Monday, March 30, 2015

Successful Retirees have these 7 Habits

Some people seem to have better money management habits than others and only a few are able to take their effective financial strategies to retirement.

Unfortunately, most of us were not told that: starting to save for retirement from our first job will be our first stepping stone towards financial freedom.

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Some people from low-income families learned to manage their finances well, meanwhile there are some high income celebrities or athletes who end up filing for bankruptcy.

Successful retirees follow these seven habits:

1.       Start saving as early as possible
Regardless how little the amount you are only able to put away into your savings, it needs to be started as soon as you can. Many of us were never told to consider contributing to a 401(k) as early as possible.
Many also open IRA accounts as soon as their budget permits. Whatever approach is taken, developing the habit of saving at the first opportunity is what’s important.
Starting early has two advantages:
·         By starting early, you benefit more from compounding.
·         The habit of saving is developed before falling into a debt-fueled lifestyle.

2.       Staying away from car loans.
Everyone sees a fancy new car as the first sign of success. Unfortunately, many recent graduates with huge amounts of student loans do whatever they can to get a new car, instead of thinking of ways to clear their debts.
Successful retirees have seen through this trap and instead, they decided to continue driving the same old car they had in college. They only replace it when necessary, typically with a used car and pay with cash.

3.       Do not rush paying off debt.
Some financial advisers tell people to pay off all non-mortgage debt before they start saving for retirement.
However, successful retirement savers follow another approach and begin investing in a 401(k) or IRA even while paying off school loans and other debt at the same time.
There are two advantages to this approach:
·         With today’s interest rates, it’s easy to maintain the rates on student loans and other debt very low.
·         By investing early, compounding becomes a beneficial method since your savings will be unused for a longer period of time and will be increasing in value through interests.
Those who focus exclusively on paying off their debt often miss out on employer matching program and can delay retirement savings for many years.

4.       A sizeable down payment for a home is considered.
Purchasing a home with a small down payment seems tempting. Such offers allow people to own a home sooner, but with certain disadvantages.
Down payments of less than 20 percent typically require the added cost of private mortgage insurance.
Smaller down payments become traps since it makes some people spend more on a home than they should. A larger down payment prevents the risk that a decline in home values will wipe out a homeowner’s equity.

5.       Keep learning about money management.
Successful retirees never stop learning about personal finance and investing. They continue to learn new ways to manage their money.
They keep up with retirement savings options and trends, such as Roth IRA conversions. They also understand basic investing concepts such as asset allocation and expense ratios.

6.       Learn about investing costs.
Even small investing costs can reduce a nest egg significantly. Successful retirees avoid promoters of expensive and complex investment products.
Instead, their portfolio focuses on low-cost index funds that track the major stock and bond markets.
Such investments retirees also consider are insurance policies, whether life or long term care. A life insurance policy can backup funds that an individual wants to leave to his loved ones in case he dies. Long term care insurance helps with paying for expensive long term care costs.

7.       Seeing through market fluctuations.
Successful retirees are not affected by market fluctuations. Investing experience obtained by starting young teaches people that markets are volatile.
Instead of panicking, they see market declines as opportunities to acquire more equities at a lower price.
As long-term investors, they have acquired the skill to familiarize that bear markets, like a controlled burn of an overgrown forest, only fortify an investment portfolio over time.

Perhaps the secret to financial success is more fundamental rather than learned over night. Just remember what your financial goals are before you retire. Consider these seven habits of successful retirees as a guide to help you manage your money wiser, even by the time you've retired.


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