From the President Archives

For our younger Millennials and Gen Z's out there, this could give you some insight on what to do with your extra cash to plan for your future. Unfortunately, life doesn't give you a participation trophy to cash in for retirement funds...you've got to earn it and make sure you put money in the right places to do it. 1. 50/30/20 Rule For those that aren't familiar, the 50/30/20 rule is a good way to budget your personal finances - 50% needs, 30% wants, 20% savings/debt repayment. Take a look NerdWallet's 50/30/20 worksheet to assist you with this. For investment purposes, we want to look at that 20%. Ideally, you want your savings/investing to equal 20% of your income after you pay down any credit card or loan debt. Does your company offer a 401(k)? Before you invest money, it is a good idea to make sure you are getting the full benefit of your company's 401(k) match if they have one. Say that your employer offers a 5% match; you want to put 5% of your income (if you can) into your 401(k) every payroll to get the full 5% match. Your company is essentially giving you an extra 5% pay if you do - that's free money you don't want to miss out on. After you can afford that, start saving and investing elsewhere in addition to that. The 5% match example given will put you at 10% of your total income, so you would be half way there! 2. How much should I put into savings vs investments? This is truly up to you. After that 401(k) match, it is usually best to save until you have enough in your emergency fund, then start investing your money. Your emergency fund needs to be at least 6 months' expenses. I.e. Say you make $32,000 after taxes, but your average monthly expenses are $2,000. You should save $12,000 for your emergency fund. The remaining money you don't spend monthly can then be put towards investments. 3. Where should I invest? There are quite a few options for investments: real estate, stocks & bonds, and even insurance policies, to name the basics. Real Estate Depending on the housing market, this could be a very good investment. The caveat is that it is more work than say, stocks & bonds. You can buy a property and sell it for a profit, lease it out to someone else, or inhabit it and cash it out for some money with a refinance later down the road - your choice. If you don't have time to spend to cultivate this investment, this may not be for you. If it does sound like something you would like to get into, rates are extremely low right now and now is the time to pounce. (There's our shameless plug. You had to know that was coming, right?) Stocks & Bonds This is the classic investment strategy. Go to an online stock broker like Charles Schwab and do your research! Here's some general rules and terms to be aware of: Stocks are usually higher risk and reward. Bonds are lower risk and reward. Diversification - This is key. Make sure you put money into companies in different market sectors in case one of those sectors or companies you invest in goes down or crashes. Don't put all of your eggs in one basket! 20 Year rule - Generally speaking, as long as you diversify enough, you are almost guaranteed to make money on your investments over 20 years. The future is always uncertain, but this is what economists have observed since the stock market's inception. Realized Gains - Profit from selling a stock. Unrealized Gains - Profit if you sold your stock at that particular moment in time. Buy low and sell high - unless that low priced stock looks like a bad idea... Taxes - You are only taxed on realized gains from the last year. Long-Term - means you have this stock for more than a year. These are taxed lower that short-term stocks. Short-Term - means you have this stock for less than a year. These are taxed higher than long-term stocks. Limited Order - You can make a limited order to have your broker buy or sell a stock when it reaches a certain price so you don't have to sit there and check for when it hits a certain value. Remember: This can seem like a video game, but this is your hard-earned money and a form of gambling. Be smart and educate yourself before you invest in the stock market! Insurance Policies Sometimes insurance policies can have a higher rate of return than the average stock market venture. It's usually not best to get insurance for something you don't need, of course. It's a good idea to get a disability insurance policy if your company doesn't provide one. These are policies to pay out money to you if you get injured to the point that you can't work for the rest of your life. Life insurance is a good thing to have to keep your family protected if you pass away. These sometimes have the higher rate of return, depending on provider. If you are single and have enough money and assets to cover a funeral, then you probably don't need this. Contact a financial advisor! It is helpful to have a financial advisor on your side to create a plan for your future. You can learn a lot of stuff on your own with the internet, but a professional usually gives better results.

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