Today, Dustin and I sit down to talk about the second pillar of life planning, security. For many people, saving can be stressful and overwhelming, so they avoid the subject altogether and fail to create a plan. The reality is, if this discipline is developed early on, it can have profound effects on your quality of life later on. If you started this process at a later age, there are still several things you can do to maximize your retirement fund and savings. On this episode, Dustin and I talk about the power of compounding interest, we offer a few strategies for short-term and long-term saving, and Dustin talks about how to use a 401(k) and IRA to help build your security pillar.

Don’t put off saving for your future another day! Listen to the #worthitpodcast hear @DRGranger, a CFP® share ideas on how to build your security! #Security #FinancialPlanning Click To Tweet

The law of compounding interest

Dustin Granger, a CERTIFIED FINANCIAL PLANNER™ says that Einstein called compounding interest the 8th wonder of the world. Warren Buffett calls it the single biggest factor behind his investing success. At a basic level, compounding interest means earning interest on your interest, or understanding that your investment gets exponentially larger with each following year, like the snowball effect. Dustin says that the big factor with compounding interest is time, so this is a strategy that should be implemented as early as you can.

Disclosure: Investing involves risk including loss of principal.

The bucket strategy

Your savings strategy may change depending on the stage of life that you are in. Dustin shares a bucket strategy, a tool you can use to save for short-term goals like an emergency fund, mid-range goals like a new car or house and long-range goals like retirement. A lot of millennials are not thinking about saving for retirement, but this may be the best time to put money towards that goal. Single adults without kids usually have less unexpected expenses that would require an emergency fund, or the need to buy a house, so they can funnel cash into long-term investments. Married couples with kids have to focus more on short or mid-range goals, like an emergency fund, buying a house or saving for college, so they have less to put towards retirement. There are more insights on strategies to be successful at this in this episode and links to several planning tools below!

Are you earning interest on your interest? You should be. Dustin Granger, a CFP® shares his strategy on this episode of the #worthitpodcast. Check it out here: @DRGranger #Security #FinancialPlanning Click To Tweet

Disclosure: we would need to see your entire financial profile (income, debt, current savings, etc.) to give a customized recommendation. The principles we’re talking about are general in nature. Remember to consult with a financial planner if you want a customized recommendation.

Smart ways to maximize your 401(k) potential

If your employer offers a 401(k), you need to enroll yesterday. They say there is no free lunch, but with the matching programs that many employers offer, it’s basically free money. If your company matches what you put in and you are able to, you need to be adding, at least the minimum amount required. A 401(k) is where you can see the power of long-term investments. Dustin Granger CFP®, says you should not leave this 401(k) as a cash or stable value fund because this does not create compound interest. He recommends you consider setting it up as a target-date fund. Listen to hear more details on successful 401(k) planning.

Disclosure: The target date is the approximate date when investors plan to start withdrawing their money. The principal value of the fund(s) is not guaranteed at any time, including at the target date. It is possible the funds’ objectives may change over time.

All things IRA

I remember doing my taxes online and watching the amount of income tax I owed decrease because I told the software that I was contributing to my IRA fund. A traditional IRA is a long-term saving strategy that provides a tax benefit when you contribute. There are penalties if you take the money out early. Dustin, a CERTIFIED FINANCIAL PLANNER™ recommends automating how you are contributing to your IRA, then leaving it to potentially grow over time. A Roth IRA does offer the tax cuts up front, but once you retire and need to use the money, it is completely tax-free. Dustin and I have another episode planned where we will go deep on this subject. Listen to this episode to get an overview of how to start building your financial future.

Definitions:

• Traditional IRA: Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
• Roth IRA: The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Your #savingsstrategy may change depending on the stage of life that you are in. Listen to the #worthitpodcast to learn more. @DRGranger #worthitpodcast #Security #FinancialPlanning Click To Tweet

Outline of This Episode

• [2:30] Dustin reviews the 5 pillars of life planning
• [5:15] The law of compounding interest explained
• [10:15] Legal Disclaimer
• [11:00] The 3 buckets strategy for saving
• [18:15] JP Morgan financial planning chart
• [20:00] Types of accounts you should have
• [24:45] Dustin explains 401K planning
• [32:00] What you should know about traditional and Roth IRA accounts
• [36:45] online investing options
• [38:15] Advice for automating your savings
• [41:45] practical tips to help you start saving today
• [43:30] How the security pillar strives to improve your quality of life.

Resources & People Mentioned

• JP Morgan Asset Management – Financial Planning Chart, page 12

Connect With Danielle and Dustin

• On Facebook
• On Twitter
• Connect with Dustin on Twitter: @DRGranger

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If your employer offers a 401(k), you need to enroll yesterday. Dustin Granger, a CFP® shares why on this episode of the #worthitpodcast. #Security #FinancialPlanning Click To Tweet

Dustin Granger, a CERTIFIED FINANCIAL PLANNER™ recommends automating how you are contributing to your IRA. Learn what he does on this #worthitpodcastepisode #Security #FinancialPlanning Click To Tweet