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Saturday, July 13, 2013

Financial planning for retirement

IRAs can be used to supplement 401(K) contribution limits
Emergency funds help avert financial ruin
By Jake Sneed

Believe it or not, it is never too early to focus on financial planning. While much of the financial services industry centers on baby boomer and retirees, thousands upon thousands of young workers can benefit from paying attention to both saving and investing for the future. Indeed, much of the advice suitable for older workers is applicable to those just starting their careers and families.

There is no magic solution when it comes to money management, but most experts agree on a few key areas. It is attention to these areas that provide a foundation for continued success in both saving and investing your money. As the decades roll on, your solid foundation allows you to both live fully in the present as well as look forward to a sound retirement.

First off, begin saving and investing with your first job. As a young investor, time is your ally. Always contribute at least enough to get any matching contribution for your 401(k) or other workplace savings plan. The matching contribution is like getting "free" money, plus there are the potential benefits of any tax-deferred growth and compounded returns. These regular contributions to a workplace plan, such as 401(k), can be supplemented with additional contributions to an individual retirement account (IRA). This is a proven strategy for growing wealth. With time on your side, you have longer to enjoy the compound growth and can also weather the volatility of the market.

When we start to earn money, we start to spend more money. It is fine to spend, but spend wisely. Have goals and be conservative in the use of your credit. Consumer debt is a huge liability to achieving financial freedom and success. Spend within your means. If you already have high-interest debt, focus on paying down that debt or consolidating accounts to ease your monthly burden and reduce paperwork.

Life has a knack at throwing curveballs, so having an emergency fund in place is wise. Plan to sock away enough money to cover three to six months of expenses. This planning averts disaster in the case of unexpected layoffs or other employment upheavals. While none of us plan for such upheavals, recent economic history demonstrates that the unexpected does occur. Be prepared for it and you will be better positioned for long-term success.

Finally, while retirement is a long way off, there are other financial products and tools to consider, even at an early age. Annuities are on the rise and understanding how they function and how they can work within your overall plan is a good idea. Documents such as wills, living wills and power of attorney may not be as exciting as seeing your investments grow, but they are critical components of your overall financial plan.

Entering the job market and earning money is energizing. Saving and investing some of your hard-earned money provides the foundation for being successful in managing your money and navigating the financial aspects of your life. Follow the key areas outlined above and enjoy the fruits of your labor.

About the author: Jake Sneed has worked in the finance industry for twenty two years. He occassionally writes articles and blogs for SDIRA, a subsidiary of Horizon Bank that specializes in self-directed IRA options, like real estate and precious metals. For more information on self-directed IRA's and tips on ways to better plan for your retirement, please visit www.sdiraservices.com.

* Image license: Woodsy; RGBStock.com license