Easy ways to build your wealth
Saving money for the future and having a nest egg ready may sound unrealistic, but the truth is, it’s not as difficult as it sounds.
For most of us, the idea of saving money for the future and having a nest egg ready for retirement sounds unrealistic, but the truth is, it’s not as difficult as it sounds.
By focusing on the right areas, there are several different ways that Tulsans can save and invest their money in order to grow their wealth and improve their chances of being able to retire at some point.
This might be difficult for people who are maximizing every cent they earn and are living paycheck to paycheck, but for most Tulsans, there are some steps that can be taken.
“My first advice to anyone who’s saving is to have an emergency fund accumulated within a savings account,” says Matt Farris, senior vice president, market executive of Commerce Trust Co. in Tulsa.
“If something happens — for example, you lose your job, you get hurt, you can’t work for a while — you have some savings to fall back on, maybe three to six months of expenses saved up in an emergency savings account.”
Make the commitment to save. Make it a priority, like paying rent or a mortgage.
“No matter how much a person is making, all they really control is their own resources,” says Harvie Roe, president of AmeriTrust Corp., Tulsa.
Next, prepare a budget and be realistic about your options, he says.
One opportunity available to just about anyone is your workplace’s deferred compensation plan, usually a 401K account, which can end up playing a big role in retirement.
“Most 401K plans have a matching program, and no investment plan out there can beat that,” Roe says. “You’re getting a dollar or 50 cents for every dollar you put in. Whatever the match is, it’s still more than you’re going to get on an invested dollar, so take advantage of those programs.”
If you can afford it, contribute at least as much your company will match and up to the maximum annual deferral amount, Farris adds. “You’ll get an income tax deduction for contributions, and obviously, that money will grow over time,” he says.
Just about everyone in the business agrees that the younger you start contributing to a retirement plan and take advantage of the power of reinvested earning over time, whether it’s a 401K or something else, the better off you’ll be. Once you’ve got your emergency savings account and are contributing to your 401K plan or a similar deferred compensation plan, Farris recommends a Roth IRA account (subject to IRS income guidelines) for long-term saving.
Roth IRAs are funded with after-tax money. When money is eventually withdrawn — after age 59 1/2 — its earnings are withdrawn tax free, Farris says. He suggests that after paying the monthly bills, put excess funds into the Roth IRA account (in 2019, individuals can contribute $6,000 to a Roth IRA).
The general strategy is that the younger you are, the more aggressive you can be in your investment strategy.
Other options, such as the stock market, come into play if you have the money to fund them. However, stocks can be riskier.
“If you’re saving for retirement and you’re 30 and you want to retire at 62, then I would be much more aggressive with investment,” Roe says.
Although the stock market has highs and lows, over the long term, particularly with a broad index such as the S&P 500, it has been up, “even through the worst times in our history,” he says.
Getting closer to retirement, “you’ve got to be a little more conservative when you are more dependent on passive investments,” he notes.
If you have additional money that you want to invest beyond a savings account, your 401K and/or possibly a Roth IRA, hiring a financial advisor can help sort through all of the options and weigh all of the risks.
Farris’ advice on how to find the right fit in an advisor hinges on the client asking the right questions.
Interview the advisor, Farris says.
Questions to ask:
- What are your scope of services, and what can you offer me?
- How are you compensated? Is it a flat fee on the amount of the account, a percentage of the assets in the account, or a fee on transactions? Some broker/dealer investment relationships are dependent on trades and transactions that cost the client every time.
- Are you required to act as a fiduciary and put your interests above mine?
Ultimately, you want to be comfortable with the person you’re entrusting your money to and confident you are receiving value for the fees you are paying. “You should have a relationship with your advisor and understand how they’re acting in your best interests,” Farris says.