In our previous blog we laid down some top tips for financial basics and budgeting. Here we’re looking at debt and retirement savings.
Pay off small debt first
Studies have shown that paying off small debts first can give you the confidence you need to tackle the larger ones. One way to go about this is list your debts in order of their balances, then pay the smallest balance first, paying its monthly minimum and throwing any extra cash at it each month. At the same time, make minimum payments on the largest debts. Once the smallest is paid off, apply its minimum payment to the next smallest debt. And so on until all are paid off.
Don’t co-sign a loan
It may make you look like a super great human being to co-sign your friend’s or brother’s loan, but keep this truth in mind. If the borrower misses a payment, the lender can come after you for the money and your credit score may take a plunge. As for your relationship with the lender…
Fill out the FAFSA
Got a kid going to college? Even if you think you won’t qualify for financial aid, fill out the Free Application for Federal Student Aid, aka FAFSA. It’s your ticket to the Pell Grant, which doesn’t need to be paid back, as well as federal work-study jobs and, in some cases, scholarships offered by your child’s college.
Mortgage payments as 28% of income
It’s a rule of thumb that can keep you grounded when you walk into that must-have house when house hunting. According to Investopedia, the 28/36 debt rule states that a household should spend a max of 28% of its gross monthly income on house expenses (including mortgage, home insurance, property taxes and other house-related expenses) and no more than 36% on all debt (including your 28% house expenses, car, credit card and other debt).
Saving for Retirement
Start saving ASAP
If you have a full time job, don’t put off starting a retirement account. Even if you start by saving only $25 a month, over time your money will grow through the power of compound growth. Our retirement calculator can help you estimate how much you need.
Don’t cash out your retirement account early
You’ve worked hard to save for retirement, so resist the urge to cash it out for an emergency (see Start an emergency fund above). Doing so will hit you with a hefty fee for early withdrawal and a tax bill.
Give your retirement account a raise
In years that you receive a raise at work, pay it forward and increase your retirement contributions. It’s an easy way to help keep yourself on track for retirement.
Retirement savings first, then college savings
There’s a saying: Your kids can borrow for college, but you can’t borrow for retirement. Everyone wants the best for their kids, especially when it comes to planning for college. But remember, kids can get loans, scholarships, work-study jobs. There is no borrowing for retirement. So set up your retirement savings plan first, then begin saving for college.
Need more insight? Let us be your guide.
Our national network of experienced financial advisors can help you create a personalized plan to help you identify financial goals and get you where you want to go in life.Find an Advisor
This information is prepared by an independent third party, Broadridge Investor Communication Solutions, Inc. and is provided for informational and educational purposes only. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided. This information is not meant to be a complete summary or statement of all available data necessary for making financial or investment decisions and does not constitute a recommendation.
Please note that the information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to you to assist in understanding the issues discussed. Neither Waddell & Reed, Inc., nor its Financial Advisors give tax, legal, or accounting advice.
This information is not meant as financial or investment advice pertaining to your personal situation. The selection of appropriate investment, insurance or planning options and/or strategies should be made on an individual basis after consultation with appropriate legal, tax and financial advisors. Nothing contained herein is intended as a solicitation or an offer to buy or sell any product or service mentioned and they may not be suitable for all investors. Securities offered through Waddell & Reed, Inc., Member FINRA/SIPC, are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Insurance products are offered through insurance companies with which Waddell & Reed has sales arrangements. Guarantees provided by insurance products are subject to the claims-paying-ability of the issuing insurance company.
Securities offered through Waddell & Reed, Inc., Member FINRA/SIPC, are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Insurance products are offered through insurance companies with which Waddell & Reed has sales arrangements. Guarantees provided by insurance products are subject to the claims-paying-ability of the issuing insurance company.