CNBC published an article this week that shares 21 financial tips from a Harvard-trained economist. Here are our four favorites and why they will help you and your team members have improved financial health.
Say you have $100,000 that you can invest right now.
a. If you invest it in a bond earning 1.5%, you’d earn 1,500 in interest income over the course of a year.
b. If you instead had a $100,000 mortgage at a 3.2% interest rate, you’d save $3,200 by paying it off and avoiding a year’s worth of interest payments.
In short, you’d make $1,700 with no risk by investing in your debt instead of in a bond.
2. Use retirement-account contributions, conversions, and withdrawals to cut your lifetime taxes.
Most companies offer retirement accounts to help their employees plan for their future. By adding money to their own retirement account, each team member can receive tax benefits based on the amount contributed. Some companies also have a matching policy that is important for your staff to be aware of. It's important to help your team understand the retirement plans your company offers and how to best use the type of account offered. By doing so, you allow your team to take advantage of financial tools already available to them, and you can build stronger relationships between managers and staff.
If you need help understanding the different types of retirement accounts and what is best for you, feel free to schedule an appointment with one of our coaches for personalized guidance.
3. If you don’t formally request your social security benefits, you won’t get it.
Many people don’t know this, and it’s important to help staff that may be transitioning to retirement. Once a person is eligible to collect social security, they actually have to actually file a request for benefits. This can be done through the Social Security Administration’s website.
Another key tip is that if a person can wait until age 70 to claim these benefits, their monthly benefits increase significantly. Of course, this isn’t an option for everyone, but it should be considered before retirement.
There are lots of things to learn when you begin investing, but the first things are:
a. How much money am I willing to “spend” as I learn about the stock market?
- by investing before you know what you’re doing, you will likely lose some of it. Just consider that the cost of self-education. It will get better as you learn to do the proper research and understand the market better.
b. What is my exit strategy?
- If the stock you buy is doing well, it is sometimes hard to sell it because it may continue to go up. If you sell to early, you lose out on profit you could have made, but if you sell too late, then you could lose out anyways. Building an exit strategy means understanding what the stock is likely to do and deciding at what price or % increase you’ll sell part of the stock.
A basic example:
You buy 200 shares of a stock that will probably go up 10%. It has the potential, though, for a 15% increase.
Your exit strategy could look like this:
- At 5% increase: Sell 40 shares
In case the stock doesn’t do what is expected, you make a little and could sell the rest if need be.
- At 8% increase: sell 80 shares
Here the stock is trending as expected but it may not reach its full potential so selling a little over half guarantees some winnings in case it begins trending down.
- At 10% increase: Sell 40 shares
Now the stock has done what was expected. While it could go up, the future is uncertain, and selling a bit more will help mitigate any potential loss from a dip.
- Hold the last 40 shares in case the stock does better than expected and sell if it turns down.
This isn’t the perfect plan for every situation, but it allows you to see the thought process behind mitigating risk with an exit strategy. Here you can see if the stock were to fall at any point, you’d have made some money and could sell the rest of your holdings if needed.
To read all 21 tips, see the full original article here.
If you need help with any of these concepts, feel free to reach out. Financially Fit is here to help companies like yours better serve your team members by educating them about financial wellness. We offer many financial tools, like budgeting and debt reduction worksheets to get anyone started. See our website for more information.
Here to help,
Your Financially Fit Team
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