Figure Out Your Net Worth
Would you start a diet without knowing your weight? Of course not. So begin your financial planning by determining your net worth. It's assets minus liabilities, or what you own minus what you owe. Simple enough, but fewer than half of Americans can even approximate their net worth, says the Consumer Federation of America (CFA).
Save in Your Sleep
Instead of thinking about how much you’ll need to reach your goal, estimate the maximum amount you could possibly save each month, says Dan Ariely, Ph.D., author of Predictably Irrational and a professor of psychology and behavioral economics at Duke University. Then set up automatic payments from your paycheck toward your goal. If you find you need more spending cash during the month, you can always adjust—but in the meantime, you’re stashing dough toward the day Junior gets into Yale.
Take a Salary Cut
The cash you don't see every month can only help you. "Our younger clients not only are not maxing out their 401(k)s," says Scott Kahan, a certified financial planner in New York City, "but they're not taking advantage of their employers' matching funds—that's free money." The tax benefits amount to free money as well: Every $1,000 you contribute saves $300 in taxes. Don't put less than 10 percent of your salary into your retirement plan each month. Because of the tax benefits, your take-home pay will drop by only 7 percent. That seems like a lot, but trust us, you'll never miss it. And in 10 years, you'll be giddy every time your 401(k) statement arrives. Oh, if you're under 30, put all your money in stocks. At 30, start drizzling in cash, bonds, and other safe investments.
Pick Your Investments
The key? Keep it simple. Few investors can beat the overall stock market by choosing individual stocks, so don't bother trying. In fact, few Wall Streeters can beat the market for more than a few years in a row.
Try mutual funds that approximate the return of the total stock market. Vanguard and Fidelity, the big 401(k) managers, both offer them. So do other companies. Total index funds keep you well-diversified among large, middle, and small-company stocks. They're a solid, unexciting choice. Which means they're perfect.
Decide Whether to Rent or Own a Home
Divide your annual rent outlay into the purchase price of your prospective home. If the result is less than 15 (as it often is in Miami, Atlanta, Chicago, and Philadelphia), then it's cheaper for you to buy. If it exceeds 15 (as you'll typically find in San Francisco, Kansas City, Boston, and New York City), then renting makes more financial sense.
Limit Credit Cards
This seems obvious, but it's so important for young people. College campuses are overrun with credit-card vendors, and they will try to lure you in. Big mistake. Using one card and paying it off every month is a good way to establish credit; nobody needs 24 different accounts.
"Credit-card debt should be viewed as poison," says New York-based financial planner Gary Schatsky, "even if in small amounts. It's one thing to splurge on an item you enjoy—but don't add to the price by paying an additional 12 to 22 percent in interest."
To Save Money: Make Fewer Withdrawals
Some men tend to toss receipts, use all their cash, and hit the ATM again and again, says Cheryl Sherrard, C.F.P., of Rinehart Wealth Management. Save your ATM receipts for a month, subtract 20 percent from the total, and use that as your budget for the next month.
Start Talking—Early
Money talks don't begin with marriage or even when you move in together. They should start before you move in together and before you walk down the aisle, and then continue as your lives change and finances change. Find some entry points when you're dating and getting serious, such as, "So, how do you manage to afford this 2,000-square-foot loft on your physical-therapist salary?" Paying attention to how someone manages their money gives you a clue as to what kind of money match you'll be. Been together 10 years and still arguing? Take on a new attitude: partners in money as well as partners in love.
Take the Long View
Finance professor Frank Partnoy, of the University of San Diego school of law, recommends a long-term strategy for retirement. Pick out about a dozen companies that sell products you know and understand, and research them. You'll still be taking risks, but at least you'll understand those risks. Buy the stocks and then forget about them. Research shows that investors tend to buy stocks when the prices are high and sell them when they're low. That's the fastest way to lose money in the market. "You need to resist the short-term temptation to buy and sell based on what's hot and what's not," Partnoy says.
Slash Your Bills
Eighty percent of cellphone users overpay for service, says Schwark Satyavolu, cofounder of BillShrink. Not by pennies, either, but by an average of $200 a year. If you're not wedded to the latest phone—can you live without an iPhone 5?—a no-contract plan will probably save you big. You can get unlimited phone, texting, and Web for roughly $40 a month. If you can't abandon your gadget, you can at least save on texting by using free apps like TextPlus, IMO, and TextNow. And don't rule out prepaid—if you're either a very light or very heavy (unlimited) user, this may be the best option for you, says Allan Keiter, president of MyRatePlan.com. Next, call your cable provider. Let the company know that you've seen its competitor's ads and you're thinking about switching if you don't get a better offer. More often than not, the rep will pony up a "special promotion" to save you some bucks.
Slash Your Bills
Eighty percent of cellphone users overpay for service, says Schwark Satyavolu, cofounder of BillShrink. Not by pennies, either, but by an average of $200 a year. If you're not wedded to the latest phone—can you live without an iPhone 5?—a no-contract plan will probably save you big. You can get unlimited phone, texting, and Web for roughly $40 a month. If you can't abandon your gadget, you can at least save on texting by using free apps like TextPlus, IMO, and TextNow. And don't rule out prepaid—if you're either a very light or very heavy (unlimited) user, this may be the best option for you, says Allan Keiter, president of MyRatePlan.com. Next, call your cable provider. Let the company know that you've seen its competitor's ads and you're thinking about switching if you don't get a better offer. More often than not, the rep will pony up a "special promotion" to save you some bucks.
Source: http://www.menshealth.com/
