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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| Photo credit: money.usnews.com |
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.
References:
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