Today Is Time To Start Planning For Your Future
Your future is important and what you do to prepare for it is even more important. In this article, I will touch on Seven key steps that you should be thinking about that will benefit you when you reach retirement age. These steps are measures that you should begin as soon as possible; you should not wait until retirement age to start. These steps are centered around you starting with $1000. Understand, I just mentioned “start with.” You will not just have or take $1000 and not build off it and think that in 5, 10, 15 or 20 years you will be able to retire. The $1000 is a stepping stone to a successful future / retirement. So let us dig into what You can, could or should do with $1,000.
Today, there are many different things that one can start and or do with $1000 once it is saved in your checking account. Some examples would be to start a new hobby, start leveraging your money, start a business, open up credit card accounts and start paying down debt or even open up a retirement / investing / trading accounts and start investing that money. Everything listed in this article is not financial advice because I am not a financial advisor. You should conduct your own due diligence before you invest, buy a business, start a business, etc. The information contained in this article is what I am, what I have done, and what I will be doing with my money and I am just sharing my thoughts and plans with you. Now let’s get into the things that I would do if I had saved and / or come across an extra $1000.
“The 4% rule found that people could withdraw 4% of their investments in the first year of retirement and then withdraw the same amount, adjusted for inflation, for at least 30 years without exhausting their portfolio.”
Figure out how much money you will need to live off of when you retire. The real answer, not just a guesstimate. Use the (BLS) Bureau Of Labor And Statistics website (https://www.bls.gov/news.release/cesa…) to view what the average spending rate is for the age group that you would like to retire in. For this example I have chosen age 65. According to BLS, people ages 65 and over are spending roughly $50,860 in retirement per year. If we break this down to monthly spending, that’s around $4,238. If we work backwards and use the 4% rule
(ex. divide $50,860 / 0.04 move the decimal over two spaces) we get roughly $1,271,000.00,
which is how much money you will need saved / invested for a relatively safe 30-year retirement withdrawing 4%. However, that is not the full 100% accurate picture because we did not take into consideration social security. Once we reach retirement age, the average social security paycheck is $1,514, which is $18,168 per year. If we subtract that from the original $50,860 we get $32,692. To get the 4% rule for this amount, we need to divide $32,692 by 0.04 and we get $817,300. So technically, that is the real number that we need saved / invested, assuming that we would want to retire at age 65. This number could actually be a lot lower if you have more cash to spend during tough times, you work a part-time job / hustle or better yet, you can live a little lean; instead of eating steaks, eat some spam etc.
Now that you know or have a rough figure of what you will need for retirement, (for this example) which is about $1.3 million without social security and around $820,000 with social security. Now you need to compare this amount versus how you are currently spending your money. This can become really interesting because it is going to inform you of what your progress is looking like right now. Take into account the big three; which is your housing, food and traveling expenses.
This includes, of course, your car expenses; such as insurance and any monthly payments that you may have. Once you get that figure, make sure to figure all your entertainment costs. For example, hulu, netflix, cable, internet etc. Add your monthly costs together and then multiply it by 12. (Example) If you spend $3500 a month, multiply that by 12 (months) making it $36,000 (a year), then multiply that number by 25 (years) this equates to $900,000. This is roughly how much money you need to have saved or invested in the stock market, real estate, a business, etc. Apply the same 4% rule. If your numbers are right and this figure is higher than what was mentioned in Step One, then you need to cut back on your spending. If it is about the same or if it is less, then your progress is pretty good and you are going to have a good retirement. Keep in mind or remember that when you are older, your health insurance costs are going to increase a bit more. Assuming you want a more comfortable lifestyle when you are older, you can also add 10% or even 20% on top of the figure you came up with. You can also look into a (HSA) Health Savings Account for your current and future health needs. However, that is a whole topic in itself to be discussed in a later article. Or you can retire earlier, with something like ramen phi, which is ramen noodle financial independence.
You are going to want to calculate and keep track of your rate of savings / investing percentage per year. This is huge, assuming that you can make a 5% rate of return on your money during your working years; which actually, after inflation, turns out to be around a real 7% rate of return per year. This is very close to what the stock market does on average over a long period of time. The other assumption is that we will withdraw 4%, like we talked about in Step One. This calculation will tell you how long it will take you to retire. This will all depend on the different savings rates / percentages that you can save. If you can save 10% of your income along with whatever savings rate / percentage you are earning in your savings / investments will help. However, if you are only adding 10%, it will take you a long time to get to your target retirement figure. If you can add 30% of your income toward your plan, at that rate it will take you roughly 28 years to retire. That’s not bad and 30% shouldn’t break you. What you should aim for is 50%, at that rate it is roughly going to take you 17 years to retire. All this is possible to do on a $50,000 (or less) a year salary. The numbers are geared to you and your situation. Plug in your salary and figure out from there what you need to save to get to your overall goal. The ultimate savings rate is 65% of your income. At that rate, it will roughly take you 10.5 years in order to retire. Understand that you have to have a higher salary, around six figures, to achieve the 65% but remember, that by spending less money no matter the amount you make, not only do you have more to invest and or save, you will need that much less in retirement. Also, keep in mind that all of this takes into account your gross income minus taxes. This is your net take-home pay “aka” after tax income. If you do not want to do all of these calculations by hand, you can download different apps, such as personal capital or mint. These are two that I know of but I am sure there are many more. These apps will keep track of your net worth and your expenses and they are really useful and helpful. I do not have any affiliation with either of these applications, I just know that they are helpful.
