posted by Janine Bolon and Jan Dahlin Geiger, CFP
I am always impressed with how fast people are able to get out of debt once they set their minds upon that goal. I have so many clients and students that make amazing changes in their lives and are able to live a financially stable life even after ramping their credit cards up a few years before. People really are amazing when they set their minds to a task!
Recently one of my students asked me a question. “How do I invest my money?” This is a very difficult subject for me because the system I use for my family may not be the best system for you to use with yours. So, I have brought in some expert help on the topic. Her name is Jan Geiger. Not only is she a dear friend of mine, but she is also a highly successful financial planner and author. I have asked Jan to take a look at the average sort of email I get on a weekly basis concerning investing and to give her advice on the topic.
Here is the type of email I usually get from folks:
I am 25-35 years old and recently married/divorced/separated. I started a new job/new life. I have $1o,000 -$20,000 in a 403b/401k account from my previous job, which I rolled over into a Roth IRA account. I pay 7-10% of my salary into a retirement account. I make $40,000-$50,000 a year and I am starting to invest at least 20% of my pay towards retirement. I am going to put the max in a Roth IRA account ($5,000 I think) each year and put the rest of my money in my high interest money market account (4.89%). I have $3,000-$5,000 in my MM account at the moment. I owe $125,000-$200,000 on my house.
My husband/My wife makes $50,000-$80,000 a year. We are going to put the max into a Roth IRA for him/her starting this year. We also plan on saving at least 20% of his/her income each year. Once, I get to the max on my money market account, I am not sure what I should be investing in next?
Please let me know what your advice would be. I am not very knowledgeable with stocks, bonds, etc. Would like to have plenty of money to last us the rest of our lives (retire as millionaires), and we are willing to make the sacrifice now.
Here is Jan’s reply to people who are seriously interested in retiring so that they don’t outlive their money…
Here are a few quick tips.
1. Go to bankrate.com
to look for high interest money market accounts. Lots are over 5.25% now. Just be sure it has FDIC insurance.
2. Be sure your husband/wife is doing Roth IRAs as well. You can each contribute $4k, with the amount increasing in the future.
3. Actually there is a special rule called the “72T” rule that lets you withdraw from IRAs before 59 1/2. It is a bit complicated, so I won’t bore you with it. Just know that if you retire at 50, you will be able to take $$ from those IRA accounts with no penalty.
4. Save about 3 months of EXPENSES (not income) in your money market account, then that is enough ready cash on hand. (This is your official emergency fund.)
5. Take what you would save beyond the IRAs and knock out the debt asap. I say this because of timing more than anything — right now we have had 5 straight years of very good stock market returns, so we are getting overdue for a correction in the stock market. Thus, you are better off knocking out debt than doing new investments right this minute. By the time most of the debt is knocked out, it will be great timing to start investing.
6. Start reading some good books on investments. The first thing you will learn is that long term you will earn about 3-6% on cash type investments, 5-8% on bonds, and 8-12% on the stock market. You owe it to yourself if you are so young to learn how to invest in the stock market WISELY. I personally doubled my money from early 2003 to early 2007, all in the stock market. If I had had that money in CDs during those four years, I would be up barely 20% instead of 100%.
Of course I recommend my book, “Get Your Assets in Gear! Smart Money Strategies.”
:o) I have 2 full chapters on how to get started as an investor. Another good starting book is “Low Stress Investing” by Andrew Millard. If you don’t like either of these suggestions, then go to amazon and do a key word search to find a good investment book. If you can make your money grow faster over the next 25 years, you will get to your goal faster or with even more money than you anticipated.
7. Decide right now that you will never ever have a another drop of debt, other than your house, for the rest of your life. This is one secret most millionaires know. You get to buy anything in the whole world your little heart desires, so long as you pay cash. This includes cars and anything else you can name.
Knock out any student loans first, then the car loan/loans. The fewer debts you have, the more satisfying it is, so knock out the little ones first. Once you get to the point where you can say, “the only debt I have is my mortgage,” you will be so thrilled and so proud of yourself!
8. Give some away to others, if you aren’t already doing so. My net worth has grown 1000% in the last 15 years. I’m sure Janine can tell you a similar number for her. Those who are givers of money, receive just incredible abundance back. Don’t give just to get — there are a zillion other benefits. But I know for sure those who bless others are in turn richly blessed themselves.
9. Remember that money is only a tool. It is a tool to design the life you most want to have. Always keep that in mind. I have met some people who get so focused on saving money that they let life pass them by and they wake up one day and realize they are miserable. What do you and your husband enjoy doing the most? Make sure there is always money in your budget to pursue that passion. My husband and I love riding bicycles, so our spending plan always has money allocated for very nice bicycles, money for repairs and maintenance on the bikes, and money to make bike trips with our friends. We do not ride cheap bicycles because they are no fun on hills.
On the other hand, my husband loves to ski and used to be an instructor, but we decided skiing trips are too expensive and there are other things more important to us. We feel like we get “our money’s worth” out of our bicycle money, but we would not for skiing money. Choose what is important to you. It is important that you use part of your money to enjoy what makes you happy right this minute. The happier you are with your money, the more money will flow to you.
10. You might want to go to my website and click on “about the book”. There are about 50 pages of excerpts and much of what I’ve just told you is there in greater detail.
I hope this post has helped all of you. Jan and I have a commitment to bring as many people as possible to the debt-free living lifestyle and then to bring them to wealth! We want you to age successfully and without the worry of money!