Al-Huda
Foundation, NJ U. S. A
the Message Continues ... 8/182
Newsletter for January 2017
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Things to Know About Money Before You’re 30
by Susie Poppick
Learning a few simple truths
today will pay off tomorrow.
Among the countless
stereotypes about young
people is the belief that they
manage money poorly.
Indeed, studies find that most
twenty something's fail
at answering basic questions about
stocks, mutual funds, and
interest rates, and fewer
than 40% of
workers in their 20s participate
in employer retirement plans.
But evidence also shows young
adults behave wisely when given
the opportunity. For example, if
you look at only those
millennials who are eligible for
401(k)s, the proportion of
participants rises
to 70%. And among those
who are saving
for retirement, twice as many
millennials as boomers are increasing
the percent of income going
to their 401(k) each year.
Making these stereotype defying
smart moves early in life can
pay big long-term: Think
millions. And those in
their third decade still have
plenty of time to learn basic
principles that will lead to a
happier, healthier financial
life.
So, if you haven’t yet, check
out MONEY’s list
of financial rules to learn
before you turn 20. Then
read on for things to know about
money by age 30 and beyond.
Negotiating pays dividends
Fewer than 2 in 5 millennials negotiate
their first salary.
That’s a shame, since 80% of
those who ask for a bump
actually get some if not all of
the money they request. Plus,
76% of hiring managers say
candidates who negotiate appear
more confident for doing so.
In addition to making you look
good, asking for higher wages
early on can make a huge
difference in your lifetime
earnings: Even just a 5% raise
at age 22 can net you almost $200,000
in extra wealth by retirement.
Always do your homework. You’re
more likely to get the salary
boost you want if you come
prepared with a specific figure
or range that
shows you are informed about
what’s most appropriate for the
position. And being similarly
detail-oriented pays off during
other financial negotiations,
such as when you want to bargain
down cable bills or
even medical
expenses.
Read next: 5
Big Myths About What Millennials
Truly Want
“My credit score
is…”
Only half of millennials have
ever checked
their credit by
ordering one of the three
free credit reports everyone
is guaranteed each year. And
their average score? A measly
625.
That’s a problem, because credit
scores are very important:
Having a good score allows you
to qualify for lower-interest
loans, which means when
you take out a mortgage,
for example, you may end up
saving literally tens of
thousands of dollars. Even if
you aren’t a homeowner, a higher
credit score means you will
qualify for better car loan
rates, insurance premiums, and
credit.
Improving your credit score can actually
be pretty easy, but first
you need to understand a few
unintuitive facts. After all,
it’s not just twenty some things
who have a lot to learn about
credit: Only 22% of people know
that having high credit-card
balances hurts
your score even if you
always pay on time. And only 30%
realize that managing multiple
accounts is better than having a
single credit card, since
lenders want to know you can be
responsible across different
loan and credit types. (Though
it’s a bad idea to apply
for a bunch of credit cards all
at once.)
Looking for other ways to boost
your score? Keep open old
credit cards you no longer use (assuming
they are paid off and don’t come
with an annual fee). And, of
course, always pay your credit
card bill on time.
You need emergency savings no
ifs, ands, or buts
A recent study found that only 1
in 3 millennials has enough
money saved
for a single emergency room
visit or car repair forget about
covering rent and food in case
of a job loss. If you leave
yourself with no cushion, just
one unexpected expense can send
you into debt that might end up following
you around for years and
even impact
your relationships.
So while your 20s might be a
great time to invest
in your skills and experiences with
travel, grad school, and other
worthwhile expenses, it’s
imperative that you sock away
enough cash for
worst-case-scenarios.
How much? Experts suggest making
sure you save enough money to
cover between‘ worth of living
expenses.
Managing your 401(k) can be
simple
Even if you know in theory that
you’re lucky to work for a
company that offers retirement
benefits, you may feel
overwhelmed and turned off by
the pages and pages of fund
information from your plan
provider. You wouldn’t be alone,
as more
than half of Americans are
confused and stressed about
their 401(k)s.
Just remember three basic
principles: Maximize
contributions, minimize fees,
and diversify investments.
Contributing as much as you can,
ideally around 10
to 15% of income annually,
will set you on the best
possible path to retirement. If
you can’t afford to put away
that much, at least make sure
you are saving the minimum
amount that will qualify you for a
full match, assuming your
employer offers one, otherwise
you’re leaving free money on the
table.
Also watch out for fees, which
can eat away at your savings,
potentially to the tune of hundreds
of thousands of dollars.
Try to choose funds that charge
expense ratios of less than
0.5%, especially low-cost
indexes costing
only a fraction of that.
Many of those same index funds
may come bundled up in what’s
called a
target-date fund,
which contains a mix of stocks
and bonds appropriate for your
age. Just check that the fees
are low and the fund is
diversified both in
terms of geography and the size
of companies in
which it invests.
Bonus tip: Do not think of your
401(k) as an emergency fund.
