Reader's Question.

Here is a great question I received from a reader yesterday followed by my answer. Any other suggestions you would offer. Hit the talkback button and speak your mind.

Sir,
I've never been without... meaning I could always do what I wanted to do, eat where I wanted to eat and go wherever I wanted to go, however, as long as I can remember, I've never had a savings account with more than 1k. I have a little more now, I've cut back on a lot of frivilous spending, but I still don't know how to save/invest/plan for the future. If you could suggest 3 immediate steps that I can take within the next 1-3 months, I'll see about getting right on it. Thank you.



Dear Reader,

The best thing you could do is set up an appointment with a Certified Financial Planner at your bank. Figure out what your goals are and take a list of questions that you have to the meeting. I am not a professional financial planner but the following are a few things I've learned and implemented within the past year that have helped me.

Here are three steps you could take today:

Write down what you spend on your money on for a month. See where it goes, you will be surprised. This is called a budget, once you know what you spend your money on, you can plan for repeat expenses (like monthly bills - cell phone, cable, food, etc) It seems you have already completed this step. Very good continue on to the next step

Time to right your financial ship, if you have debt, pay it down. If you have no debt other than school loan or mortgage skip to the next step---side note (Don't pay off your mortgage early, you'll make more money in the long run by investing now, also don't pay down a school loan with a low interest rate, especially when you can get a better interest rate in a high yield savings account.)

Pay off you debts starting with the highest interest rate first.
For example: say you have the following
a $5,000 car loan @ 5.9%
a $1,000 credit card debt @ 18.9%,
and a $23,000 dollar school loan @ 4.2%.

Put your money towards the highest debt first. So in this example you would pay the debts off in the following order: Credit card debt, car loan, then school loan.

Open a retirement account. Social security will run out by 2020, and your going to have to take care of yourself. In the past companies took care of employees with great pensions and the government supplemented with social security, but now it's a different ballgame.

Open a Roth IRA or Traditional IRA (IRA = Individual retirement account)

Roth IRA = taxed now, no take later upon withdrawal, IRA=no tax now, taxed later upon withdrawal.

Participate in your company's savings plan 401K, 403B, and contribute at least up to the company's match
Find out if the company you work for has a retirement plan (like a 401K savings plan). If they do participate in it. Put at least as much money as they will match. Meaning if they match your investment of 4% of your salary, not only will you save money on taxes, you'll be getting free money from your company for saving. Don't miss out on this generous opportunity. I currently put 15% into my 401K even though my company only matches 4%.

Open a high yield savings account and place the bulk of your money there to grow interest: I use ING Direct they currently offer 4.29% I'll email you a link which will give you a $25 bonus for opening an account with at least $250. Make saving a priority and watch the money pile up. I currently have automatic withdrawal set up to transfer $320 a week into my high yield savings. Pick an amount your comfortable with and set it up, to automate your savings.

I hope these ideas help you on your journey to wealth and prosperity. These are just a few of the basics. Keep reading for more advanced investment maneuvers. Thank you very much for your question.

Sincerely,

Marshall