There are many different definitions of the “American Dream”, some say it’s a great job and nice house, others say it’s comfortably raising a family, yet my definition varies a bit from those. To me, the American Dream is about affording a comfortable retirement after hitting all of those milestones above. Owning a home is nice, and raising a family is paramount, but it’s your financial health after those achievements that truly matters most. Nobody wants to work forever, I know I certainly don’t, so saving and spending wisely from a young age is very important. Regardless of your income bracket it is clear that today’s generation is severely unprepared for retirement. In order to properly prepare for retirement please heed my suggestions below.
Take advantage of every retirement account you can! This means that if your employer offers a 401k plan with matching funds, then you better contribute enough to receive the full match. If you are able to max out your 401k that is even better. I’ve seen people that fail to contribute to their 401k plan and lose out on the employer match, this is like throwing away free money. If your employer offered you a raise today would you say no? If do you contribute to a 401k then don’t stop there. There are plenty of other IRA accounts (SEP, Traditional, Roth) that you may qualify for as well. The best part about these accounts is that each one offers some sort of tax advantage. Remember, the earlier you start the better off you will be. The power of compound interest can take a little bit of money and turn it into a lot.
While tax advantaged accounts are the next best thing to sliced bread, they aren’t the end all be all of retirement savings. After maxing out my 401k and IRA options, I opened up an online brokerage account that I fund with after-tax dollars. This allows me to aggressively save and invest for my medium term plans, rather than just for my long term retirement savings. Here you can engage in blue chip stocks or even index funds. My theory on these accounts is that they can be liquidated much easier than a retirement account, and they offer more aggressive savings options of a typical bank account. Don’t forget, you don’t want inflation eating up your savings either.
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Have you been thinking about property investment as a means to an end? By means to an end I am referring to the silver lining of retirement on the horizon. We all want to retire today so that we can use our time as we see fit, and not the daily 9 to 5 grind that we have all grown so accustomed to today. In fact, I have many friends and online acquaintances that have used property investment as a means to financial freedom and independence. While I am still working on this goal myself, I’d like to share some of their top tips at how to be successful when investing in property and real estate.
Finding a reliable low cost mortgage company is important in order to keep upfront costs reasonable. Chances are you will be financing the purchase price of these properties and not paying cash outright. For example, Newcastle permanent home loans have reasonable loan fees and fair interest rates. Perhaps you can even bargain with certain costs like reduced appraisal fees if you end up ordering several different loans through the same company.
Be aware of property taxes and school districts. These are two important factors that play into most potential renters and buyers minds when deciding on where to live. Property taxes can be quite expensive depending on what location you live in, and often are a deal breaker when factoring in the cost of a home on one’s budget. Also, parents are naturally concerned with the school district for their children’s sake. You might see a larger and new home for much less money in a poor school district, but turning that house over could take a lot longer.
Unless you have plenty of free time and consider yourself Mr. Fix-It, I would hire a property management company to do all of the heavy lifting. They will collect rent money from borrowers and hound the renter until it is paid. If a furnace goes out or a roof is leaking they will find a reliable low cost contractor to come out and do the work for you. They often times take one month of the rental income as their fee, which isn’t all that much considering the hassle they save you from.
If you think that real estate investment is key to early retirement for you then make sure you do your homework before getting started. Heed the tips and advice above, and happy hunting!
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