How would you like to be a millionaire when you retire? Silly question, right - who wouldn't? But when you think about it, if you're a long way from retirement, you're actually going to need to plan on having quite a bit more than a million dollars, for three reasons. The first is inflation: a million bucks won't be worth anywhere near as much as it is now! The second is longevity; people are living much longer these days (and presumably will be living even longer in the future), so the retirement nest egg needs to last for a long time. The third is quality of life; if you're not working, you'll presumably want to do other things, and doing things generally costs money!
Suppose you decide that you should be able to live well on $100,000 per year in today's dollars, and that you plan to retire in 30 years. At 2% annual inflation, you'll need to receive $181,136 per year at the start of retirement, and that will increase each year thereafter. To reach this goal, you have two choices: you can invest in an annuity or build up a sufficient nest egg to provide for that amount. Let's consider what it will take to reach the former.
Suppose that you're going to invest in stocks returning an average of 10% per year until you retire, and then switch to a more conservative mix returning 5% per year. (Of course, you would really start getting more conservative as you approach retirement, but we'll do it this way to keep the math easy). If you withdraw 4% of your nest egg each year, it will keep growing and you can live off of it indefinitely. So you'll need to save up $181,136 x 25 = $4,528,400 - a bit more than a million! As it happens, you'd need to save about two thousand dollars per month to reach this goal.
That sounds like an awful lot of money, doesn't it? $24,000 per year. Of course, if you only need $50,000 in today's dollars to live on (a more realistic estimate for most people, considering that you should have your house paid off and no debt), then you'll only need half as much money and can do it by saving just one thousand dollars per month. Still a lot, but if you and your spouse are making a combined $60,000 (which is less than the $50k you want after you deduct work expenses), that's 20% of your salary..tough, but hopefully not undoable.
Average Retirement Age
You may have heard that one of the reasons that Social Security is starting to have trouble is that, back in the 1930s when the program was started, not all that many people lived to be 65! Over the decades, the average lifespan has gone up much faster than the retirement age; as of this writing, while reduced Social Security benefits are available from age 62, the retirement age to collect full benefits is gradually increasing (by 2 months per year) from 65 to 67, and it has been proposed that this should increase further.
But forget full retirement age for a moment; what's the average retirement age? According to the US Census Bureau, in the US the average retirement age is 62 (and this has been decreasing) and the average length of retirement is 18 years (and this has been increasing). What does this mean? We're retiring earlier, and living for longer. That makes it even more important to start planning and saving now, as we have ever-fewer years to save ever-more money for retirement. However, note that just because the average retirement age is 62 doesn't mean you're required to retire then - every extra year you work is quite a bit more than a year longer you can live without running out of money. You may want to have as many retirement years as possible, but isn't it better to be financially secure and ready to enjoy them?
What does financial freedom mean to you? For many people, it means getting out of debt. For others, it means having enough money to retire. Still others think that financial freedom means owning a nice home and having enough money to eat out every night. What does it mean to you?
I define financial freedom as meaning that you no longer need to worry about money; in other words, you have a large enough nest egg (or sufficient passive income) that you can pay your bills for the foreseeable future without needing to work. Jobs can disappear at any time; freedom is forever.
So what are the steps to becoming financially fee? First, obviously, is to get out of debt!
The rich rules over the poor, and the borrower is the slave of the lender.
Debt can be an effective financial tool; by leveraging the money you already have, you can create wealth more quickly than you could otherwise. Unfortunately, in today's society most debt is taken out not to create wealth or to survive, but for convenience. We want what we don't have, and we don't want to wait or work for it. Thus, the magic piece of plastic makes the wait go away! To become finally free, you must rid yourself of debt; you must be saving for the future rather than paying for the past.
Second, of course, is to build a nest egg. When I retire, I don't want to have the same standard of living as I do now, or worse; I want to travel the world and do whatever I like! With compound interest, it's easy to save now and play later. Ok, that's not quite true - saving is never easy, at least until you get into the habit! I recently calculated that if I were to accumulate $300,000 in retirement savings by the time I turn 40, I'd have the retirement fund I need ($3 million) when I reach 65 without ever saving another dime. Ten years earlier, I'd need only a third as much for the same result!
These days, we spend entirely too much time worrying about money when we should be enjoying life. The key to reaching financial peace, financial freedom, is to simplify, avoid buying what we don't need, avoid going into debt, and save for the future. Revolutionary? No. Surprising? No. Effective? Yes.
Buying a New or Used Car
You have, no doubt, heard the conventional wisdom that it is always smart, financially, to buy a used car rather than a new one because they depreciate so much in the first three years. Ten years ago, this was probably even true.
These days, however, it's not so clear-cut as all that. Due to a number of factors - more demand for used cards, less production of new cars, Cash for Clunkers - the price gap between new and used cars has narrowed dramatically; in unusual cases, used cars have sometimes gone for more than new models!
When buying a car, first decide what type of car you want and what you're looking to spend. The ideal, of course, would be to get what you need for a low price and pay in cash., but of course this isn't always possible. Once you've decided what car you're interested in, then consider the price difference between buying new and used and ask yourself whether the extended warranty period and lower mileage are worth the price difference. Also, be sure to take taxes into account, particularly if you're looking at energy-efficient vehicles; your state, for example, might offer tax credits for the purchase of new electric or hybrid vehicles.