Thanks to hefty taxes and a 10%
penalty, a seemingly minor cash
out could easily cost you four times as much in forgone savings.
Debt is surmountable if you
don’t ignore it
Two out of every 5 millennials
has credit
card debt. And a similar
proportion has student
debt in
addition or instead.
Student debt can be manageable
if you start tackling it soon
after graduation: Once
you start working, there are
programs that can help reduce
your burden, both in terms of
monthly payments and
if you work in a qualifying
field in terms of the
overall balance.
Credit card debt, on the other
hand, may feel particularly
inescapable. If you struggle to
pay even the minimum each month,
it can
be especially discouraging to
watch the interest you owe grow
and grow.
One short-term fix: Consider a
transfer of your
highest-interest balance to a
card with a lower rate. Check
out MONEY’s list of best
credit cards, including
the best low APR cards for those carrying
a balance.
Then take a page from the
behavioral finance book and
focus on tackling
small balances first. The
so-called “snowball”
method works
because the small victories of
paying off lower-balance debts
first help to motivate you to
keep going.
Read next: What
Millennials are Getting Right
About Retirement
You’re never too young for tax
planning
You might think you can put off learning
tax strategy until
you’re older and your income is
higher. But there are important
tax perks that twenty some
things can start taking
advantage of right out of
school.
One big one can help you offset
your debt: You can deduct up
to $2,500 in student loan
interest to
reduce your taxable income, even
if you aren’t itemizing other
deductions.
You can also deduct your moving
expenses if you have to relocate
for a new job as long as you
move more
than 50 miles for
the position.
Finally, if you earn $30,000 or
less, you can actually earn a
credit of up
to $1,000 for the first $2,000 you
contribute to a retirement
account each year.
A home isn’t always an
“investment”
You may have heard that investing
in real estate can
earn high returns. But remember
that there’s a big difference
between investing in the real
estate sector, say
by purchasing an
investment property that
you rent out for a profit, and
buying a home to live in.
A well-maintained home in a
desirable neighborhood certainly
can increase
in value. But
transaction costs will likely
counteract any gains if you
don’t live in the home for at
least 5 years. Plus,
most homes
won’t actually appreciate
quickly enough to
beat inflation by more than a
modest amount if that.
So unless you plan to rent out
part of your house to generate
income, don’t assume your home
is going to be a killer
investment, even if it is a very
nice place to live.
Expensive weddings are
correlated with shorter
marriages
Fun fact: The average
cost of a wedding in the United
States is
more than $26,000.
Less fun fact: A recent study
found that couples whose
weddings cost more than $20,000
were 1.6
times as likely to divorce than
couples who spent between $5,000
and $10,000 and those spending
$1,000 or less had a
lower-than-average divorce rate.
The researchers did not study
the underlying cause of the
findings, though they floated
the possibility that lower
expenses led to less marital
strife. Either way, if you’ve
got a wedding in your future,
you now have at least one
compelling reason to control
costs.
To cut
wedding spending,
consider three easy money-saving
hacks: choosing a relatively
inexpensive public or city owned
venue, asking for cash gifts to
a site like Honey
fund instead
of traditional registry gifts,
and inviting talented friends to
pitch in on food prep and
decorations.
Read next: What
Everyone Gets Wrong About
Millennia's and Home Buying
Kids are very, very expensive
The cost of raising a child to
adulthood is a staggering quarter
of a million dollars,
according to one recent measure.
And that doesn’t even include
the costs of pregnancy and
college.
Waiting to start a family until
you are in your 30s can help a
little, since your salary will
likely be higher and you will
have (hopefully) already gotten
a head start on retirement
savings. Higher income also
means you can afford to put away
more for college each year.
That said, there are also
financial upsides to having kids before 30,
including greater
tax relief and more
future empty nest years during
which you can power-save before
retirement.
No matter when you decide to
have children (assuming
you choose to at all)
it’s never too early to start
learning about 529
plans and
other alternative
savings vehicles you
can use to save for college
which is looking to cost more.
The race is long and with
yourself
Social media might be great for
keeping in touch with friends,
but it enables a voyeurism that
makes people compare themselves
with their peers.
That, in turn, can have negative
consequences, like overspending and
even
depression.
The truth is most people project
an idealized version of
themselves online, and so those
possessions, careers, and
glamorous-looking lives you may
envy are likely less glowing up
close than through the filters
of Facebook or Instagram.
Remember all you’re not seeing:
The work frustrations, debt, and
personal disappointments people
tend to keep to themselves.
Instead of comparing yourself to
others, focus on your own goals.
If you know deep down that you
hate your job and are just doing
it for the salary or status,
start hatching an escape plan:
You deserve a career that makes you happy and fulfilled.
Finally, know that money
for the sake of money can’t buy
contentment. Happiness
comes from wisely using what you
have to protect against shocks
and build joyful memories with
the valued people in your life. |
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