Saving for retirement or a new home can seem like an unreachable goal when you are struggling to pay the monthly bills. The important thing to remember is that you will never reach your goal if you don’t start.  Here are a few tips to get started on the road to reaching your financial dreams.

Start Small – Find small ways to start saving like having water instead of drinks when eating out and take those savings and move those to a savings account. Look for other ways to cut expenses like canceling one magazine subscription or a movie subscription service and visit your local library to check out movies for free.  Each time you find savings, move them to a separate savings account.  Once you’ve saved at least $500, make a commitment to look for other ways to increase the amount you are setting aside each month.

Automate Savings – The best way to make saving a priority is to setup automated paycheck deductions for a company sponsored savings plan or an individual retirement account. Not only will you benefit from the tax deferment on your contributions and earnings, salary increases will boost the amount of your monthly contributions. Setup automated monthly transfers from your checking account to savings accounts dedicated to emergency fund, vacation, college, etc.

Get Your Family Involved – What better way to teach your children financial literacy skills than to involve them in planning and saving money!  Have a monthly family finance meeting and make it fun by challenging family members to find ways to cut costs.  Saving money doesn’t mean the family has to sacrifice on fun activities, it will require some effort to find cheaper alternatives but it is doable. Use sites like Groupon and TripAdviser to find bargain prices on activities the whole family will enjoy.

The important step is the first one, so start small and watch your savings grow!

The Frugal Toad - Money Saving Advice for Everyday Living

Nothing can raise the stress levels like discussing family finances according to the American Institute of CPAs (AICPA). Discussing the family finances causes more arguments between couples – 3 per month on average – than any other topic.

So what causes most arguments about finances? The majority of couples state that misunderstandings between needs versus wants are at the root of most disagreements. Other areas of conflict include not saving enough and unplanned expenses. Before we get to far we need to distinguish between healthy disagreements and potential relationship ending conflict. Every couple is going to have disagreements over family finances from time to time however, if you find that you are having arguments over the same financial issues several times a month, you need to resolve the source of the conflict. Repeated conflict can lead to resentment and mistrust and can weaken relationships. So what can be done to avoid conflict and keep the family in family finances?

1. Work Towards a Shared Financial Vision

Having a shared vision for how financial decisions are made is probably the most important factor in avoiding disagreements. It’s a good idea to discuss the topics of retirement, debt, and spending early on in your relationship and create a roadmap together on how you are going to handle finances.

2. Agree on Spending Limits

If one spouse is a spender and the other spouse is a saver there are bound to be problems. An easy workaround is to set spending limits that require approval by both spouses. By agreeing ahead of time on spending limits, conflicts should be few and far between. This doesn’t mean that you won’t have disagreements from time to time but the disagreements should be infrequent if you are abiding by the spending goals. Be sure to set realistic spending limits by looking at past history and include a buffer for unexpected expenses. Remember, the goal is to end up with spending limits that enable you and your family to have a comfortable lifestyle without creating unrealistic expectations.

3. Be Open about Your Purchases

If you make a purchase without consulting your partner then the best course of action is to come clean immediately and talk openly about it. By admitting your mistake to your partner you are accepting responsibility for your actions. The next step is to take action to  fix your mistake. Replace the money that you spent by making an additional deposit from your funds and work to rebuild any trust that may have been damaged. Hiding your purchases from your mate will only lead to conflict and a lack of trust.

4. Talk Often About Finances

It may seem counterintuitive but talking about family finances often can help to resolve issues before they become bigger ones. Ignoring your partner’s concerns regarding the family finances can lead to resentment and frustration and lead to heated arguments. Instead, plan a time where finances are discussed in a non-threatening environment with clear behavior expectations. Allow each person to share their thoughts and concerns openly without commenting and be willing to compromise so that no issue is left unresolved.

What is most important is to set clear expectations about spending and be willing to discuss the issues in an open, honest, and safe setting.

Readers: Have you ever had a disagreement regarding finances? Were you able to resolve the issue?

The Frugal Toad - Money Saving Advice for Everyday Living

The types of pensions available in the UK are broken down into three types: State, personal and workplace. These offer different benefits for the holder and should be weighed up before making a decision:

State Pension

The state pension is received as a regular payment once the individual reaches pensionable age. Pensionable age is based on birth year and the fund itself is built up throughout the course of the holder’s working life.

Pros:

• Every eligible UK citizen automatically receives their state pension upon reaching the appropriate age. This means that there is no sign up process or means testing.
• The drawing of a state pension can be deferred. By taking their pension later, the recipient can claim a larger amount. 

Cons:

• At £115.9 per week – rising to £148.40 per week in April 2016 – the state pension does not provide enough for the majority of holders to maintain their lifestyle in retirement. As such, relying solely on the state pension is unfeasible for many.

Personal Pension

A personal pension, or defined contribution scheme, is a method of saving for retirement which involves making regular payments into a pension fund. This is then invested into stocks and shares to increase its value in preparation for retirement.

Pros:

• Depending on the holder’s profession, they may be eligible for tax relief on their payments. This further increases the final pension value.
• Some employers offer contributions to their employees as a perk or incentive.
• Upon retirement, access to the pot is flexible. A financial advisor can establish the best way for the holder to take money for their retirement.

Cons:

• As the money in the pot is invested, there is no guarantee that it will increase in value. This depends entirely on the level of risk the holder is willing to take with their retirement fund.
• Pension scams targeting those with personal pensions are most prevalent. Holders should be aware of these, as they often appear to be approaches from genuine companies. 

Workplace Pension

Workplace pensions are offered by employers and offer yet another way to save for retirement. The introduction of auto enrolment means that all employers will have to provide a workplace pension by law.

Pros:

• Under new auto enrolment laws, both employers and the government pay into the employee’s fund. This allows the pot to accumulate more quickly.
• An attractive workplace pension scheme is seen by employers as a great way to attract and retain staff. As a result, they often tend to give the best return for their holders.
• Eligible employees are automatically enrolled in their workplace pension scheme. This removes the application process and allows them to start saving sooner.

Cons:

• As different workplaces are often signed up to different schemes, employees can end up with multiple pension pots over the course of their careers.

To find out more about pensions and planning for your retirement, visit Pensionhelp today. 

The Frugal Toad - Money Saving Advice for Everyday Living

Americans have come to rely on medicine to combat aches and pains to cancer.  This reliance on medication has lead to unrealistic expectations and a dangerous increase in drug overdose.  Here are some tips that can keep you safe with medicine.

Medicine Isn’t Magic

Modern medicine is a wonderful thing but keeping your expectations in check is necessary. Having an expectation that medicine will completely aleviate pain or make you feel twenty years younger can lead to over dependency on drugs.  Most drugs will only help make pain manageable and not eliminate pain so you can lead as normal a life as possible.  What’s the best prescription for pain? Eating a healthy diet, maintaining a healthy weight and getting plenty of exercise can help the body cope with pain.

Store Medicine Properly

Medicine should be stored in their original container in your medicine cabinet away from children. Certain types of medicines that should be stored in a refrigerator include: insulin, suspension and vial forms of medicines, soft gels, suppositories, cartridges, and certain nasal sprays.

