Saving for retirement

I’m not a financial planner. I’m also not a CPA or some other type of accredited “money guru” out there that offers financial advice for pay. My financial knowledge stems from a minor that I earned in economics from my university, having read countless articles on financial topics on the internet, being an avid reader of the New York Times Business section as well as Reuters financial news, and my limited life experience.

In order for you to save for retirement, I offer these pieces of advice.

  1. Have a financial plan. Your financial plan doesn’t have to be anything complex. In fact, I feel the simpler the plan, the better the chances are that you’ll follow the plan, which means the more likely you’ll be to save for retirement. For example, I’ll lay out my plan – it’s basically an asset allocation that I’ve personally decided upon given my tolerance for risk, my investing time horizon, and my feelings about asset classes. For retirement investing, I chose some broad-index mutual funds from Vanguard and decided to allocate myself to 60% US stocks and 40% international stocks. For a while I was invested in a target-date fund but then I decided to go all-in for stocks after reading a New York Times article that I’ll link to here. It was the most convincing article I’ve ever read for an asset allocation favoring plenty of stocks in a retirement portfolio.
  2. Invest at least up to your company match. The company’s match is free money towards your future. If you can invest even more than the company’s match then certainly do so but to leave free money on the table just doesn’t make sense. Maxing out your 401k or 403b is probably the best thing to do for retirement investing but if that’s just not do-able for you then start with the match and gradually work your way up by increasing contributions year after year. Your future self will thank you for it.
  3. Keep costs low. You can do this by forcing yourself to invest only in passively managed index funds. They usually have the lowest expense ratios of the bunch and research suggests that over the long haul they simply perform better than the actively managed bunch.
  4. Start investing early in your career. One of the biggest things young workers have going for themselves is time. The power of compounding is massive, and it works its wonders when its given more time to do so. If you don’t believe me, Google search a compound interest calculator and play around with the variables a bit to see how small changes can make a big difference over time.
  5. Rebalance your portfolio at least once per year. This concept ties back to having a retirement plan. If you decide on a certain asset allocation, oftentimes you’ll find that after a year of allowing your allocation to play out, your ending allocation might be slightly skewed. For example if your US stocks start going on a tear while your international stock values decrease, your US stock allocation might be larger than you originally intended. You can rebalance by selling some US stock mutual funds in exchange for buying some international stock mutual funds. The beautiful thing about rebalancing is you then force yourself to buy low and sell high without even realizing it.

If you have any questions or any added suggestions feel free to comment. I hope you find this post useful.

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I love credit cards!

I remember seeing a Money magazine post appear in my Facebook newsfeed a few weeks back. It had a list of the top few reasons why credit cards are awesome or something along those lines but what really caught my eye was the number of comments. It had so many! I clicked on the comments section and saw nothing but credit card bashing. It was like the credit card was the geekiest kid in school, and “he” was getting jumped by a bunch of haters!

I guess that’s part of the reason I was inspired to write this post. Most of the people hating on cards seemed so misinformed; I would imagine they all experienced horror stories with credit card use. As an avid credit card user, I’d like to break down my reasons for why I think credit cards can be powerful when used responsibly and why they shouldn’t be bashed on!

  1. Credit cards can help you keep track of a budget. Think about it – if you give yourself a monthly budget for all of your expenditures, you can see how well (or NOT so well!) you stayed on course using your monthly credit card statement and online banking tools to track your financial activity. If you find yourself going over budget, you can adjust your spending accordingly. The key to good credit card use is to not use your card’s credit line as a loan for something you otherwise wouldn’t be able to afford. Since most credit cards have ridiculously high interest rates, it’s in your best interest to only use it up to a balance that you know you’ll be able to pay in FULL every month.
  2. Credit card perks are awesome! Assuming you’re following the first tip and paying off your balance in full every month, you’re essentially getting paid BY your credit card company to buy the things you’d normally be buying anyway. For example, I use my cash back credit cards to pay for practically everything. I always pay off my balance in full every month, so at the end of the month I get charged no interest (win!), and I increase my cash back bonus. If you’re spending $1000 a month on items and using a 1% cash back card, that’s $10 you’re getting paid per month and $120 per year just from buying things you were going to buy anyway.
  3. Credit cards help you build credit. If you use your credit cards responsibly, you can build a great and long payment history. The keys here are managing your credit card utilization rate, making payments on time every month, and keeping derogatory marks to a minimum. The truth is, most people need a good credit history because one day they’ll most likely need to borrow money to buy a big-ticket item (i.e. a house, a car, etc.). Without good credit, it’s just not financially responsible to buy any of those things because borrowing rates will be too high, which could cost you more in the long run!

There are other reasons I can think of as to why credit cards are great, but these are the big three I can think of. One day I’ll have to write a post about credit score factors!

Have other reasons why you love credit cards? Any reasons why you hate them? Comment below!