How do you fund your retirement account?

Question How do you fund your retirement account?

Answer  Use your PYF Savings account for retirement.

Complete Answer  Although retirement planning is beyond the scope of this blog, the following guidelines will point you in the right direction. If you save 10% of your take-home pay each month, your PYF Savings Account, the following things will happen:

  1. You will have enough money in your checking account to pay all of your monthly bills on time (post of post of October 10, 2016),
  2. You will have money for unexpected financial emergencies (post of October 17, 2016),
  3. You will have money to leverage your buying power for big-ticket goods and/or services (post of October 24, 2016), and
  4. You will have money to fund your retirement.

Retirement Guidelines

  • Start NOW! If you are putting 10% of your monthly take-home pay into your PYF Savings Account for your working life, you will have a substantial amount of money for your retirement. Will that be enough to fund your retirement? Only you can answer that question. A good place to start is to look at your monthly Spending Plan. How much money do you need each month to maintain your current life style?
  • Diversify your retirement funds.
  • Take full advantage of your employer’s retirement and/or pension programs.
  • Only withdraw money from your retirement account(s) as a last resort, then make paying yourself back a priority.
  • Because each of us have unique financial situations, you should seek the help from a trusted, licensed financial adviser.

Financial Literacy Knowledge/Skill

How to fund your retirement account.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

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How do you leverage your buying power to pay for big-ticket goods or services?

Question  How do you leverage your buying power to pay for big-ticket goods or services?

Answer  Use your PYF Savings account to leverage10 your buying power to pay for big-ticket goods or services, then pay it back.

Complete Answer  Although “leveraging your buying power” may sound like a complicated financial concept, it is really quite simple. An example is a gas station offering a gallon of gas a few cents cheaper if you pay with cash instead of using a credit card.

The term “big-ticket” is normally used to describe expensive purchases. For the purpose of this blog, I will use the term “big-ticket” to describe things that cost $1,000 or more and cannot be paid for from a typical monthly Spending Plan.

Example My car insurance for two cars, a pickup, and a scooter all come due the same month each year. The total bill is more than I can pay for from my Auto Expense account in my Spending Plan. I use money from my PYF Savings account to pay the total bill all at once. By paying the auto insurance bill for one year, I take advantage of available discounts. I then amortize the discounted cost of one year of auto insurance over the next year.

Using rounded numbers as an example: The discounted cost of car insurance is $1,200.00. It is more than I can afford in one month from my Spending Plan for Auto Expense. I borrow the $1,200.00 from my PYF Savings account, then divide the $1,200.00 by 12 months and pay back $100.00 a month. This expense is part of my monthly Auto Expense. Please note; my monthly Auto Expense including the amortized auto insurance of $100.00 does not exceed the total recommended amount, 15%, for Auto Expense.

Financial Literacy Knowledge/Skill

How to use a PYF Savings Account to leverage your buying power to pay for big-ticket goods or services.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: How do you fund your retirement account?

 

How do you pay for unexpected emergencies?

Question  How do you pay for unexpected emergencies?

Answer  Borrow the money from your PYF savings account, then pay it back.

Complete Answer  Unless you are an extremely lucky person, you will have unexpected financial emergencies in your lifetime. Use the money from your PYF savings account to pay for the financial emergency, then pay yourself back. The nice things about borrowing money from yourself (being your own bank) are you will always be approved, no paper work to complete, it is an interest-free loan and you get to decide the terms (amount and frequency of payments) of the loan.

Borrowing money from your PYF Savings Account. You should borrow money from your PYF Savings Account if the emergency expense is more than can be paid for from your monthly Spending Plan. For example: I could pay a $250.00 repair expense for the washing machine from my monthly Spending Plan’s Housing Expense. On the other hand, when my furnace had to be replaced at a cost of $3,600.00, it was more than I could afford in one month, so I borrowed the money for the new furnace from my PYF Savings Account. I amortized the $3,600.00 expense over three years. I paid back my PYF Savings Account $100.00 a month for the next three years.

Helpful Hint  Through no fault of your own, you could be the victim of identity theft and or bank fraud – unexpected financial emergencies. Because of the threats of identity theft and bank fraud, use two completely different banks (not affiliated with one another) for your checking account and your PYF Savings Account. If an account is compromised, you will still have access to some money from the second bank until the problem is resolved.

Financial Literacy Knowledge/Skill

  1. Paying for unexpected financial emergencies.
  2. Amortizing a loan to yourself.
  3. Using two separate banks to help protect yourself from identify theft/bank fraud.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: How do you leverage your buying power to pay for big-ticket goods or services?

How should you be using your savings?

Question  How should you be using your savings?

Answer  Use your savings to:

  1. Pay all of your monthly expenses on time.
  2. Pay for unexpected emergencies.
  3. Leverage your buying power to pay for big-ticket goods and/or services.
  4. Fund your retirement.

Complete Answer  Assuming that you have a Spending Plan which includes spending less money than you take home (living at or below your means) and you are saving at least 10% (Pay Yourself First Savings Account) of your take-home pay each month.

1.Pay all of your monthly expenses on time. You will need a checking account that allows you to deposit money (checks and cash), write checks, both electronically and manually and access to your account using an ATM for both deposits and withdrawals. Deposit all monies received into this account. During the month, you will have money coming into this account (income) and money going out (expenses). The important thing to remember and do is you should have 10% of that month’s income left in that account at the end of the month. Do the same thing the next month and the month after and the month after that until you have enough money in that checking account to pay all monthly expenses for one month.

This concept, having enough money to pay all monthly expenses on time, is called operating capital. All successful business do it. It is similar to having money in the cash register at the beginning of the the day. Money comes in, money goes out. At the end of the day you should have more money in the cash register than you started with at the beginning of the day.

Financial Literacy Knowledge/Skills

  1. Have a checking account.
  2. Use savings to help pay for all monthly expenses on time.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: How do you pay for unexpected emergencies?

 

 

How much money should you be saving?

Question How much money should you be saving?

Answer  Ten percent of your take-home pay.

Complete Answer  At the very minimum, you should be saving 10% of your take-home pay.

The 10% Affect  Saving 10% of your take-home pay may seem like an impossible task. It is if you try to do it all at once. If you do it one pay check/one purchase at a time, it’s not that difficult. I like to think of it as, “Small change equals big bucks.” For example, If you have $10 to spend on lunch, how different would your lunch be if you only spent $9? Instead of spending $100 for clothes, you only spent $90. Could you really notice the difference? That’s “small change”. If you do that for a year, you will have saved 10% of your take-home pay, that’s “big bucks”.

Financial Literacy Knowledge/Skill

Save 10% of your take-home pay.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: How should you be using your savings?