Talk to Your Doctor

Mixing opioid pain meds with alcohol or other medications is a recipe for disaster.  Be sure to let your doctor know all of the medications, both over-the-counter and prescription, so that they can check for any drug interactions.

Monitor Senior Drug Use Closely

The risk of drug overdose rises dramatically for individuals taking pain medication, especially for those over the age of 55.  Health experts describe the problem as epidemic and list oxycodone, morphine, and hydrocodone as the most commonly abused medicines.   Older americans are sensitive to drug misuse for several reasons, they are more likely to suffer from chronic pain and be prescribed an opioid drug and second, as the body ages it’s ability to clear drugs diminishes, so a safe dosage for a younger patient may be an overdose for an older patient.

Recent data from the Agency for Healthcare Research and Quality shows deaths from overdose for those between the ages of 55-64 rose 700% from 1993 to 2012.  If you have a loved one in this age group monitor their use of medicine closely, it could very well save their life.

The Frugal Toad - Money Saving Advice for Everyday Living

This article has been updated for 2016

Have you heard of the health savings account (HSA)?  These accounts have been gaining steam as of late and there are a few reasons why.  Before I get into why many people have been opening HSAs, let me explain what they are.

The HSA is a nifty little account that allows you to contribute pre-tax money into an account that is designated for health expenditures.  This means that you save the equivalent of your tax rate instantly when paying for health expenses.  These accounts are similar to investment accounts because they can be invested into mutual funds, bonds, and stocks.  You are allowed to pull the money out of the account tax-free if it is for an eligible medical cost.

Who Can Open One?

Health savings accounts are not available for everyone.  These accounts are only for individuals or families that have high-deductible insurance plans.  A high-deductible plan is one that has an annual deductible of at least $1,300 for an individual and $2,600 for a family.  If you meet these guidelines then you can set one up.  You can open your own HSA or you can go through an employer.

Many employers offer an HSA, but they control where the money can be invested.  They would handle this much like a 401(k).  Make sure you don’t confuse a health savings account with a health “spending” account.  These are two different accounts that don’t offer the same benefits.

How Much Can Be Contributed?

As of 2016, an individual can contribute up to $3,350 and a family can contribute up to $6,550.  People 55 years and older can contribute $1,000 more in 2016.  Any money left over in your account at the end of the year will be rolled over to the next year.  It will continue to grow tax-deferred until you pull it out.

Much like a 401(k), if you pull it out before age 65, you will have to pay a 10% penalty along with being taxed at your regular rate.  As noted before, you can pull the money out at any time for qualified medical expenses, no matter the age.

After someone turns 65, they can then pull money out of the account for non-medical related expenditures.  They will be taxed just like a traditional IRA, but there will be no penalty fee.

HSA As A Retirement Account

The main reason why so many people are opening HSAs is that you can use them just like a traditional IRA.  Whatever money you contribute, but don’t pull out for medical expenses can be rolled over year after year.  Combining a HSA account along with another IRA account can allow you to tax-defer some of your income.  The biggest benefit comes when you max out your IRA and your HSA.  You can then pull as much as the government allows pre-tax and have it benefit you in the future.

If you want to treat the HSA just like another retirement account, then don’t touch it and pay for your medical expenses with money you already have.  If you can’t afford all of the expenses, then tap into the HSA.  The money only grows if you don’t use it, but it is still there as a safety net for medical expenses.

Readers: How do you plan on paying for health care costs during retirement?

The Frugal Toad - Money Saving Advice for Everyday Living

Long-term care insurance is one of those things that many people don’t want to think about.  Why would you want to think about yourself needing daily care or being in a nursing home when you retire?  Even if the thought scares you, just remember that according to the U.S. Department of Health and Human Services, seven out of ten people can expect to use some form of long-term care after age 65.  Discussing long-term care is one thing, but buying a policy for long-term care insurance is another.  Here are some factors that will need to be considered when looking for coverage.

Age and Medical Condition

Your age and medical condition are a factor, just like life insurance.  It will cost you less money to get a long-term care insurance plan when you are young and healthy.  Many long-term care insurance policies will not cover pre-existing conditions.  If you do get one that does, the insurance provider may put a clause that will not cover any care needed due to the condition for a specified time period.

If you are older with a medical condition and you are attempting to obtain long-term care insurance, you most likely will be denied.

Income Level

Long-term care insurance, like other forms of insurance, costs money.  You will pay monthly premiums and they can reach into the thousands per year.  Your income level needs to be a factor when looking for coverage.

If you have problems paying your bills, then long-term care insurance might not be for you.  As you age, your income producing assets decline.  Most people make less money after they reach retirement.

Your income level at the time of needed care might also allow you to qualify for Medicare.  If you feel that your income level is going to be near the Medicare qualification, then long-term care insurance might not be for you.  It can be difficult to get the medicare, as you have to exhaust all other avenues before qualifying.  Medicare doesn’t cover all aspects of what a long-term care insurance plan might.  Nursing home stays are typically covered, but at-home care will be limited.  These aspects of Medicare should be considered.

Taxation

One aspect that is often forgotten with long-term care insurance is how the benefits will be taxed.  Most people don’t think about it.  Luckily, the benefits received from a policy are generally not taxed as income.  Along with that, the premium values can be tax deductible if you meet certain standards.  Generally, you have to itemize your deductions and you would need to have medical costs that exceed 7.5% of your adjusted gross income (AGI).  This deduction on your federal income taxes and some states provide some type of deduction or credit as well.  The amount depends on your age.

There are many factors to consider if long-term care insurance will be right for you.  The numbers show that a majority of people over 65 will need it.  There are different policies available, so talking with your insurance agent would be beneficial.  Although long-term care might be a scary thought, you should consider the pros and cons of the coverage.

Readers: Have you thought about long-term care planning? Do you feel you will be prepared to pay for medical and long-term care expenses in retirement?

The Frugal Toad - Money Saving Advice for Everyday Living

So, you have now finally graduated and made your way into the real world of financial independence. Earning your own money for the first time is exciting and you may go a little overboard with spending once you have your first salary. While earning your own money is exciting, it is also a huge responsibility and the earlier you start saving, the easier things will be for you.

While planning your personal finance, you should also make sure that you have one or more commercial litigation solicitors that you trust and who you will be able to call should you run into any disputes at work. So before you begin work, find a solicitor that you can rely on should you get into a pickle at work. These are our tips for getting a grip on your personal finance while you are still a young adult:

Sacrifice and self-control

Hopefully you were taught the importance of self-control when you were much younger, because it is an essential part in managing your own finances. We know that it is tempting to eat out and visit bars every so often, or to buy that pair of jeans that you don’t need but simply love, but the fact of the matter is that you are going to have to make sacrifices if you want to save any money. Eat at home more, have more people around than going out and don’t splurge on luxuries that you don’t need.

Look after your health

Health insurance is expensive and the more unhealthy and unfit you are, the more it’s going to cost you. Take care of your body, exercise often and eat healthily and you will be paying a lot less on your health insurance. It also means that you will have to go to the doctor and dentist less, which is important if you are on a simple hospital plan.

