Forget that latte-- Save your money for retirement
Nope, I'm not kidding. And don't get me wrong, I love my tall, sugar-free Irish Cream, non-fat, no foam latte as much as the next guy, but saving money is more important than you may think, and it's never too early to start.
On Tuesday, February 12th, representatives from Ameriprise Financial coordinated with the UW Career Center to offer a free financial planning workshop for students. The positive response was overwhelming. Below are some pearls of wisdom from Financial Advisor Scott Rethke's presentation. (Do you know the Rule of 72? Read on...)
• Saving is a habit. In order to create a budget and determine how much you can afford to save, track all-count ‘em: ALL-of your expenses for one month. Starting on the first of the month, save all your receipts in an envelope or jar, but don't tally them up yet. When the month is over, track your spending, and find out what areas you're putting money into, and where you could afford to cut back. (Drop the People Magazine. Step away.)
• Save smart. Once you've determined how to save some money, you have to figure out where to put it. Enter the Rule of 72. To maximize your return, divide 72 by the growth rate percentage of your investment account. The answer is how long it will take for your money to double in that account. (For example, if the growth rate is 12%, 72 divided by 12 = 6: the number of years it will take for your money to double.) Since savings accounts at banks usually offer very low growth rates, look into higher-yielding options, such as a money market account or a mutual fund.
• Identify your goals and plan accordingly. Different goals require different financial planning strategies. For instance, if you want to buy a home within five years, you're going to save differently to reach that goal than you'll save in order to retire in 50 years. Investigate your options, and create different accounts for each long-term goal.
• Protect your credit score. Did you know that you can check your credit score once a year for free, but that your score goes down by five points each time you check it? And did you know that consolidating your loans can actually lower your credit score? You may want to discuss these topics with a financial planner before trying out any of these strategies.
• Save for emergencies. It's wise to have an emergency savings fund with enough money to cover your cost of living for 3-6 months. If the worst should happen and you lose your source of income or have to dip into those savings, you'll be covered.
• Retirement: yes, you should think about it now. Time is on your side! Start saving for retirement early. Look into the differences between a 401K (which is not taxed up front, but rather when you cash out at the time of retirement) and a Roth IRA (which is taxed when you earn it and NOT when you cash out, but there's a limit to how much you can save each year.) Discuss the differences with a financial planner and figure out what's right for you.
• Want more information? Come to our next financial planning workshop! (You can start a savings account with the money you would have spent on dinner, because we have free pizza!) Keep an eye on the UW Career Center student calendar for more financial planning events that are on the horizon. And check out careers.washington.edu for more information.
