End Your Reliance on Credit

To be successful, you’ll have to understand that living on credit is no longer a viable alternative. You’ll have to end your spending ways and ensure you put a plan in motion not to spend any more. What does this involve? Well, depending upon how bad your spending habits are it might be as simple as making a conscious decision to stop. Some people are able to stop and nip it in the bud, so to speak. However, in a number of cases it may not be that easy to stop. It might just be a question of needing to end your access to credit entirely. Either way, if you’ve decided to put an end to overspending, make sure to know if you have the ability to consciously stop. If you need further help, consider cutting up your credit cards or leaving them with a loved one. Whatever method you choose, just make sure to end your access to buying on credit.

Rediscover the Meaning of Money

Ever notice how money rarely exchanges hands these days? We’ve become accustomed to buying on credit or using debit, that money is rarely used. It’s this disconnect with money that leads to people abusing credit. Put an end to this by giving yourself a weekly budget to spend. At the beginning of each week, take out some money and no more. This will be the amount you have available to spend until the following week. You won’t buy on credit and won’t use debit. All you can use is the money you have in your hands. You’ll likely find that you’ll have to make real decisions about where and how you spend your money. You’ll discover the meaning of money again by actually seeing it exchange hands and you’ll not have access to additional funds until the following week.

Start Saving Again!

Ending your reliance on credit was the first step. The second was getting to know the value of money again. Now you’ll start saving by taking whatever amount remains at the end of the week and putting it in a savings account. No matter how small the amount is, be sure to put it away. Make it a personal initiative to see how much you can save each week and how often you can do without buying something. You’ll still be able to treat yourself, but you’ll be much more cognizant of the importance of making simple choices about how you spend your money. Making those choices helps to put spending into perspective and adds importance to saving again.

Ending those spending habits is a trial in itself. However, saving becomes much easier over time. You’ll begin to understand the value of money and become accustomed to making smart spending decisions. Gradually you’ll save more and become less burdened by those impulses to buy on credit.

Understand Budgeting Principles

Most people just can’t reconcile their take home pay with where or how they spend their money. There are mortgage payments, car payments, groceries bills, electricity, heating and a whole myriad of other monthly payments. People get paid and then find they have nothing left. However, the problem is often how people envision budgets and how they adopt them in their households. Budgeting is not meant to take an amount and spent it until it’s gone. Essential budgeting principles mean that people must find ways to save first and use what’s left to make those payments. Typically people will get paid, make their monthly payments, and in the process find ways to spend what’s left over. This is entirely the wrong approach and there are a couple of simple and straightforward approaches to improve both family and personal budgets. What are these approaches and how do they work?

• Pay Yourself First!

The easiest way to save is to not intentionally save at all. What does this mean? Simply put, the best savers make it a point to immediately pay themselves first. It’s an approach that’s easy to comprehend and simple in its effectiveness. On each payday, have an amount immediately deducted from your pay and placed in a savings account. Start small if need be, but start with something. This is the essence of paying yourself first and it’s used by a number of people who save for both retirement and for that aforementioned rainy day. Savings takes time and gradually you’ll not even notice the amount is missing. Most people who adopt this approach start off with small amounts and increase them over time.

• Make Simple Choices

Another important aspect of successful savings is to make some simple choices about where and how you spend your money. To make this simple, look at your spending habits during a given week. Track how much you spend and where. For instance, how many times a week do you eat out for lunch and how much do you spend each time? How many times do you eat out for dinner each week with the family? How many times do you stop at your favorite coffee shop in the morning on your way to work? Most people rarely think these little purchases add up, but they do. In fact, it’s those little purchases where most people save tremendous amounts of money. People who save aren’t cheap, they’re smart. Saving money on these small items will make a difference and will allow you to increase your “pay yourself first” amount.

Most people think saving money is difficult and sometimes not worth the effort. However, even the smallest amount is better than nothing. Make sure to pay yourself first. Next, track your spending habits and start to make simple choices about what you can do without. Over time it will become much easier to save and you’ll start to ask yourself why you didn’t started sooner.

The importance of planning out your future is massive. It is vital that you determine what your goals are in order for you to be successful in reaching them. The first step in securing your financial future is to evaluate where you are right now. If you are unable to describe what steps you have taken to fight back against this recession then you have not done enough.

You should start your planning process by meeting with a financial advisor. He can help you understand the different investing options and the different risks associated with each option. The best plan for you will be a completely customized plan, it will depend on your age, your risk tolerance, your goals and your personal retirement plans.

Another good place to start working towards securing your financial future is at the workplace. Speak with a representative of your company and find out what different options there are for retirement plans. If your employer has a retirement plan which you can contribute automatically out of your paycheck, do it! This will keep you from ever seeing the money that you are investing and it won’t feel like you are paying a bill every month when you deposit in to your plan. You will quickly learn to live off of the paycheck minus your contribution and it won’t even feel like you are doing it. If your employer does any sort of matching program make sure that you contribute at the very least up to the amount that they match, it is free money they are giving you.

It is also important that you get started right away, do not delay the process of saving for your retirement. Even if you can only scrape together $50 a month to put in to an IRA it will be worth it in the end. It may seem like nothing now, but the earlier the better thanks to the power of compounding interest. Compounding interest is the ability of interest earned to earn money for you. Say you have $100 at a 10% interest rate. After one year you have $110. The next year you will have $121. You see how your interest earns interest? It is what makes investing while you are young such a great idea.