Budgeting is king

There is nothing that helps you save money quite like seeing exactly where your money is actually going. Take a month to keep an eye on your finances then go through where exactly you spent your money – you will then be able to create a comprehensive budget to keep to. Budgeting is the best way to keep on top of your expenditure and to ensure that you aren’t spending more than you have coming in.

Saving for retirement

It may seem a long way away, but the sooner you start saving for retirement the better, and if you do it properly you may even be able to retire early. Company sponsored retirement-structures are a really great choice, as the company will be putting in pretax money, you can put in more than on an individual plan and the company will often match whatever it is you put in. Other options are retirement annuity funds, personal investment plans and perhaps investing in property if you can afford a mortgage.

By saving from an early age, you are ensuring that you will be better set up later down the line, and you can be more comfortable knowing that your personal finances are taken care of.

The Frugal Toad - Money Saving Advice for Everyday Living

Americans feel saving and paying off debt is a high priority however, many are not saving as much as they would like.  According to a recent survey by Discover Personal Loans, 40% of Americans have reduced the amount they are saving and 38% were saving to pay off debt.  Here are several reasons why we are struggling to save and pay off debt.

Tapping Into Savings to Cover Unplanned Expenses

When confronted with an unplanned expense, 71% of survey respondents stated they would use their savings to pay for it.  Savings by their very nature are funds set aside for goals such as a down payment for a new car or home.  Not having funds to cover unplanned expenses can put other savings goals at risk and make it difficult to replenish lost savings.

Using Savings to Cover Monthly Expenses

Tapping into savings to cover day to day expenses is a red flag that you are spending beyond your means and if left unchecked can lead to serious financial problems.  60% of survey respondents stated that they have used savings to pay for monthly expenses in  the past five years. 

Lack of Emergency Fund

According to the study commissioned by Discover Personal Loans, one-fifth of respondents stated they wished that they had done a better job planning to have emergency funds available. An emergency fund is an important tool that can provide a source of funds to cover your expenses in case of job loss or extended illness.  Not having an adequate emergency fund can make it very difficult to build your savings and avoid taking on unnecessary debt.

One danger with not having an adequate emergency fund is the temptation to use a credit card to pay for unforeseen expenses.  Using credit cards to pay for day to day or emergency expenses is never a good idea unless you pay balances off before you accrue fees and you earn reward points that cover any interest charges.

Instead of using a high interest credit card to cover unexpected bills, a popular option is to take out a lower interest personal loan.  A personal loan can provide key advantages when you are trying to take control of your finances and achieve your financial goals.

Failure to Plan for Retirement

One quarter of those surveyed wished they had planned better for retirement.  This is perhaps no surprise since the majority of respondents admitted to not having an adequate emergency fund and using savings to pay for monthly expenses.  Ideally, it is best to enroll in an employer sponsored retirement savings plan on your first day on the job or start investing in an IRA and increase your contribution amount as your income increases. 

The Frugal Toad - Money Saving Advice for Everyday Living

When it comes to personal finance, one of the big mistakes people often make is to focus too heavily on the investing aspect.

The motivation behind this is clear: Pick the right winners, and BIG returns will be yours!

There’s just one problem: Most fund managers, the very people who work with stocks every single day of their careers, can’t beat the long-term returns of simple index funds (famously paraphrased from Vanguard founder Jack Bogle).

So then if we can’t seek out greater returns, what should we put our energy into?

Simple: Planning.

Yes, I know.  What a dry topic, right?  Make no mistake!  When it comes to crafting a reliable retirement plan, knowing what works and what doesn’t can shave literally hundreds of thousands of dollars and years of saving off of your timeline.  No joke!

Let me show you what I mean, and I think you’ll easily see why focusing on the mechanics (rather than trying to pick the next winning stock) is where you want to be!

Picking the Right Safe Withdrawal Rate

Have you ever heard of something called the 4 Percent Rule?

Bengen

The 4 Percent Rule first came about in 1994 when the Journal of Financial Planning published an article from a then unknown financial planner from California named William Bengen.

At the time, all Bengen wanted to do was answer one very important question: What withdrawal rate should financial planners recommend to their clients that will give them the best odds of overcoming Sequence of Returns risk and lead to a successful retirement?

Using rolling periods of historical returns from 1926 onwards, Bengen was able to demonstrate that a safe withdrawal rate of 4 percent (with annual inflation adjustments) from a portfolio of 50/50 stocks and bonds would be successful for a minimum of 33 years.

The Trinity Study

A few years later, another article dubbed the Trinity Study made a similar conclusion about the 4 percent safe withdrawal rate.

In addition to inflation adjusted withdrawals, the Trinity Study also provided which withdrawal rates would work without inflation adjustment.  In their 2011 update, they stated that a rate as high as 7.0 percent would work if you did not adjust for inflation.  Although this is not directly useful, it does give us some indication that not adjusting every single year for inflation could improve the longevity and security of our funds.

Kitces

Financial researcher Michael Kitces published a very intriguing study in 2008 that correlated withdrawal rates with market activity in the first 10-15 years of retirement.  This was connected to an economic factor called the Shiller CAPE that could be used to reasonably forecast the market performance over the next two decades.

In terms of retirement planning, Kitces was able to show that in times when the Shiller CAPE is low, the market is under-valued.  This means that retirees could safely use a withdrawal rate as high as 5.5 percent from their nest eggs; ultimately meaning you could save a lot less or possibly retire sooner.

How Knowing the Right Safe Withdrawal Rule Becomes Useful

Okay.  So how exactly does a difference in the safe withdrawal rate of 4 or 5 percent translate into needing less for your nest egg?

Allow me to demonstrate ….

Let’s say you’re someone who is looking to create a passive income of $50,000 per year from your retirement savings.  In order to make that happen, you could choose to follow the traditional 4 percent rule and see that you’d need to save up the following:

• $50,000 / 0.04 = a nest egg of $1,250,000

What if after looking deeper into the 4 Percent Rule and Trinity Study you see that these values are indeed quite safe, and you could actually stand to tolerate a little extra risk using a withdrawal rate of 4.5 percent instead?  Now your savings drops to:

• $50,000 / 0.045 = a nest egg of $1,111,111

What if you could scale back your inflation adjustments (say until Social Security kicks in)?  Or better yet, what if we time our retirement when the Shiller CAPE is low and the market is under-valued?  If you got your rate all the way up 5.0 percent, then your savings target drops even lower:

• $50,000 / 0.05 = a nest egg of $1,000,000

That’s a spread of $250,000!  Ask yourself: How long would it take you to save up that much extra money?

This is where knowledge becomes power!  By taking in the facts and research of others, we’ve potentially put ourselves in a position to do a whole lot more with less, and get closer to the goal of financial freedom.   That’s not a bad return on your effort!

Author bio: DJ is the author of the book “How Much Money Do I Really Need to Retire & Achieve Financial Independence?” and blogs at My Money Design.  He feels very passionately about helping others find a way to achieve financial independence.  Connect with DJ via Facebook or Twitter.

Featured image courtesy of Flickr

The Frugal Toad - Money Saving Advice for Everyday Living

When it comes to planning and saving for your retirement, there’s loads of information already out there. This means it’s now easier than ever to put together a financial retirement strategy that’s well-informed and well-considered.

