It's never too late to put yourself on the path to financial health. The following are some financial do's and don'ts that will help to guide you along the way:
â€¢ Don't be afraid of retirement savings plans. If your company offers a 401(k), you should take advantage of it. Even if you can only afford to contribute a small percentage of your salary, the money you save will have the opportunity to compound over the years. Also, many employers match employee contributions to their 401(k) plans, which can help build your nest egg for retirement.
â€¢ Do max out your IRA. Keep in mind there are different benefits associated with different types of IRAs. With a Roth IRA, for example, you have the flexibility to withdraw the money you contribute to purchase a first home or for educational purposes. Even if you are participating in another retirement plan like a 401(k), you may still contribute funds to a Roth IRA and do so on an after-tax basis, meaning your distributions will be tax-free later in life. With a traditional IRA, your contributions may go into the account tax deferred but you may be taxed when you begin taking distributions. Early IRA withdrawals can be subject to penalties, so be sure to consult with a financial advisor before taking them.
â€¢ Do start an emergency cash cushion.We hate to think about bad situations, but in the case of a dire emergency you'll probably need cash on hand. Keep in mind that while you can obtain cash by selling investments like stocks, it may take a couple of days to process the transaction. As a result, it's a good idea to keep about 3 months' worth of expense costs in an account that can be accessed immediately.
â€¢ Do plan ahead. Develop a monthly plan to set aside a certain amount of money every month to help you reach your financial goals. It's easier to save $100 per month for 6 months for a family vacation than trying to fork out $600 all at once.
â€¢ Don't forget to review your portfolio. If you have recently had a baby, changed jobs, or are planning to pay for a child's college education, you may have to adjust your portfolio in order to reflect your new situation. It's important that your investments reflect your current financial goals, risk tolerance, and time horizon.
â€¢ Don't ignore your asset allocation. It's important to check if your investments are properly diversified and have an appropriate mix of different investments that can help you meet your financial targets.
â€¢ Do take advantage of financial calculators. Many financial service Web sites now have calculators that can help you with certain tasks, such as figuring out how much money per year you'll need to save for your child's college education or for your retirement. Keep in mind these calculators are simply for illustrative purposes and you'll need to work with a financial professional for a complete financial plan.
Joseph F. Lagowski is VP investments
and a financial consultant
with A. G. Edwards in
Hillsborough, NJ. He welcomes
questions or comments
at 800-288-0901 or www.agedwards.com/fc/joseph.lagowski. This article
rovided by A. G. Edwards & Sons,
Inc, member SIPC.