a new wardrobe or sports equipment sound, there are much smarter ways to use your tax return. When you plan to spend the money wisely, you can avoid making financial mistakes that you will regret up until next tax season.

Emergency Fund

Financial experts recommend that everyone keep an emergency fund that includes anywhere from three to twelve months of living expenses including mortgage payments, groceries and utilities. This acts as a safety net to help with costs associated with emergencies like job loss, layoffs, sudden injuries or illness. Emergency funds can also be useful for sudden house repairs following a natural disaster, car repairs and other unexpected expenses. An emergency fund can help lighten the load when you are living paycheck to paycheck, enabling you to finally get ahead and stop stressing over money so much.

Debt Reduction

Give yourself a clean slate with your tax return and either eliminate or greatly reduce your debt. Select the bills that you have with the highest interest to pay off first in order to save more money in the long run. Credit cards can cost up to three times as much as the original amount you spent when you only make the minimum payment each month. Financial advisors point out that when you pay the minimum, you end up paying off a single meal for decades, so knock those out of the way as soon as possible. Next, pay off the debts that are accumulating on your credit score to help repair your credit.

Save for Retirement

If you do not already have a retirement plan, now is the time to start setting money aside to live on during your senior years. By allocating money during each pay period for your retirement nest egg and combining it in an interest earning savings account with your tax returns each year, you can ensure a comfortable life for yourself after you finish working. Use an IRA to manage your money much like a 401(k) but with better personal control of your savings. If your employer does offer a retirement plan, be sure to include that into your savings plans.

Career Training

Investing in your education is a great way to use your tax return. It is a lasting investment that can help further your career, interests and even confidence as a person. Some options include taking continuing education credits, taking a course that will advance your current position, enrolling in a master’s degree program or even entering college for the first time. You can also finally take costly tests needed to achieve your certification, pay for a tutor to help you complete a class that has given you trouble in the past or start a fund to help pay for your child’s future college expenses.

When you must spend something from your tax return after living frugally for a lengthy time, consider using the majority on something you need and spending a small amount on something special, like an outfit or a nice meal. You will still spend your money wisely without feeling as if you were unable to splurge a bit at the same time.

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