Knowing exactly what will happen once retirement actually arrives, though, is trickier. Every experience is different, and you can’t be certain that adapting your lifestyle will be easy. It’s also impossible to foresee every possible event.

That’s why we’re embracing the trend of going for a ‘retirement test-drive’. This means taking some time out of your usual working schedule to follow – as closely as you can – the routines and lifestyle choices that you are envisioning for your retired life.

Aside from hopefully being relaxing, this gives you a chance to spot any potential pitfalls before you’ve reached the point of no return.

Action Plan

Start spending according to your retirement budget.

• For at least a month (but ideally for several months), restrict yourself to the amount of money that you’ll have once you’ve retired.

• Are you able to live as comfortably as you anticipated? Is it enough money for you to make ends meet? Find out now, while there’s still plenty of time to go back to the drawing board.

• If there’s cash left over from your current monthly budget, you can set it aside to give yourself a better head start once you retire for real.

Experiment with the new hobbies and activities that you’re planning to take-up to make sure your retirement doesn’t become dull.

• This serves a couple of purposes. From a financial point of view, finding out whether these hobbies are for you now saves you from wasting money as a retiree if turns out you don’t like them. If you do enjoy yourself, you’ll have the opportunity to pick up any expensive equipment or memberships while you’re still earning.

• At least as importantly, you’ll be able to see whether they’re actually going to engage your brain, help you make new friends and give you plenty to do now that you’re no longer regularly heading to work.

Moving Abroad?

• If you’re planning to make big lifestyle changes – such as moving abroad – then it’s probably going to be difficult to replicate that before you actually retire. However if you can take a trip to your place-of-residence-to-be and stay there for a couple of weeks, you’ll get a sense for how costs will differ from what you’re used to.

Put Extra Thought Into These…

Other big changes might include adopting a pet, or spending a lot more time jet-setting on luxury holidays. When you can’t ‘test-drive’ these decisions, make sure you put extra thought into both the obvious financial costs and the not so obvious.

Ultimately, the plan should be to take a few weeks away from your job while you’ve still got a year or two before retirement, and use that time to get a real sense of what life is going to be like.

Involve your spouse and any other family members who might be affected – and remember, it’s not often that we get the chance to glimpse at what our future may be like! So take advantage: use the opportunity to get a sense of both the financial implications of retirement and whether it will be satisfying for you.

Overall, you should be seeing retirement as a smooth transition rather than a sudden change of circumstance; taking a test-run can help make things smoother.

This post was written by the team at equityrelease.co.uk, a site which provides facts and information about the process for people looking into equity release plans – as well as the ability to compare over 50 plans.

The Frugal Toad - Money Saving Advice for Everyday Living

Today we are pleased to have fellow blogger Ben Davis of Cents to Retirement share some money saving tips that just may help you have the funds necessary to retire early.

In late 2012/early 2013 I developed the Chronic Fatigue Syndrome (CFS) presumably as a consequence of a very stressful work environment while doing my PhD. CFS made me re-think my entire life and in late 2014 I put together a master-plan to retire early. In particular, I thought I had 5-10 years before CFS would prevent me entirely from having a job. I remember the day I sat down with a bunch of papers and a calculator, and I started to assess my finances like I hadn’t done before. I also remember that I went to fine detail with all my expenses, and I wrote all of them to the tune of dimes. I discovered memberships I was not using anymore and high fees that hadn’t to be there. I knew right away that the first step was to remove all those expenses.

My early retirement plan is quite simple: I chose a cheap country to retire in (Portugal) and as a result I only needed a salary of about $1600/mo in today’s dollars to be able to retire. Therefore, I didn’t need a gigantic portfolio to be able to retire – I believe that a $700k portfolio will do the trick. Plus, I specialized in deep value real estate deals, which made the job easier. In fact, if you look to my stock portfolio right now, you’ll find out that I only have minor positions as I expect a market correction soon and I am waiting for the right moment to enter the market. In this period, I read over 100 personal finance and investing books, learning everything there is to know about personal finance and investing (I publish reviews of these books on my blog – e.g. check out my Rich Dad Poor Dad summary – so you don’t even have to buy them to start learning) I also found many early retirement and finance blogs that ultimately gave me the confidence I needed to start putting my plan into practice. With my master-plan put together, all I needed was execution. 

When I say that I want to retire by 33, I get all kinds of looks and questions. Most of the people that believe in it (which is a reduced percentage of people), ask me what is the most important thing in the plan. Most well planned retirement plans revolve around a great combination of earning, saving and investing. In my particular case, I think that the most important angle is extreme saving and frugality. And that is what I want to talk about today. In the following, you’ll find out exactly what I consider important to execute my plan successfully.

Saving daily

The most important way you can save money is on your day to day expenses. I have published an extensive list of saving tips and techniques on my blog, but I would like to explore a few of those points in more detail. You’d be surprised with how much money you can save by simply turning the lights off more often or take a walk to work instead of driving there (when possible). However, the following techniques are something that work better at a more structural level:

• Cash out the money you’ll need for the week / month and leave your card at home. Do you know that people, in general, are way more reluctant to spend cash than money on their cards? Here’s what I did when I started to save aggressively: every Sunday I would cash out the money I needed for the week, from an ATM, and hold the cash throughout the week. Of course that it was very important to have a list of products I needed to buy and how much they would cost.  
• Write down ALL your expenses. OK, so using a brain trick that makes you hold onto your cash in a more effective way won’t do the complete trick unless you know exactly where you’re spending your money on. I use to write down my expenses and kick myself when I spent money that I felt was not worth spending. Today I actually look at it differently – I ask myself how much happier will I be if I spend that money. Either way, it was effective: I found myself spending money on one or two products once and once only. I’d kick myself so much that I would naturally reject to buy the same thing again when I came across it.
• Convince yourself you’re spending more money than what you actually are. I would actually come home and through a few bucks to a bucket. Because I knew that I could only live off of the money I had in my wallet (as I didn’t allow myself to use cards), I had to be extremely effective in managing my money. This has helped me saving thousands of dollars over the years.

Saving in investments

I am pretty much hands on when it comes to my investments, in particular real estate, when my health allows me to. On my blog, I often publish resources for Real Estate investing, including free real estate books, pro forma examples or how to get rid of couches. The way I started to save money on my investments was to assess the expenses with my real estate properties and determine which ones were the biggest ones. I concluded that I spent way too much money acquiring tenants. In Portugal, this usually costs an amount that is equal to the gross monthly rent. In fact, because you have to pay taxes on your rental income, it actually means something like two months worth of rent. Therefore, I started a Facebook page to promote my real estate. Currently, I can show my real estate properties to thousands of people for free through my Facebook pages and I usually find tenants quickly. This saved me a lot of money so far am I am sure it will continue to save me a lot of money in the next years.

Benjamin Davis blogs at From cents to Retirement, a blog that details his journey to retire early in his early 30s. Recently, Ben published his first book, entitled “My strategy to retire early“. Ben developed CFS during his early 20s, while doing his PhD, which motivated him to pursue financial freedom. He believes that the right path to retire early is hustling hard to increase income, saving aggressively and investing wisely. Currently, Ben is on track to retire at 33 years old. His long term goals include making From Cents To Retirement a reference blog for early retirement, inspiring others with his own story, owning 100 homes and retire in the coast of Portugal.

