One of my favorite things to do is to buy cookbooks just to read the recipes. It’s not that I cook all of the time or actually follow the recipes but I like to get ideas. The variety allows and encourages me to experiment with ingredients and techniques that I might not ordinarily try or make me feel uncomfortable.
I‘ve been told that the very thought of personal finance and saving for the future, particularly yours, make some people feel uncomfortable much the same way. You see, it follows the same principle as trying a recipe for the first time. The hardest part is putting all of the ingredients together and making the first step.
You know how they show you the pretty glossy picture of a luscious chocolate cake with the recipe? Well I think it’s important to know what the picture should look like when you start to save too. Let’s say that you start small, say $25 per paycheck. If you’re 20 years old when you start to save and get paid every other week then you’ll have better than $112,000 available to you at retirement. (Disclosure time: that’s assuming you save the same amount each pay period at 5% interest rate.) The best part is that it doesn’t really cost you $25 per pay check because it is pre-tax. You’ll probably only notice a difference of $21 for your $25 contribution. It’s a win-win. And that’s only $25 – imagine what it would be if you could do $100, or more? (Well if it’s $100 per paycheck with the same scenario then your nest egg would be better than $450,000). Beautiful!
What you’re invested in is just as important as how much you are investing. Some chefs advise you use high-quality cocoa while others don’t state preference. The ending result will be greatly affected by the quality of ingredients that go into your masterpiece. If you choose to use the easiest to get and lowest cost investment, chances are you’re not going to have the best possible result. Now do I think that your cake will flop? Probably not. But it’s not going to look like the one in the picture.
Well the same goes for your investment choices. It’s important to put together the right mix. This is no easy task. The most appropriate choices depend on a lot of things based upon your risk tolerance and age. These things should be evaluated regularly. You’ll want to find a competent advisor to assist in this aspect. Like our proverbial chocolate cake, it’s all in getting the right mix (and I don’t mean a boxed cake mix).
So your first step is to decide you’re going to do this for yourself. It needs to be important to you and you need to promise yourself that you’ll continue to contribute, because you are worth it. You also need to promise yourself that you won’t take it out prematurely (before the age of 59 ½) because then you’ll have to pay a 10% penalty plus regular tax on the distribution.
I know that there are always things that come up and you may not have a choice, but it is important to decide right now that you are going to do this for the intended reason, for retirement.
Your second step is to talk to your boss to see if there is a company sponsored plan like a 401k or 403b that you can participate in. Then enroll in it. Most companies have a matching program, meaning that they will match your contribution up to a certain percentage. This is free money! Take it. If the match is 3%, it’s like you just got a 3% raise and it will grow tax free. If you don’t have a company plan then you can contribute to an individual retirement account (IRA).
This would be incomplete (or half – baked) if I didn’t bring up my preferred option of a ROTH IRA. In my opinion this is the greatest gift from congress for our generation. The difference between a ROTH retirement account and a traditional account is that a ROTH is not tax deferred; you do not get a tax deduction for your contribution. The beautiful thing is, though, that it grows tax free and when you take it out at retirement, the withdrawal is tax free. In planning, it allows for some mixed income at retirement.
One of the hardest parts of my job is seeing a retired individual who takes out a nominal amount from their retirement account monthly to survive on and all of it is subject to tax. They typically have to pull more out just to pay the tax. If they had both a taxable and a tax free distribution option then there is a really good chance that no tax would be due on their distributions.
Your third step is to nurture the growth of your creation and check on it regularly. Many clients tell me that they don’t even look at their statements anymore. They seem confusing. Well, no one is watching you. Look at them, if for nothing else to see how much you have in there. Use it for planning. There are an endless amount of calculators available online that can help you calculate how much you’ll need to have for retirement. The more you look the better you’ll get. Don’t be afraid to ask questions. There are no dumb questions. Most people feel intimidated by finances, you are not alone.
Bottom line: put yourself in the driver’s seat so that in the end, you can have your cake and eat it too. Delish!
Colleen Black & Company, P.C. has been nominated
for the 2012 Readers' Choice Awards.
We appreciate your confidence in us and we are privileged
to be your professional accountants.
Colleen Black, of Billings, MT-based Colleen Black & Company P.C., recently received the Local Balance award by the American Society of Women Accountants (ASWA) for her firm’s support of staff balancing life and work.
Black strongly believes in the importance of a healthy lifestyle for herself and her firm. Lack of a formal wellness plan allows flexibility for the staff to find the wellness program that works for each of them.
Accounting work is stressful and, according to Black, exercise and health-conscious choices can help mitigate the effects of that stress. The firm supports all different types of wellness activities.
“We have a kitchen in the office building that the employees are encouraged to use. We try to keep healthy snacks in the cupboards for everyone to share," Black told AccountingWEB. "We make regular trips to the grocery store to stock up on fruit, protein bars, string cheese, graham crackers and the all-important peanut butter.”
Colleen Black & Co. began sponsoring gym memberships in 2006. It originally began when an employee needed to take her kids to the YMCA for summer camps during work. When the firm ran the daycare and camp through its employee benefit program, it was discovered that a gym membership came with it. Now all of the employees are offered memberships.
Finding new ways to promote healthy lifestyles keeps things interesting.
“We participated in Shape Up Montana in the spring of 2010," Black said. "It is a team event where each participant posts their goals and minutes worked out during each month for three months. I like to encourage teamwork around here. And it’s kind of fun.”
Black also expands her healthy thoughts to include her employees’ family members. She feels it is important for the whole household to be healthy. She provides flu shots for the employees and their families and regularly schedules family events.
Where wellness is concerned, mental health is as important as physical health. “Part of keeping the office a healthy work environment is to eliminate problem clients [who can be stressors],” said Black.
“On occasion we have to deal with clients who are less than tolerable. We review our client list for problem clients on a regular basis and fire them," Black said. "There have been occasions where clients have treated my employees poorly and even swore at them. There is a no-tolerance rule in this office. There is no excuse for bad behavior. They have to go. It keeps me healthy as well as empowers my employees.”
Giving back to the community also is a valued activity at Colleen Black & Co. This year, the firm provided 70 new backpacks filled with supplies for homeless and needy kids, as well as providing 19 of them with a new outfit for school. This isn’t just a monetary donation, the staff goes out and does the shopping and fills the backpacks.
“I have been very fortunate in business with great clients and great employees,” said Black. “I feel that it is my responsibility as an employer to provide for my employees and give back to the community that has provided me with so much.”
Colleen Black and Co PC, CPA
1925 Central Ave
Billings, MT 59102 (406)245-4614