You must pay off any unsecured high interest rate debt such as credit cards, personal loans, etc. If you do not have the money to do this and you own a home (if you qualify) you can use a (HELOC) which is a home equity line of credit. This line of credit will use the equity from your house and turn it into a loan. This is a secured loan, which means if you do not pay the loan back, the lender will foreclose on your house. This option will allow you to pay off high interest rates, unsecured debt and lower the monthly payments that you may or could be paying on that debt.
Another way that you can pay down high interest debt is by transferring your debt or balances to a 0% APR introductory credit card that offers 0% interest for 18 months on balance transfers, (again if you qualify). The idea behind this is for you to move from one credit card to another for a year and a half and it will give you the chance to pay back your debt at 0% interest; therefore, having a lower monthly payment. This will allow you to actually make a dent on or pay off the debt. Remember, the national average interest rate for credit cards is 17% and there are some cards that are as high as 30%. Keep in mind and remember that the stock market roughly earns an annual return of 7% per year. By paying off any high interest rate debt you are effectively making a return of two and a half times on your money without investing. You are actually giving that money away to the credit card companies…
Create an emergency fund. Every financial guru will tell you this; however, this one is truly optional. If you have liquid assets, meaning investments, you can easily and quickly convert that into cash and then you do not need to create an emergency fund. Now, if you are a conservative person like me, then you may want to have at least three to six months worth of expenses saved up to cover the basics. Another way to create a buffer is to convert part or even some of your cash reserves into digital currencies. Now understand, this is very different from me saying invest and buy something like Bitcoin, Ethereum or some other form of Cryptocurrency etc.
Here is a breakdown of what I mean and how you would proceed.
Convert your dollars into the USDC, which is the United States Dollar Coin.
This is a digital stablecoin that is pegged to the United States dollar that runs on the Ethereum, Stellar and Algorand blockchain. Each USDC is backed by a dollar held in reserve that does not fluctuate in value. Once the dollars are converted, you can then convert the dollars on the cryptocurrency exchange Coinbase at https://www.coinbase.com/join/jackso_jyho) and send the USDC over to another crypto currency exchange.
I use Blockfi https://blockfi.com/?ref=a84afca0). I use Blockfi because I am currently earning 8.5% annual compound interest, which is insane. That is literally more than the stock market, in fact, if we compare that to the highest high yield savings accounts for the dollar which is from Ally bank (as of April 2021) is 0.6%. That is a 14-fold difference now. “UNDERSTAND”, I am not telling you that you should do this, I am just providing you with some options to think through. You must do your own research and learn the differences and the downsides. Unlike a bank, which is FDIC, insured sites like blockfi are not FDIC insured; which means, if those companies fail you are not protected. If Ally bank or any other FDIC insured bank that protects your money up to $250,000 fails, you get up to $250,000 of your money back. If you have more than $250,000, you might be in trouble because your money is only insured for up to $250,000. The smart thing to do if you have more than $250K, is to put your money into different banks that are insured. However, if sites like blockfi fail, technically you are not legally owed that money back. So, that is your risk, No Risk, No Reward. For myself, I believe the risk is worth it, as I am getting paid 8.5% annual interest on my money. This is an option that I wanted you to know about and to be completely transparent, I am affiliated with Coinbase and Blockfi. If you use the links posted above, we both will receive some free Cryptocurrency.
Open up a Roth IRA account This is something that you should do as soon as possible because the more time you have on your side, the more your money compounds tax free. If you are not familiar with a Roth IRA, in short, it is an Individual Retirement Account to which you contribute after-tax dollars.
While there are no current-year tax benefits, your contributions and earnings can grow tax-free and you can withdraw your money tax and penalty free after age 59½. Being that this is a Tax Free investment account, this is an awesome account that you should open one as soon as possible, as soon as you turn 18, or even open one for your children when they are of age to show them that they have or can make some form of income. I cannot legally tell you how to invest or which stock you should buy or even give you any investing advice. I can only tell you what I am doing to prepare for my future. If it were my choice, the stock or stocks that I would continually buy every single month to put in my Roth IRA would be dividend stocks because the income that you receive in this account is going to be tax-free. The idea is, once you have set up this account, you purchase dividend stocks inside of this account so that you will start to receive dividend income; which you will then use to reinvest and buy more stocks. This is going to be tax-free in the future when you will want to and need to use the income for your retirement… Keeping the IRS out of your retirement pay.
With the money that you have left, assuming you didn’t use it all to pay down high interest rate debt (which should be a priority) and assuming you already maxed out your Roth IRA for the tax year (which is also a priority), you may have built yourself an emergency fund, which is optional, with the money you have left, instead of transferring it to a high yield savings account, which is also an option.
Here are two suggestions..
First, with the money that you have left, use it to build yourself a side hustle or a business to invest into yourself. Win or lose, it will be a valuable lesson for you for the rest of your life. Think of it as paying for some education. If you succeed, the income that is generated is passive income; potentially, for the rest of your life.
Second, I would consider averaging your money into the digital currency world. let’s use 20% of $1,000, which is $200, and assume that you lose 50% of your money, which is $100. $100 is not life-changing money and you could probably make that back regardless of your age.
If you ended up being right, that $200 could multiply by ten to fifty times in the next two to three years. This could be life-changing money! This type of money could help you pay down debt, start a new business, etc. So, from my perspective, I think it is worth trying. I think that most people will think that this is silly, I guess we’ll see if I am wrong by the end of next year..
Thanks for Reading
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