The Frugal Toad - Money Saving Advice for Everyday Living

In a previous article we discussed saving for college  and it ignited a lot of positive responses. The article included plenty of simple, straightforward tips that anyone can implement when they want to pursue a higher degree. The same tips can also be used for other purposes, such as saving up to purchase a home.

Besides the tips covered in the previous article, there are more ways to save and generate cash for investing. In this article, we are going to go over three more tips you can implement immediately. Let’s get started, shall we?

Review Your Taxes

There are many tax breaks you can claim as an individual or a business owner. Unfortunately, many of us are not fully utilizing these tax breaks to save more. Trust me, a quick look at your tax return can yield savings.

Tax codes and other regulations governing individual tax breaks are often too complicated to understand, but there are plenty of online resources you can now use to research tax breaks to utilize. There are even tools that will automatically recommend potential tax deductions to claim after you enter your financial details.

There is another interesting opportunity if you enjoy researching tax breaks: you can turn it into a career. A lot of people are pursuing their own online master in taxation degree from reputable names such as Northeastern University to be better at discovering tax breaks to claim. The online MST program will also teach you more ways to utilize the latest tax regulations to save money, making it an even more valuable investment.

Be Frugal with Electricity

Energy bills are another expense worth looking into if you are really trying to save. The small steps you take to conserve electricity can lead to substantial savings every month. You can start by unplugging your appliances when they are not in use. Even when turned off, electrical appliances still draw a small amount of electricity.

You can go a step further and make your house fully energy-efficient. This is done by fixing cracks around the windows, making sure gaps are fully closed, and checking the insulation of the house properly. Small steps like these are capable of lowering your energy bills by a whopping 40%.

Invest as Soon as Possible

One last tip to keep in mind is investing your money as soon as possible. There are plenty of smaller investment opportunities like DRIPs, low initial investment mutual funds, or ETFs that allow you to get into the market with less initial outlay.

Investing early allows you to benefit from the time value of money which speeds up the rate at which your investments grow.  Combined with the savings you make from applying the two previous tips, it won’t be long before you start hitting your investment targets.

The Frugal Toad - Money Saving Advice for Everyday Living

For the average American, managing a 401k sounds like a painfully complicated problem that haunts you for a lifetime.

That’s because in most cases, it is!

Have no fear – with the correct guidance and knowledge, 401k management can be a piece of cake, even for a beginner. After all, it’s a retirement plan that allows you to save up tons of money in a tax-efficient manner, with many companies offering to even match your savings. Take a look at my basic tips to get the most out of your 401k…and you’ll be a few steps closer to lounging on the beach with a margarita and grayer hair!

Diversify like a die-hard

To recall the famous old saying, “Never put all your eggs in one basket.” This is perhaps the wisest advice to follow regarding your 401k.

Diversifying your assets is one of the best ways to reduce risk and maximize return. If one investment option suffers, the others will remain intact. In fact, they could be inversely affected, like in the case of many asset classes of stocks and bonds.

Unless you have a background in finance or a boatload of free time to learn, it’s tricky to know how to allocate your funds in a way that truly maximizes your savings. The most basic rule is to spread your assets around in multiple funds rather than keeping them in a single one. But how do you choose? There’s no easy answer, but this asset allocation calculator might steer you in the right direction.

Slow down, you haven’t hit the 401k success jackpot just yet – pay close attention to the next tip or risk a permanently-burnt hole in your pocket.

Reduce your hidden fees

Whoever said, “What you don’t know can’t hurt you,” clearly never wrestled with hidden 401k fees.

According to a 2016 NerdWallet study, a whopping 92% of Americans had no idea how much they were paying in 401k fees – an alarming statistic that illustrates just how many people are losing hard-earned savings without even realizing it.

Investment fees are typically the loftiest type of fee, but luckily a kind you can usually control. These fees can be reduced by simply choosing to invest in funds that have lower expense ratios. Administrative and service fees, however, are more difficult for you to reduce, as they are an innate part of your provider’s plan.

Want to see how much of your money is potentially being eaten away by swarms of vicious investment fees? Use a hidden fee calculator for an estimate. Warning: the result might reality-check you into immediate action.

Keep your cool, even in a bear market

Remaining emotionally composed even during hard times is key to a stable 401k, as it truly pays off to focus on long-term rather than short-term goals.

Listen up. The stock market will fail – possibly many times – throughout your life. It’s silly that so many people panic out of fruitful investments the moment the market begins to dip; this is a big mistake, as the economy historically improves with time.

Pulling out of your investments because of volatile conditions will almost always result in suppressed returns. Instead, stick it out – you’ll be ecstatic to see how things look when the market inevitably picks back up, as it has done after the past 14 declines:

Source: S&P 500 Bear Markets (Declines Greater Than 10% But Less Than 20%) 1965-2014 Wealthfront.com. February 2015. https://blog.wealthfront.com/wp-content/uploads/2015/02/bear_market_v2.png

Match up to max out

If your workplace handed you free money, wouldn’t you take it?

That’s exactly what 401k matching is – FREE money from your employer that you get just by investing in your 401k. Seriously, it’s a guaranteed return.

The more of your own money you invest now, the more free money you’ll receive down the line. The first step is to find out what your company match is (ex: an employer might match  up to 5% of the salary you contribute to your 401k). Secondly, set your contribution to at LEAST that amount. Thirdly, if you can do more…DO MORE!

Trust me, your future self will thank you.

Take advice from the pros

There’s no doubt that the 401k management process is one of the most important yet often underserved components of the personal finance world. Even though I tried to simplify things in this blog post, chances are you might still need a bit of assistance to totally optimize your 401k.

If you want your savings to be stretched to the fullest potential, paying for professional advice can be worth the cost. The downfall is most financial advisors require an account size minimum of at least $500,000. Even more frustrating, the management fees often take a beating to your bank account of at least 1% per year – AKA a minimum of $5000 annually. Yikes.

There’s still hope! Take blooom for example. They’re a robo-advisor that manages 401ks, goes for just $10 per month and accepts all account sizes, no matter how big or small. This could be a good option for those who don’t have the time to D.I.Y. or the money to fork over for traditional help.

See my other posts on smart ways to figure out your 401k.

The Frugal Toad - Money Saving Advice for Everyday Living

When it comes to personal finance, one of the big mistakes people often make is to focus too heavily on the investing aspect.

The motivation behind this is clear: Pick the right winners, and BIG returns will be yours!

There’s just one problem: Most fund managers, the very people who work with stocks every single day of their careers, can’t beat the long-term returns of simple index funds (famously paraphrased from Vanguard founder Jack Bogle).

So then if we can’t seek out greater returns, what should we put our energy into?

Simple: Planning.

Yes, I know.  What a dry topic, right?  Make no mistake!  When it comes to crafting a reliable retirement plan, knowing what works and what doesn’t can shave literally hundreds of thousands of dollars and years of saving off of your timeline.  No joke!