For those of us that are too late to start while we are young, or maybe we lost a large portion of our retirement savings when the stock market crashed, it is not too late to secure your future. Meet with a financial advisor as soon as possible to come up with an appropriate plan of action for you so you can still meet your retirement goals!

The FDIC was formed after many banks failed during the Great Depression. It is a US government corporation created in 1933 to protect the deposits of member banks. Any depositor, especially with a deposit for retirement, should make sure the bank they choose is a member of the FDIC. If a FDIC member bank fails, what next?

The FDIC has currently about 117 banks on a problem list. They will not divulge the name of these banks, but they will give a list of bank rating sources. You can consult this list to find the strongest bank for your deposits.

There are three main ways to tell if your money is protected. What type of account, which bank and how much in each account. Standard accounts are insured for $100,000, but since 2006 a Roth IRA, a Simplified Employer Plan (SEP) and other types of retirement accounts are insured for up to $250,000. That includes all the interest your account will earn when it matures. The $250,000 limit is permanent for certain retirement accounts including IRAs, however, it will expire for all other deposits on December 31, 2013.

The FDIC does not insure accounts according to number of depositors or number of accounts, it insures depositor accounts according to the type of account it is. There are four types of accounts that are insured by FDIC. The single ownership account at $100,000, joint ownership at $100,000 per depositor including all checking, savings and CDs, certain retirement accounts at $250,000 per depositor including all eligible retirement accounts such as IRAs as well as testamentary accounts at $100,000 per beneficiary.

If your account is not a retirement account now, you may think about changing it before the date expires. You can set up an IRA for yourself or a joint return with your partner if you have had a job and paid taxes during the year and you are not over 70 ½ years old. You can set this up even if you have other retirement plans, but in that case you may not be able to deduct all of your contributions.

If accounts are set up properly, even in the same banking institution, it is possible to be insured for much more than $100,000. It depends on account ownership. Using the four types of accounts, money can be distributed to husbands, wives and children in several accounts all insured.

If you are considering moving your money to a safer bank or to set up different types of accounts to get more protection, make sure you follow the rules given by the FDIC so that you are not liable to pay taxes or penalties that you would normally pay when making a withdrawal.

Some things the FDIC does not insure, even if you bought them at the bank, are the contents of a safety deposit box, mutual funds or stocks and annuities. If your retirement is in any of these, even if it is in a FDIC member bank, it is not protected and could be lost.

It would be wise to find out exactly what insurance and laws apply to your retirement deposit. There are other laws to protect retirements including 401(k)s or other employer-sponsored retirement accounts. The Employee Retirement Income Security Act requires the money to be put in a trust or insurance contract so that it is separated from the company’s operating funds. This ensures the safety of the retirement fund if the company fails.

Retirements in FDIC insured banks are safe. There may be a tiny percentage of accounts at risk, but this can be ascertained with a little research into your own situation. Even though your deposit is insured, it is good to see if there is any other possible redistribution of your money, in several banks or in the same bank, where your insurance can be maximized.

Most every 410(k) has a loan provision. What this means is that you can borrow money from your 401(k) and pay it back to yourself without being penalized. You are, however, only allowed to borrow up to half of your balance. This amount cannot exceed $50,000. If the payment is for a house down payment, you have more time to pay the money back. But, if it is for anything else, you have up to five years to pay it back at competitive interest rates. If you do decide to withdraw, there will not be a credit check and most companies will not care how you are using the money. All it takes is calling in your request and you will receive a check in the mail within a few days. Sounds really simple right? Just don’t forget, when you pay it back, not only are you paying back what you borrowed. You are paying back what you borrowed plus interest.

Although, it all sounds great, it is not recommended that you withdraw anything at all unless it is absolutely necessary. The whole point in having a 401(k) is to have a tax free investment that will grow over the years so you can have money to live on after retirement. Of course, it is like borrowing money from yourself so the question is, why is it bad to withdraw if the money is going right back to me? Well, yes, you are paying back the money with interest to yourself, but if you were to leave your investment alone, you will make better returns and your income would be tax free. Also, you are putting your retirement at risk. If you were to lose your job or you were to leave your job for a better opportunity, the loan would be due in full at that moment. If you are unable to pay it back, it is treated as an early withdrawal and penalties will apply. So, if you want to take out a loan, make absolute certain that you are secure in your job.

When does taking out a loan make the most sense? If you are in desperate need for money and you don’t have any other sources, it makes sense to withdraw. Unfortunately, many 401(k) loans are used for things like vacations. If you are secure in your job and disciplined enough to pay the loan back in five years, your investment won’t be damaged that much. But, you will lose five years of compounding. It is always best to only borrow from your 401(k) if you are in a bind. Some examples would be if you are in need of a down payment for a home or if your kid’s school tuition is due. Even under these circumstances, it is always best to compare all available options before making your decision.

Another option for withdrawing from your 401(k) is a hardship withdrawal. Only consider this if you are willing to do serious damage to your retirement goals. If you go this route, you will have to pay income taxes along with a 10% federal penalty. On top of these penalties, you are also not allowed to contribute to your account for six months after making the hardship withdrawal.

Fortunately, it is difficult to withdraw the funds in this manner if you still work for the company. The only real way to access the funds is if you need to pay medical expenses, cover the down payment or keep from having to foreclose on your home, pay college tuition or cover funeral expenses for a family member. Some other plans may take other situations into consideration but all will request documentation stating that you have no other assets before you are allowed to withdraw.