WHEN most of us think of investing, we immediately think of investing for retirement. While that is an important aspect to be considered, there are other pieces of the puzzle that are also important. Establishing a budget, investing early and regularly, and saving for post-secondary education should also be included.
Establish a budget
Establishing a budget is a great first step in planning your finances. A budget is a useful tool for recording all of your income and expenses. By writing down how much money you earn and spend each month, you can see where your money is going. This will assist you in being able to prioritize your expenses and needs. Any money left over can be used for saving and investing. Even a small amount of money invested regularly can help.
Invest early and regularly, even small amounts
One reason to start a regular investment program early is to give your money as much time as possible to grow through compounding. If you haven’t started investing yet, then consider starting now and getting into the habit. Just remember that the amounts you invest do not have to be large, especially if the money is taken directly out of each paycheck. You will be surprised how little you miss money you don’t see. If you’re already investing every month, look for ways to contribute more through bonuses andmonetary gifts.
The value of starting early is illustrated by a 25-year-old investing $2,000 per year for 10 years at a hypothetical 10 percent fixed rate of return with all gains and dividends reinvested. This 25-year old would accumulate $672,998 by age 65. A 35-year-old investing $2,000 per year for 30 years and reinvesting all gains and dividends will have $400,275 when he or she reaches 65. These examples are for illustrative purposes only and do not represent any particular investment. The return and principal value of any investment will fluctuate so that your investment, when cashed in, may be worth more or less than its original cost.
While a 10 percent rate of return may not be representative of investments currently or historically available, the hypothetical illustration does serve to reinforce that starting early can be important.
College tuition planning
Preparing for your children’s or grandchildren’s college education is important, especially when tuition costs are rising every year. One possibility might include investing in a Coverdell Education Savings Account, which allows tax-free withdrawals for qualified education expenses. These can include room, board and tuition for elementary, secondary and higher education. You might also want to look into prepaid tuition plans. Many states offer programs that allow parents to lock in the cost of tomorrow’s college tuition and fees for about what it would cost today.
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( Published on August 29, 2009 in Asian Journal Los Angeles p. C5 )
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