Let me show you what I mean, and I think you’ll easily see why focusing on the mechanics (rather than trying to pick the next winning stock) is where you want to be!

Picking the Right Safe Withdrawal Rate

Have you ever heard of something called the 4 Percent Rule?

Bengen

The 4 Percent Rule first came about in 1994 when the Journal of Financial Planning published an article from a then unknown financial planner from California named William Bengen.

At the time, all Bengen wanted to do was answer one very important question: What withdrawal rate should financial planners recommend to their clients that will give them the best odds of overcoming Sequence of Returns risk and lead to a successful retirement?

Using rolling periods of historical returns from 1926 onwards, Bengen was able to demonstrate that a safe withdrawal rate of 4 percent (with annual inflation adjustments) from a portfolio of 50/50 stocks and bonds would be successful for a minimum of 33 years.

The Trinity Study

A few years later, another article dubbed the Trinity Study made a similar conclusion about the 4 percent safe withdrawal rate.

In addition to inflation adjusted withdrawals, the Trinity Study also provided which withdrawal rates would work without inflation adjustment.  In their 2011 update, they stated that a rate as high as 7.0 percent would work if you did not adjust for inflation.  Although this is not directly useful, it does give us some indication that not adjusting every single year for inflation could improve the longevity and security of our funds.

Kitces

Financial researcher Michael Kitces published a very intriguing study in 2008 that correlated withdrawal rates with market activity in the first 10-15 years of retirement.  This was connected to an economic factor called the Shiller CAPE that could be used to reasonably forecast the market performance over the next two decades.

In terms of retirement planning, Kitces was able to show that in times when the Shiller CAPE is low, the market is under-valued.  This means that retirees could safely use a withdrawal rate as high as 5.5 percent from their nest eggs; ultimately meaning you could save a lot less or possibly retire sooner.

How Knowing the Right Safe Withdrawal Rule Becomes Useful

Okay.  So how exactly does a difference in the safe withdrawal rate of 4 or 5 percent translate into needing less for your nest egg?

Allow me to demonstrate ….

Let’s say you’re someone who is looking to create a passive income of $50,000 per year from your retirement savings.  In order to make that happen, you could choose to follow the traditional 4 percent rule and see that you’d need to save up the following:

• $50,000 / 0.04 = a nest egg of $1,250,000

What if after looking deeper into the 4 Percent Rule and Trinity Study you see that these values are indeed quite safe, and you could actually stand to tolerate a little extra risk using a withdrawal rate of 4.5 percent instead?  Now your savings drops to:

• $50,000 / 0.045 = a nest egg of $1,111,111

What if you could scale back your inflation adjustments (say until Social Security kicks in)?  Or better yet, what if we time our retirement when the Shiller CAPE is low and the market is under-valued?  If you got your rate all the way up 5.0 percent, then your savings target drops even lower:

• $50,000 / 0.05 = a nest egg of $1,000,000

That’s a spread of $250,000!  Ask yourself: How long would it take you to save up that much extra money?

This is where knowledge becomes power!  By taking in the facts and research of others, we’ve potentially put ourselves in a position to do a whole lot more with less, and get closer to the goal of financial freedom.   That’s not a bad return on your effort!

Author bio: DJ is the author of the book “How Much Money Do I Really Need to Retire & Achieve Financial Independence?” and blogs at My Money Design.  He feels very passionately about helping others find a way to achieve financial independence.  Connect with DJ via Facebook or Twitter.

Featured image courtesy of Flickr

The Frugal Toad - Money Saving Advice for Everyday Living

When it comes to planning and saving for your retirement, there’s loads of information already out there. This means it’s now easier than ever to put together a financial retirement strategy that’s well-informed and well-considered.

Knowing exactly what will happen once retirement actually arrives, though, is trickier. Every experience is different, and you can’t be certain that adapting your lifestyle will be easy. It’s also impossible to foresee every possible event.

That’s why we’re embracing the trend of going for a ‘retirement test-drive’. This means taking some time out of your usual working schedule to follow – as closely as you can – the routines and lifestyle choices that you are envisioning for your retired life.

Aside from hopefully being relaxing, this gives you a chance to spot any potential pitfalls before you’ve reached the point of no return.

Action Plan

Start spending according to your retirement budget.

• For at least a month (but ideally for several months), restrict yourself to the amount of money that you’ll have once you’ve retired.

• Are you able to live as comfortably as you anticipated? Is it enough money for you to make ends meet? Find out now, while there’s still plenty of time to go back to the drawing board.

• If there’s cash left over from your current monthly budget, you can set it aside to give yourself a better head start once you retire for real.

Experiment with the new hobbies and activities that you’re planning to take-up to make sure your retirement doesn’t become dull.

• This serves a couple of purposes. From a financial point of view, finding out whether these hobbies are for you now saves you from wasting money as a retiree if turns out you don’t like them. If you do enjoy yourself, you’ll have the opportunity to pick up any expensive equipment or memberships while you’re still earning.

• At least as importantly, you’ll be able to see whether they’re actually going to engage your brain, help you make new friends and give you plenty to do now that you’re no longer regularly heading to work.

Moving Abroad?

• If you’re planning to make big lifestyle changes – such as moving abroad – then it’s probably going to be difficult to replicate that before you actually retire. However if you can take a trip to your place-of-residence-to-be and stay there for a couple of weeks, you’ll get a sense for how costs will differ from what you’re used to.

Put Extra Thought Into These…

Other big changes might include adopting a pet, or spending a lot more time jet-setting on luxury holidays. When you can’t ‘test-drive’ these decisions, make sure you put extra thought into both the obvious financial costs and the not so obvious.

Ultimately, the plan should be to take a few weeks away from your job while you’ve still got a year or two before retirement, and use that time to get a real sense of what life is going to be like.

Involve your spouse and any other family members who might be affected – and remember, it’s not often that we get the chance to glimpse at what our future may be like! So take advantage: use the opportunity to get a sense of both the financial implications of retirement and whether it will be satisfying for you.

Overall, you should be seeing retirement as a smooth transition rather than a sudden change of circumstance; taking a test-run can help make things smoother.

This post was written by the team at equityrelease.co.uk, a site which provides facts and information about the process for people looking into equity release plans – as well as the ability to compare over 50 plans.

The Frugal Toad - Money Saving Advice for Everyday Living

Today we are pleased to have fellow blogger Ben Davis of Cents to Retirement share some money saving tips that just may help you have the funds necessary to retire early.

In late 2012/early 2013 I developed the Chronic Fatigue Syndrome (CFS) presumably as a consequence of a very stressful work environment while doing my PhD. CFS made me re-think my entire life and in late 2014 I put together a master-plan to retire early. In particular, I thought I had 5-10 years before CFS would prevent me entirely from having a job. I remember the day I sat down with a bunch of papers and a calculator, and I started to assess my finances like I hadn’t done before. I also remember that I went to fine detail with all my expenses, and I wrote all of them to the tune of dimes. I discovered memberships I was not using anymore and high fees that hadn’t to be there. I knew right away that the first step was to remove all those expenses.