Get the financial stuff figured out, and then you can concentrate on picking out the right color..
The Three Best Money Related iPad Apps
The iPad, like all of Apple’s products before it, has taken the world by storm. It is the latest and greatest in the "smart" device revolution and every techie is clamoring to get one. Of course, just like all of Apple’s products before it, the iPad is expensive and will put a dent in your wallet. Luckily, there are already a ton of great apps for the iPad specifically designed to help you keep track of your finances.
Many iPad apps cost money to download and install, but there are plenty of free apps out there. Since spending money to keep track of your money seems a little foolish, check out these apps: useful, effective, and completely free. Whether you need to keep track of your online business or just note down your monthly spending, here are the top three best iPad apps to keep your finances organized.
If you’re one of the many iPad users who takes part in the internet marketplace - and, these days, who isn’t? - the free app Square will help you keep track of your transactions. You’ll be able to accept payments through Square for your business or charity. You can, of course, also use Square to accept money from friends or other people in your personal life. Square will help you out with calculating sales tax on your transactions and even automatically produces email and SMS reciepts for both cash and credit card payments. Square is particularly popular among iPad users who appreciate app interfaces that rely mostly on images, providing a visual representation of your financial transactions.
E*Trade Mobile Pro
E*Trade is well known for helping every day people get involved in stock market investing. Wall Street is an ominous, complex system for beginning investors and companies like E*Trade make their money helping every day people actually make a profit when playing the stock market game. E*Trade has recently released an iPad app to help investors everywhere keep track of their investments. The app is customizable so you can keep track of your individual investments, but the app also gives you up to date investment news.
EZTip Calculator Tip Agent
Even the most money aware folks can have trouble dividing a dinner bill into multiple parts and adding in a tip, too. The same goes for splitting up rent and utilities in a shared house or when calculating how much each sibling should pay towards that present for mom. Whatever it is you’re dividing up, the EZTip Calculator is one of those apps that might seem superfluous until you find yourself in the exact moment in which it was made to shine.
So there you have 3 great and completely free iPad apps to help you get the most from your money. Join in on the "smart" device revolution and make your money use smart as well.
Affordable Auto Insurance
One of the hardest parts about saving for retirement is reducing your monthly expenses so that you actually have money to save. If you drive a car, one of your "fixed" expenses is going to be auto insurance; after all, it's required by law. But are you spending more than you need to?
How much car insurance you need naturally depends on several factors, most notably the value of your car. If you're driving around a piece of junk worth a thousand dollars or less, you probably don't need collision or comprehensive coverage; after all, why pay to insure the car when it's probably destined for the junkyard within a year or two anyway? You should probably be saving your money so you can purchase a new car in cash when the current one dies.
On the other hand, you don't particularly want to skimp on liability; remember, if you do happen to cause an accident, you want to have enough insurance to cover the total bill so that your personal assets aren't at risk. Even if you don't have much in the way of assets, you could still wind up with a judgment against you. Liability insurance is required by law, but if you have the option of how much to buy, this isn't the place to get cheap!
On the other hand, if you have a nicer car, it's worth carrying enough insurance to cover replacing the car if something happens. Insurance is what we call a negative expectation investment to lower variance: you pay more than you expect to get back so that if something does go wrong, it's not a major disaster.
So once you've decided what coverage you need, how do you get the best rates on that coverage? It goes without saying that you should start by shopping around, although you shouldn't automatically go for the best price; customer service can be important as well. For example, when the author's car was damaged in a hit and run, his insurance company (USAA) took care of everything, including scheduling the repair and arranging for a rental car for a week, with no trouble at all.
Naturally, your driving history influences how much you'll pay; more than an occasional traffic ticket can send your rates shooting up, especially if you're convicted of an alcohol-related violation. You also want to avoid ever dropping your current auto insurance without having other insurance in effect first; if you're without insurance at all, you're basically at the mercy of the insurance companies.
There are also ways to lower your rating. For drivers under 25 years old, many insurance companies will give a discount for getting good grades, as they believe that good grades indicate someone who takes responsibility and thus will also be responsible behind the wheel. Similarly, a high credit rating also helps get the best rate.
When it comes to the car itself, the insurer would naturally prefer that you have a car less likely to be stolen; this could be because it's a model that is stolen less often or because you have some type of anti-theft or theft recovery system in use, such as the club or Lojack. Cars that have better crash ratings are cheaper to insure as well, as they're less likely to be totaled in a crash. And of course, a more expensive car costs more to insure as well.
Perhaps the largest discount comes from having multiple vehicles insured with the same company, so make sure that everyone in your household is under one policy! The author saved $75 per month simply by moving his wife onto his policy when they got married. Many insurance companies will give you a discount when you buy multiple policies (auto, renter's, etc) as well.
Auto insurance is one of those things that, unless you don't own a car, you simply have to have. It's worth taking the time to bring the cost down as much as possible.