Benefits of Starting Retirement Saving in your 20s

Although retirement may seem like it will never arrive when you’re in your 20s, the truth is that your working years will pass you by quicker than you could imagine. Once you reach your late 30s or even early 40s, it can become increasingly difficult to start saving for retirement due to family and financial commitments. Below are some benefits you will enjoy by starting to save for your retirement years in your 20s.

 

You can Take Advantage of Compounding Interest

Compounding interest is by far one of the biggest benefits you will get to enjoy when you start saving for retirement as early as possible. It is a lot easier to let your money work for you over a timeframe of 40 to 50 years than over 15 to 20 years, meaning that you will be able to set aside a smaller amount of money each month when you’re younger as opposed to when you reach your late 30s or even 40s. Research has shown that individuals who start saving for retirement in their 20s can end up with as much as four times more money over time than those who delay their plans.

 

You will Have Freedom of Choice

Another distinct benefit you will have when starting retirement saving as early as possible is that you will have the freedom to choose how you will spend your time once you have exited the workforce. Are you keen to take a world cruise? Would you like to spend more time with your children and/or grandchildren? Do you want to do volunteer work for a charity that you love? Having sufficient retirement funds on hand will enable you to enjoy your golden years to the fullest. 

 

You won’t need to Rely Solely on Social Security

Although social security benefits are intended for retired persons to live on once they have stopped working, the harsh reality is that the payouts received will not even cover many basic items in full such as rent, food, clothing and transport. However, if you are prudent and start to save a minimum of 15% of your income in your 20s, you will not need to worry about how you will cover living expenses when reaching your 60s and 70s. 

 

Most People will be able to Take Advantage of Employer 401(k) Matches

Many employers still offer to match employee’s contributions when they are being made to a 401(k). Not only does this technically equate to free money in your retirement account; it will help your fund grow substantially faster over time – in many cases, up to 50% faster than other traditional forms of savings. 

While the topic of retirement saving may seem overwhelming, this need not be the case when you hire the services of a qualified and experienced financial planner. If you would like to learn more about planning for your golden years or you have any questions regarding investments, contact our friendly team today. 

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Why it’s Essential to Teach Kids about Finances

It’s no secret that the earlier your kids are taught how to save, spend and invest their money, the better money managers they will become as they grow older. This will enable them to live independently and manage their lives far better over time as well. Here are a few compelling reasons why you need to start teaching your kids about money as soon as possible.

 

It Helps them Develop Good Money Habits

A study undertaken by the University of Cambridge noted that in most cases, a kid’s money habits are solidly formed by the time they reach the age of seven. This means that if you are whipping out the plastic to pay for everything from groceries to clothing to school supplies, your kids will think that it’s OK to make all of their future purchases on credit. However, your kids will notice just as much if you are paying cash or using a debit card for purchases and in most cases, they will follow suit as they become older. 

 

They Learn to Earn their Money

Many parents make the mistake of simply handing out allowances without expecting their kids to do any work in return for the money. This not only creates a sense of entitlement over time; it will not show your kids that that they have to earn any money they receive when they become adults. Instead, it’s recommended that allowances be linked to chores that are over and above those that they perform regularly. 

 

They can Learn about the Dangers of Credit Card Misuse

Once your kids turn 18 years old, companies offering them credit cards will inevitably hound them. If you haven’t taken the time to teach them how to use credit cards responsibly, they could find themselves in financial dire straits within a very short time. 

 

They can get a Head Start on Investing their Money

Kids who are taught about money and how investments work from a young age stand a far better chance of being able to manage their funds, as they grow older. If you are actively investing money into various platforms, there is no reason why you cannot teach them how these can be used to enable their money to work for them over time in the form of compounding interest.

 

They can Practice Setting up a Budget

It’s far better to have your kids learn to budget and make their money mistakes while they’re still living under your roof because financial errors that occur once they’re out on their own will cost them dearly. Providing them with an app such as EveryDollar will not only help teach them to budget even the smallest amounts of money; it will do so in a way that they enjoy – by means of using a phone app.

If you have kids and would like to teach them how to master their finances from a young age, but aren’t sure where to or how to get started, contact us today. Our team will be more than willing to assist you.