My early retirement plan is quite simple: I chose a cheap country to retire in (Portugal) and as a result I only needed a salary of about $1600/mo in today’s dollars to be able to retire. Therefore, I didn’t need a gigantic portfolio to be able to retire – I believe that a $700k portfolio will do the trick. Plus, I specialized in deep value real estate deals, which made the job easier. In fact, if you look to my stock portfolio right now, you’ll find out that I only have minor positions as I expect a market correction soon and I am waiting for the right moment to enter the market. In this period, I read over 100 personal finance and investing books, learning everything there is to know about personal finance and investing (I publish reviews of these books on my blog – e.g. check out my Rich Dad Poor Dad summary – so you don’t even have to buy them to start learning) I also found many early retirement and finance blogs that ultimately gave me the confidence I needed to start putting my plan into practice. With my master-plan put together, all I needed was execution. 

When I say that I want to retire by 33, I get all kinds of looks and questions. Most of the people that believe in it (which is a reduced percentage of people), ask me what is the most important thing in the plan. Most well planned retirement plans revolve around a great combination of earning, saving and investing. In my particular case, I think that the most important angle is extreme saving and frugality. And that is what I want to talk about today. In the following, you’ll find out exactly what I consider important to execute my plan successfully.

Saving daily

The most important way you can save money is on your day to day expenses. I have published an extensive list of saving tips and techniques on my blog, but I would like to explore a few of those points in more detail. You’d be surprised with how much money you can save by simply turning the lights off more often or take a walk to work instead of driving there (when possible). However, the following techniques are something that work better at a more structural level:

• Cash out the money you’ll need for the week / month and leave your card at home. Do you know that people, in general, are way more reluctant to spend cash than money on their cards? Here’s what I did when I started to save aggressively: every Sunday I would cash out the money I needed for the week, from an ATM, and hold the cash throughout the week. Of course that it was very important to have a list of products I needed to buy and how much they would cost.  
• Write down ALL your expenses. OK, so using a brain trick that makes you hold onto your cash in a more effective way won’t do the complete trick unless you know exactly where you’re spending your money on. I use to write down my expenses and kick myself when I spent money that I felt was not worth spending. Today I actually look at it differently – I ask myself how much happier will I be if I spend that money. Either way, it was effective: I found myself spending money on one or two products once and once only. I’d kick myself so much that I would naturally reject to buy the same thing again when I came across it.
• Convince yourself you’re spending more money than what you actually are. I would actually come home and through a few bucks to a bucket. Because I knew that I could only live off of the money I had in my wallet (as I didn’t allow myself to use cards), I had to be extremely effective in managing my money. This has helped me saving thousands of dollars over the years.

Saving in investments

I am pretty much hands on when it comes to my investments, in particular real estate, when my health allows me to. On my blog, I often publish resources for Real Estate investing, including free real estate books, pro forma examples or how to get rid of couches. The way I started to save money on my investments was to assess the expenses with my real estate properties and determine which ones were the biggest ones. I concluded that I spent way too much money acquiring tenants. In Portugal, this usually costs an amount that is equal to the gross monthly rent. In fact, because you have to pay taxes on your rental income, it actually means something like two months worth of rent. Therefore, I started a Facebook page to promote my real estate. Currently, I can show my real estate properties to thousands of people for free through my Facebook pages and I usually find tenants quickly. This saved me a lot of money so far am I am sure it will continue to save me a lot of money in the next years.

Benjamin Davis blogs at From cents to Retirement, a blog that details his journey to retire early in his early 30s. Recently, Ben published his first book, entitled “My strategy to retire early“. Ben developed CFS during his early 20s, while doing his PhD, which motivated him to pursue financial freedom. He believes that the right path to retire early is hustling hard to increase income, saving aggressively and investing wisely. Currently, Ben is on track to retire at 33 years old. His long term goals include making From Cents To Retirement a reference blog for early retirement, inspiring others with his own story, owning 100 homes and retire in the coast of Portugal.

The Frugal Toad - Money Saving Advice for Everyday Living

In a previous article we discussed saving for college  and it ignited a lot of positive responses. The article included plenty of simple, straightforward tips that anyone can implement when they want to pursue a higher degree. The same tips can also be used for other purposes, such as saving up to purchase a home.

Besides the tips covered in the previous article, there are more ways to save and generate cash for investing. In this article, we are going to go over three more tips you can implement immediately. Let’s get started, shall we?

Review Your Taxes

There are many tax breaks you can claim as an individual or a business owner. Unfortunately, many of us are not fully utilizing these tax breaks to save more. Trust me, a quick look at your tax return can yield savings.

Tax codes and other regulations governing individual tax breaks are often too complicated to understand, but there are plenty of online resources you can now use to research tax breaks to utilize. There are even tools that will automatically recommend potential tax deductions to claim after you enter your financial details.

There is another interesting opportunity if you enjoy researching tax breaks: you can turn it into a career. A lot of people are pursuing their own online master in taxation degree from reputable names such as Northeastern University to be better at discovering tax breaks to claim. The online MST program will also teach you more ways to utilize the latest tax regulations to save money, making it an even more valuable investment.

Be Frugal with Electricity

Energy bills are another expense worth looking into if you are really trying to save. The small steps you take to conserve electricity can lead to substantial savings every month. You can start by unplugging your appliances when they are not in use. Even when turned off, electrical appliances still draw a small amount of electricity.

You can go a step further and make your house fully energy-efficient. This is done by fixing cracks around the windows, making sure gaps are fully closed, and checking the insulation of the house properly. Small steps like these are capable of lowering your energy bills by a whopping 40%.

Invest as Soon as Possible

One last tip to keep in mind is investing your money as soon as possible. There are plenty of smaller investment opportunities like DRIPs, low initial investment mutual funds, or ETFs that allow you to get into the market with less initial outlay.

Investing early allows you to benefit from the time value of money which speeds up the rate at which your investments grow.  Combined with the savings you make from applying the two previous tips, it won’t be long before you start hitting your investment targets.

The Frugal Toad - Money Saving Advice for Everyday Living

For the average American, managing a 401k sounds like a painfully complicated problem that haunts you for a lifetime.

That’s because in most cases, it is!

Have no fear – with the correct guidance and knowledge, 401k management can be a piece of cake, even for a beginner. After all, it’s a retirement plan that allows you to save up tons of money in a tax-efficient manner, with many companies offering to even match your savings. Take a look at my basic tips to get the most out of your 401k…and you’ll be a few steps closer to lounging on the beach with a margarita and grayer hair!

Diversify like a die-hard

To recall the famous old saying, “Never put all your eggs in one basket.” This is perhaps the wisest advice to follow regarding your 401k.

Diversifying your assets is one of the best ways to reduce risk and maximize return. If one investment option suffers, the others will remain intact. In fact, they could be inversely affected, like in the case of many asset classes of stocks and bonds.

Unless you have a background in finance or a boatload of free time to learn, it’s tricky to know how to allocate your funds in a way that truly maximizes your savings. The most basic rule is to spread your assets around in multiple funds rather than keeping them in a single one. But how do you choose? There’s no easy answer, but this asset allocation calculator might steer you in the right direction.

Slow down, you haven’t hit the 401k success jackpot just yet – pay close attention to the next tip or risk a permanently-burnt hole in your pocket.

