10. Credit Cards – credit cards are fine for purchasing airline tickets, for an overnight stay in a hotel, renting a car, or having the option of not carrying lots of cash. Unfortunately, most people abuse them by spending, spending, spending. Remember, this is not your cash! It is nothing more than a loan that charges you brutal interest rates. Simply, if you cannot pay cash for something, than most likely you can’t afford to buy it. By the way, you should own no more than two credit cards.
9. Emergency Fund – sounds corny and boring doesn’t it? But I have to tell you, life always throws a few curve balls. The roof will leak, the muffler will erode, the water tank will break, the toilet won’t flush, etc. Since there is a good chance that something will eventually happen that we can’t foresee, keep a few hundred dollars in an emergency account just in case. You will be happy you did.
8. Inflation – you probably aren’t familiar with this financial jargon but inflation is best known to us (financial advisors) as “the silent killer”? Do you have any idea what that mean? I thought maybe you didn’t but let me provide an example that may bring some clarity. Do you remember what the price of bread, milk, gas, stamps, chicken, sugar, a college education were a few years ago? Yep! Much darn-gone cheaper than it is today! Like a “silent killer”, inflation is something you cannot see, hear, taste, or smell but your purse/wallet feels most of the pain. Unfortunately it seems that food, clothes, and most all other items continues to increase in price while our incomes stay the same. Destroying our buying power.
7. Employer Contributions – it is sad that some people neglect to participate and contribute to their company’s 401(k), 403(b), and 457 plans at work. Some say that they can’t afford to and in the meantime – risking their ability to save and build their retirement funds. The more you make and not pay yourself first, the more you give away to Uncle Sam. Always pay yourself first! Some employers even provide a match in which helps boost your portfolio. Do not leave money on the table and participate in these plans ASAP.
6. Taxes – they are a necessary evil in the U.S. but there are strategies that can help you pay less and/or delay them totally. One example would be your 401(k). You do not have to pay taxes when contributing to an IRA or an employer sponsor plan – even as the funds in your plan(s) increases over time. As your portfolio grows, you are not required to pay taxes on any gains until you begin to withdraw money from them. In fact, the more you contribute to such plans the less you have to pay in taxes each year to Uncle Sam.
* Stay tuned for the Final Five in our next post