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Pros and Cons of the FIRE Movement

FIRE stands for “Financial Independence, Retire Early” and this movement has gained substantial momentum over the past few years – with many individuals retiring from the work force in their 30s and 40s. While it can be extremely appealing to not have to work for the next 30 to 40 years of your life and spend your time as you wish, this type of retirement plan should be viewed with a level of caution.

 

Pros

It Encourages a more Meaningful Lifestyle

Although you will need to have sufficient funds to become a part of the FIRE movement, it is less about the amount of money you have and more about being able to use your time in any way you like – instead of being chained to a desk in a job you despise. It means not having to beg a boss for time off to take a walk along the beach if the weather is decent on a weekday.

 

It can Provide Flexibility to your Retirement Years

Many people think that once you’ve achieved FIRE status, you will not never go back to work again. However, this is not necessarily the case because a number of individuals choose to continue working, but on projects they love. Others may donate their time to causes that they are passionate about. 

 

It Encourages you to Save More Money

Most individuals who are aiming for FIRE status have fairly large goals with regards to saving money. As a result, they will find many different – and often creative – ways of achieving these goals. In fact, many people who support this movement aim to save at least half of their income – and more. 

 

Cons

Social Programs and Tax Structures could Change over Time

Several individuals plan their retirement strategies around the fact that they will be able to rely on Social Security and Medicare to assist them in their later years. However, more and more research is revealing that Social Security may become virtually non-existent in less than 20 years, while Medicare could end up costing a lot more than planned – especially if serious health conditions develop after an individual has retired early. 

 

Plans to Rejoin the Workforce at a Later Age could Backfire

Although unemployment rates are currently at their lowest level in four decades, there’s no way to determine what could take place in the job market in the next 10 to 20 years. While an individual may think that they will be able to use their skillset to rejoin the workforce at a later stage, the economy could have other ideas in that regard over time. As a result, it may be better to stick with a position that provides you with health and/or retirement benefits. 

While it can be extremely tempting to retire in your 30s or 40s, you will need to have a solid financial plan in place to ensure that you have sufficient funds to live comfortably for many years. If you would like to learn more about saving for your retirement years, contact us today. 

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Why you should Use a Certified Financial Planner (CFP)

When starting to save and invest money, many individuals think that it will be too expensive to hire an accredited and experienced financial planner. However, it has been proven time and time again that you could be losing a lot of money over time by trying to manage investments yourself. Below are a few reasons why you should enlist the services of a certified financial planner when working with your money.

 

They Possess or are Working Towards the Relevant Qualifications

All certified financial planners (CFP) have to be in possession of a four-year Bachelor’s Degree or be in the process of obtaining one from a relevantly accredited educational institution. Although it’s not necessary to have completed their Bachelor’s Degree when taking the CFP examination, they will have to earn it within a maximum of five years of passing it.

It is also essential for a CFP to complete a minimum of five college-level courses offered by institutions that are suitably approved by the CPF Board. Coursework will involve subjects including tax planning, general principles of financial planning, risk management, estate planning and financial plan development.

 

They will help you Make Informed Decisions

If an individual’s financial knowledge is sketchy, it can be too easy for them to make rash decisions regarding their finances and investments – especially where crypto currencies are concerned. Too many people have become caught up in the hype surrounding these currencies and as a result, have lost thousands of dollars. However, when working with a CFP, he or she will be able to help you navigate the financial waters and make the best investment decisions possible over time. 

 

They can help Reduce your Tax Burden

One of the main roles of a CFP is to help you understand your financial portfolio in the simplest and most tax-effective manner possible. This includes dealing with aspects such as regular income tax, donations tax, business-related taxes, retirement taxes and all other forms of tax that could apply to your financial situation. Knowing how to have the tax laws work in your favor could help you reduce your IRS bill in this regard by hundreds or even thousands of dollars per year. 

 

They will Provide you with Valuable Information

A CFP will be in the ideal position to provide you with many hints, tips and strategies that can help increase the size of your nest egg substantially over time. A larger investment will provide you with a level of peace of mind that will not be able to be obtained in any other way. 

Before agreeing to work with a CFP, it’s essential to ask if they are suitably accredited and certified. This will ensure that you are dealing with a professional that has your best financial interests at heart. If you are interested in learning more about hiring the right certified financial planner to work with you, get in touch with our team right away. We will be more than willing to help you achieve your financial goals. 

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