Reduce your hidden fees

Whoever said, “What you don’t know can’t hurt you,” clearly never wrestled with hidden 401k fees.

According to a 2016 NerdWallet study, a whopping 92% of Americans had no idea how much they were paying in 401k fees – an alarming statistic that illustrates just how many people are losing hard-earned savings without even realizing it.

Investment fees are typically the loftiest type of fee, but luckily a kind you can usually control. These fees can be reduced by simply choosing to invest in funds that have lower expense ratios. Administrative and service fees, however, are more difficult for you to reduce, as they are an innate part of your provider’s plan.

Want to see how much of your money is potentially being eaten away by swarms of vicious investment fees? Use a hidden fee calculator for an estimate. Warning: the result might reality-check you into immediate action.

Keep your cool, even in a bear market

Remaining emotionally composed even during hard times is key to a stable 401k, as it truly pays off to focus on long-term rather than short-term goals.

Listen up. The stock market will fail – possibly many times – throughout your life. It’s silly that so many people panic out of fruitful investments the moment the market begins to dip; this is a big mistake, as the economy historically improves with time.

Pulling out of your investments because of volatile conditions will almost always result in suppressed returns. Instead, stick it out – you’ll be ecstatic to see how things look when the market inevitably picks back up, as it has done after the past 14 declines:

Source: S&P 500 Bear Markets (Declines Greater Than 10% But Less Than 20%) 1965-2014 Wealthfront.com. February 2015. https://blog.wealthfront.com/wp-content/uploads/2015/02/bear_market_v2.png

Match up to max out

If your workplace handed you free money, wouldn’t you take it?

That’s exactly what 401k matching is – FREE money from your employer that you get just by investing in your 401k. Seriously, it’s a guaranteed return.

The more of your own money you invest now, the more free money you’ll receive down the line. The first step is to find out what your company match is (ex: an employer might match  up to 5% of the salary you contribute to your 401k). Secondly, set your contribution to at LEAST that amount. Thirdly, if you can do more…DO MORE!

Trust me, your future self will thank you.

Take advice from the pros

There’s no doubt that the 401k management process is one of the most important yet often underserved components of the personal finance world. Even though I tried to simplify things in this blog post, chances are you might still need a bit of assistance to totally optimize your 401k.

If you want your savings to be stretched to the fullest potential, paying for professional advice can be worth the cost. The downfall is most financial advisors require an account size minimum of at least $500,000. Even more frustrating, the management fees often take a beating to your bank account of at least 1% per year – AKA a minimum of $5000 annually. Yikes.

There’s still hope! Take blooom for example. They’re a robo-advisor that manages 401ks, goes for just $10 per month and accepts all account sizes, no matter how big or small. This could be a good option for those who don’t have the time to D.I.Y. or the money to fork over for traditional help.

See my other posts on smart ways to figure out your 401k.

The Frugal Toad - Money Saving Advice for Everyday Living

There is no magic trick to retiring comfortably. This can be hard to accept. It is human nature to rely on fate. We often look for a quick and easy solution to a problem that may require a plan, commitment and time. By following these 5 principles of investment you may increase the probability of creating this “magic” for yourself.

Formulate a plan

Start by setting realistic goals with the help of a Certified Financial Planner.  Here are a few simple parameters: Aim to accumulate at least 17 times your pre-retirement salary. This is, however, based on a set of general assumptions. Your circumstances may require you to adjust your plan.

You need to account for inflation

Investing is not always a smooth ride. Earning returns that beat inflation (i.e. real returns) requires you to take on some risk. This means you might need to make investments, which have uncertain short-term outcomes and prices. Even the most prudently managed portfolios may experience fluctuations over the short term. The key here, as an investor, is to remain calm during this period of variable investment or unit trust prices. Try and take a long-term approach and evaluate your returns over longer time periods. In the end, short-term fluctuations tend to smooth out with time and when you use dollar cost averaging, you lower your average cost per share.

Try and avoid switching

Don’t try and predict the future. It rarely plays out the way you think it will. Switching involves selling one investment or unit trust and buying another, but this is often done at the worst time.  By taking a wait-and-see approach you increase your chances of making the right choice. You will often be confronted by an uncertain market, which will inevitably lead to a self-proclaimed call to action. Admittedly it is difficult to stand by and do nothing, when facing a market in a down turn, but this is often the best course of action if you have a long-term investing horizon. Switching during a down period can often destroy value. Stay focused on your long-term goals. Not everything requires you to act.

Meaningful diversification

Diversification works best when investments are spread across different assets or across unit trusts that are managed in different ways. Diversification can break down if the unit trusts you invest in are very similar. Balanced funds can give you good exposure to different asset classes. It is important to note that investing in various balanced funds won’t necessarily make your investments more diverse, it simply refines the spread of your investment. Thus you may end up paying higher fees, while getting average market returns.

Begin as soon as possible

Waiting to start your retirement savings can have huge consequences. The key here is compound interest, which requires time. Missing those first few years of saving may result in losing almost half your final return. Do not despair; even if you have not started yet, the best time is still now.

These tips may seem quite basic, but trying to implement them consistently is hard. There is no magic involved in retiring comfortably, only a steady, committed plan.

The Frugal Toad - Money Saving Advice for Everyday Living

So, you have now finally graduated and made your way into the real world of financial independence. Earning your own money for the first time is exciting and you may be tempted to go a little overboard with spending once you have your first paycheck . While earning your own money is exciting, it is also a huge responsibility and the earlier you start saving, the brighter your financial outlook will become..

Managing your personal finances can be a bit of a challenge, especially if you haven't had experience managing a budget.  To get you started, here are several tips for getting a grip on your personal finance while you are still a young adult:

Sacrifice and self-control

Hopefully you were taught the importance of self-control when you were much younger, because it is an essential part in managing your own finances. We know that it is tempting to eat out and visit bars every so often, or to buy that pair of jeans that you don’t need but simply love, but the fact of the matter is that you are going to have to make sacrifices if you want to save any money. Eat at home more, take advantage of free and low-cost activities, and don’t splurge on luxuries that you don’t need.

Look after your health

Health insurance is expensive and the more unhealthy and unfit you are, the more it’s going to cost you. Take care of your body, exercise often and eat healthy and you will be paying a lot less on your health insurance. It also means that you will have to go to the doctor and dentist less, which is important if you are on a basic health insurance plan.

Budgeting is king

There is nothing that helps you save money quite like seeing exactly where your money is actually going. Take a month to keep an eye on your finances then go through where exactly you spent your money – you will then be able to create a comprehensive budget to keep to. Budgeting is the best way to keep on top of your finances and to ensure that you aren’t spending more than you have coming in.

Saving for retirement

It may seem a long way away, but the sooner you start saving for retirement the better, and if you do it properly you may even be able to retire early. Company sponsored retirement-structures are a really great choice, as the company will be putting in pretax money, you can put in more than on an individual plan and the company will often match whatever it is you put in. Other options are retirement annuity funds, personal investment plans and perhaps investing in real estate.

By saving from an early age, you are ensuring that you will be better prepared for retirement, and you can be more comfortable knowing that your personal finances are in good shape.

The Frugal Toad - Money Saving Advice for Everyday Living