Personal Finance - Saving and Investing
Disclaimer: I’m not a certified investment adviser. I do have an education in accounting and finance, with more economic classes than I wanted, was a very successful commodities trader, and successful investor.
The first part of this isn’t about money, because the most important investment people make or don’t is in themselves, physical and mental health. Then education, formal and at work, and being an informed voter. The latter is more important than too many people think, because political leaders determine the financial welfare for all of us.
Regular exercise is essential for physical and mental health, as is a balanced diet without excessive eating. To some extent adult onset diabetes can be prevented or delayed. Muscles and joints need regular exercise. Some back problems can be prevented, being in good shape physically means less damage and quicker recovery from illnesses, accidents and surgery.
Learn the “relaxation response”. Physical and mental health are strongly connected. Some people find the response in prayer, some in meditation. I learned Transcendental Meditation from an English professor in college. She learned at the same school in India as the Beatles. It helped me get through some of the roughest times of my life.
Feeling and expressing gratitude is a key to longevity, as is interaction with other people. We all have benefited from our society and good people. Seek out mentors. Give back what you can, financially and volunteering.
Learning to save is essential to financial well being. You may think you can’t save much, but you can save something. Create a budget, and learn where and on what you spend. I’m sure there are cell phone apps for recording expenses.
Pay yourself first. Every paycheck or cash receipt put a few dollars in a bank or credit union savings account. If you’re fortunate to have a job that has 401k deposits, max them. Join a credit union, open a savings account there.
When you‘ve saved enough to cover short term or emergency expenses, generally thought to be six months wages, open a mutual fund account. By “short term“ I mean recurring expenses such as insurance payments.
Interest rates have been very low the last few years. They won’t always, inflation has increased recently and will more. In 2023 and after it will probably be 3%-5% a year. Traditional bank savings accounts pay very low interest, some online banks pay higher rates, but stocks and bonds usually do better.
$50/mo for 20 years at 6% interest is $22,231.
It's a really good idea to create a Roth IRA account, the maximum annual contribution is $6,000. It can be in a mutual fund, the same firm you use for your long term savings. It's after tax income, the growth is not taxable when withdrawn.
https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp
If you have young children or grandchildren invest in 529 accounts for their college expenses. If you live in a state with a state income tax there may be state 529s that have an advantage. Otherwise the Alaska 529, administered by T. Rowe Price is one of if not the best. It includes in state tuition and fees for non-residents.
A great way to invest with security is buying U.S. government bonds. Sign up at TreasuryDirect.Com, where you can buy electronic E or I series bonds, or TIPS, Treasury Inflation Protected Securities. I bonds and TIPS pay adjusted rates based on current market interest rates. The best thing to do is set up regular purchases, and then forget about them.
You can buy EE bonds as investments for yourself or as gifts for others, holding the gift bonds in your account or send them to others. Some employers may offer deductions for bonds from your pay.
Choose a reputable investment firm. We use T. Rowe Price, which I recommend. I transferred a 401k from Fidelity because I wasn't happy with their customer service or investment options.
I looked at the best funds and fund managing companies for 2022, particularly for young people. Fidelity, Vanguard and Schwab are the top rated for small investors. I have experience with Fidelity and Vanguard, not good experience with Fidelity. Schwab is simple, inexpensive, and flexible.
Choose good “no load” mutual funds, no commissions when you deposit money. Very few investors or fund managers beat index funds. Schwab has a good S&P index fund.
If you haven’t seen the movie “Trading Places” watch it, and pay close attention after “Tell him the good part.” There are exceptions, one of my most successful investments was with American Funds, 4% fee up front, a “front load“ fund.
Leave market timing to professionals, and commodity trading. I was a very successful commodities trader, a lot of fun with other people‘s money. I had the help of some really intelligent people and several mentors. If you want to learn statistical analysis let me know.
Avoid like the plague Dave Ramsey or for profit advisers that collect commissions. Ramsey has some good advice, but he’s made $millions selling it and contact information to commission brokers.
When/if you’re able and circumstances permit buy a house or condo. Now would not be a good time. the housing market is inflated. Investment in housing is one of the best ways to increase personal wealth.
As always, this is subject to revision and constructive criticism is welcome.
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