Don’t Fall Into The Scary Side Of Finances


Haunted houses, chainsaws and horror movies aren’t the only scary part of October. Looking at your monthly spending and saving habits can sometimes be as frightening as watching a Freddy Kruger marathon. To make sure you aren’t falling into the scary side of your personal finances, we reached out to Tracy Cooper of Merrill Edge for some tips when it comes to spending and saving habits.

  1. How can people in their 30s start saving for retirement?

It’s never too early to plan for retirement, and the simplest advice — save as much as you can! — holds true at every age. At this stage, you’re probably beginning to face more financial demands. But whether you’re saving for a home or starting a family, your 30s are critical saving years because investments you make now for retirement have 25 or more years to grow. As your income climbs, gradually boost the amount you contribute to your workplace retirement plan or IRA. Put as much as you can toward your workplace plan — the maximum allowed, if possible — and if you don’t have a workplace plan, or if you’ve contributed the maximum amount allowed, try to contribute the maximum amount to your IRA.

  1. What happens when people max out their credit cards? What should they do when this happens?

Carrying debt with a high interest rate could counteract any growth your savings generate, especially when interest rates on deposits are low. Interest rates on credit cards can be 20 percent per annum or higher, causing you to accumulate debt very quickly. In addition to making the items you purchased cost more in the long run, all that interest is a drain on your ability to save, so pay down debt and invest. When tackling your debt, begin with the cards that carry the highest interest rates. Then, as soon as you have some financial breathing room, consider setting up an automatic savings plan that regularly deposits funds into a designated savings or retirement account.

  1. What are some tips for investing in your 30s?
  • Put it in writing. This will help you have a clear picture about how you will achieve your desired retirement, making the task of saving and investing much less overwhelming. If you are able to more clearly outline your current priorities and future goals, you will have a better sense of next steps.
  • Pay yourself first. Treat your retirement as a fixed monthly expense, instead of waiting to see what is left at the end of the month.
  • Enroll in an employer-sponsored plan as soon as you are eligible. Contributions are automatically deducted from your paycheck, making it easier for you to stay on track with your investment goals.
  • Challenge yourself to increase your contributions as often as you can. Even increasing retirement contributions by just 2 percentage points regularly will add up over time.
  1. What is the cost of waiting to save?

Due to compound interest, savings can grow exponentially over time – making it very difficult or impossible to catch up if a savings plan isn’t set up early and added to often. For example, by starting to put away money earlier, a 25-year-old investing $200 per month ($2,400/year) accumulates more assets by age 65 than if he or she had started to invest $300 per month ($3,600/year) at age 35 – despite investing less each period. At 65-years-old, the individual who began saving at age 25 would have an average of nearly $200,000 more than the person who began investing at 35. The cost can be dramatic, because time is not something that can be made up.

  1. In addition to saving, should millennials keep an emergency fund?

A common pitfall that is most likely to derail your financial future is living without a financial cushion. Emergencies – and unexpected circumstances – can happen: your house needs a new roof, you get a divorce, or you welcome a new baby. If you don’t have savings set aside for life’s “what-if” scenarios — ideally, at least six months’ living expenses — you could end up relying on credit cards to get by, a path that could lead you into debt. Building, or rebuilding, a cash stash can be one of the smartest moves you can make. It can be hard to get started if the goal seems too big or daunting, but you shouldn’t expect yourself to save every penny you need all at once. Start out small. Figure out how much you can spare from each paycheck and perhaps set up automatic transfers into a savings account.