Whether or not they admit it financial security is important to every individual. Some people have a tendency, however, to ignore what needs to be done to make their families and themselves financially secure. What is financial security anyway? Securing a good solid financial future for yourself and your family includes, in effect, a workable plan that will guarantee future financial freedom. It is imperative that we develop good saving and investment habits, eliminate debt or keep it at a controllable minimum, prepare for possible sickness and disability, plan for retirement and plan for our premature death.
What I want to do on this page is touch on some of the actions that you need to take. We will also look at some of the places where already successful planners put their money.
* How And Where To Save
If you were to talk the people who are effectively realizing their financial security plans you will notice that these people can more often than not account for every dollar earned and spent. They all have clear goals which they follow to completion. These people take the time to do in depth research on what they plan to save in then get into action. After they establish their goals and a time in which they intend to achieve them they monitor, review and update their plans constantly.
It is recommended that you begin your financial security plan with a savings account in a bank of your choice. You should save a minimum of 10% of your income regardless of how much you earn. Just assume that you earn 10% less than you really do. Try it and you will be surprised at how doable it is. Although you will not get much of a return on your saving this will help you develop good savings habits. Your savings are insured by the FDIC up to $100,000. When you have accumulated a substantial amount you can put your money in an investment that will bring you a higher yield but you should always be mindful of your plan…financial security.
* Some Investment Accounts To Consider
The following are some of the investment accounts you may consider when planning for your financial security.
* Money Market Accounts
Money market accounts are favored my many…as they usually yield more interest than savings accounts and your money is easily accessible. Some banks, however limit your withdrawal activity and require a minimum deposit of about $1,000.
* Certificates Of Deposit
Certificates of deposit, or CD’s, should also be one of the options that you look at as they are pretty safe investments and would more than likely yield more than your savings account in the bank. They are also insured up to $100,000. Before you invest you decide on a specific period of time to keep your money in the plan. Withdrawing before completion may result in a penalty.
* Individual Retirement Accounts
IRA’s were intending from the outset to be a good vehicle for retirement savings. You are allowed to contribute the lesser of $2000 or 10% of your compensation from your job. You will be subject to a 10% penalty for early withdrawal. Depending on your income level and the amount contributed to other retirement plans your contribution may be tax deductible.
* 401(k) And 403(B)Retirement Plans
One of the most favored retirement plans is the 401(k) plan which should be given ample consideration when planning your financial security. The limit for contributions is $9,500. You money is usually invested in mutual funds, stocks or bonds. The choice is yours as to where investments are made. One of the good things about the 401(K) retirement plans is that some companies you work with may match your contributions in the plan up to 5% of your income.
Contributions and earnings on your investment are tax deferred. That means you pay the taxes at the time you receive the income. As retirement income is usually less than the wage earned the tax rate may be lower than you would have paid while you were working. If you withdraw money from the plan before age 59-1/2 you would be required to pay a 10% penalty for this action. Some 401(K) plans allow up to an 80% withdrawal for medical reasons or to pay for a college education, but you do pay taxes on the amount you withdraw.
The 403(B) plans are similar to the 401(K)s. They are specifically designed for non profit organizations such as hospitals and schools. Withdrawal of money before age 59-1/2 is allowed in certain circumstances but there is an early withdrawal charge of 10% if this is done. These withdrawals are allowed for the purchase of a primary residence or for college education.
* Keogh Or HR(10) Plans
Keogh or HR(10), House Of Representatives 10, plan was specifically designed to assist the self employed prepare for their financial security. There are many advantages to this plan and it would be wise to include it in your retirement planning. You are allowed to contribute up to $30,000 from your income or 25% whichever is less. The tax implications are diverse and quite complex. Before using a Keogh plan in your financial security planning it is recommended that you consult your attorney or accountant.
* Mutual Funds
You have planned for your financial security and saved some money in your bank as well as invested in one or more of the plans mentioned above. All seems to be going well. You may want to think about investing in some mutual funds in order to get a higher return on your investment. Mutual funds are diverse professionally managed investments for groups of investors. The risk involved in investing in stocks, bonds, money market plans and other securities is minimized as the manager of the fund spreads the investment over a very wide spectrum of investments. There is, however, no guarantee of this.
* Your Home As An Investment
One of the most solid foundations of a financial security plan is usually the home in which you live. This, for most people, is the largest investment they make in a lifetime. Serious consideration should be given to location and how well it is constructed before investing. Make certain you have some mortgage insurance on that.
* Life Insurance And Your Financial Future
One of the most important parts of your preparation for your future financial security and that of your family is your life insurance portfolio. If you have invested in some of the aforementioned plans all you need is to buy a sufficient amount of term life insurance in order to guarantee that your plans will be realized even if you are not here to enjoy it. An easy rule of thumb as to amount is to calculate how much life insurance would be required to provide your annual income based on a realistic interest rate. This may be 5%, 10% or 15 % depending on your saving and investment experience.
Two good policies to consider are the 20 year level death benefit term policy and the 30 year level death benefit term policy . They can be used to provide income for your family upon your death or may be just to pay off a mortgage balance. These are fairly inexpensive and the premiums are also level. Other considerations are whole life insurance, universal life insurance, variable universal life insurance and variable life insurance.
* Health Insurance, Disability Insurance And Long Term Care Insurance
Without adequate health insurance, most people can be completely wiped out financially by one serious illness. A comprehensive health insurance plan is a must for the financial security planner. This plan should include a disability income plan that would provide a portion of your income while you are unable to work and a long term care plan to hedge against a possible debilitating condition in your latter years.
I found this article at Life Insurance Hub and it was just too good not to share with everyone. I haven’t edited the text, so please forgive any spelling and grammatical errors!