Money means different things to different people. Today we’re going to discuss two ways of looking at it. Money can be a source of financial security, OR it can be a source of financial freedom.
Today’s show is brought to you by The Financial Freedom Tool. Evaluate your personal finances like a professional (even if you aren’t a financial whiz). Learn more at FinancialFreedomTool.com
Let’s start with some definitions of what we’re talking about when we say freedom and security.
https://biggsuccess.com/wp-content/uploads/2008/01/Freedom-Or-Security-–-Which-Do-You-Choose-blog-post-image-2.png430448George Krueger & Mary-Lynn Fosterhttps://biggsuccess.com/wp-content/uploads/2015/07/BIGG-Success-Nurturing-Your-Inner-Entreprener.jpgGeorge Krueger & Mary-Lynn Foster2023-04-18 11:57:462023-05-03 16:51:58Freedom Or Security – Which Do You Choose?
Getting credit is like getting a job. In many cases, you need experience to get a job. But you can’t get a job without experience. Similarly, you need credit to help you make major purchases. But you can’t get credit until you establish credit. It’s a vicious circle.
One of George’s students, Leah, just graduated from college. She has applied for several credit cards and been turned down because she doesn’t have any credit history. She says she’s never borrowed before or even had a credit card. What can she do?
Companies are responding aggressively to the bad economic news. Layoffs, hiring freezes, and salary freezes have been some of the most common actions so far.
Now, more and more employers are looking at eliminating the matching of 401(k) contributions. According to a survey by Watson Wyatt, the global human resources and financial services firm, things are changing quickly. In October, 2% of firms said they had already cut back on these matches and 4% said they planned to. Two months later, in December, 3% had already made the cut and 7% said they intended to.
And these are large companies. Established brands that we all know. Motorola, FedEx, Kodak, and Starbucks just to name a few.
They’re usually using the word “suspend” rather than “eliminate” when they announce these cuts. But it raises a question:
If my employer stops matching my contribution to my 401(k), should I still keep making contributions myself?
It forces us to save
This is perhaps the biggest reason to keep making contributions. Financial planners have said for years that we should pay ourselves first. Investing it before we get it, as we do with our 401(k), is the best way to make sure that happens.
Most people report that they don’t really miss the money. It’s like the taxes that are deducted from our paychecks – the government knows most of us won’t miss the money if we don’t see it.
Of course, there are ways to set up an automatic deduction from our checking or savings account for investments outside of a 401(k). That’s really close to having it deducted from our paycheck, but it’s not quite the same. That little variation can make a bigg difference for some people. You have to judge that for yourself.
Higher limits
The next best option to a 401(k) for most people would be an IRA because contributions may also be deductible. You should check with your financial advisor about the specifics of your situation.
Because you invest before paying taxes, it’s as if the government is making part of the contribution for you. For example, if you made a $1,000 contribution to one of these retirement plans and you’re in the 25% tax bracket, you would pay $250 less in taxes. So, in essence, you’re only out of pocket $750.
With either plan, you don’t pay taxes on the money you earn on your investments until you pull it out. Deductible and deferred – that’s a pretty powerful combination.
Where the 401(k) gains favor is that it has higher maximum limits – your contributions to your 401(k) can total up to $16,500 in 2009 ($22,000 if you’re over 50). You can’t contribute more than $5,000 to an IRA in most cases.
If my employer cuts or eliminates my 401(k) match, are there reasons to fund my retirement through another vehicle?
A lot of 401(k) plans offer fairly limited investment options and you may pay lower fees in a plan that’s not a 401(k).
It’s not like we don’t already have a sense of it. But recent months have reinforced this paradigm. We can’t count on anyone or anything for any part of our financial future. We must take full control of our own finances. We have to build our own safety nets to make sure we are financially secure.
How much will you have at retirement?
It really boils down to three factors:
how much we invest
how much we earn on our investment (after all fees and taxes)
how long it is invested
From these three factors, we see that we have three options if we don’t want to retire on less money:
1st – We can try to earn more on the money we invest. That involves taking more risk and we don’t have much appetite for that right now. So this probably isn’t going to fly with most of us.
2nd – We can postpone our retirement. This buys us more time. People who are really close to retirement right now may not have much of a choice. They may have to do this. But if you still have some time on your side, there may be a better way.
3rd – We can increase our contributions. Look at your budget and see if there is any way you can make up for the investment your company was making.
If your employer reinstates matching contributions, you can stop contributing at the increased rate and enjoy the extra money in your budget … or …
… you can keep making your higher contributions to give your retirement a kick!
To all our readers in Australia, happy Australia Day! And we hope our friends in India enjoy Republic Day!
And thank you so much for spending time with us today. Join us next time when we discuss extreme multi-tasking. Until then, here’s to your bigg success!
In days gone by, mattress stuffers hid all their money somewhere in or around their home – in the backyard, in cans, between the pages of books, in the walls, in a cookie jar, and even under a removable section of floorboards.
A recent article in the Wall Street Journal talked about the new generation of mattress stuffers. People increasingly don’t trust anyone or anything, a response to falling home prices, crashing stock prices, bank troubles, and government ineptitude.
It’s something we don’t talk about much, but an increasing number of people are taking matters into their own hands to prepare for the next crash. Needless to say, these people aren’t optimists!
They’re pulling their money out of the stock market and stuffing their mattresses the 21st century way.
Stuffing money in treasuries
Instead of actually stuffing cash into their mattresses, they’re buying treasury bills, the safest of all investments. Most financial experts refer to these and other treasury securities as risk-free investments.
Stuffing money in gold
New generation mattress stuffers are also buying gold coins in record amounts. You may have noticed an increase in the number of ads on TV about gold. This flight to safety has been evident after just about every financial crisis, as people return to the gold standard.
Who is primarily driving this trend?
Many baby boomers have taken a huge hit to their portfolios just as they near retirement. They are the driving force behind this trend because they don’t have time to recover from the recent stock market losses before they retire.
If you’re not close to retiring, it’s crucial to think clearly about this new mattress stuffing strategy. There are definitely some pros and cons.
Pro: We should own a well-diversified portfolio. Experts tell us to diversify, diversify, diversify. Typically, the more diversified we are, the better. A diversified portfolio might include stocks, bonds including treasuries, real estate, and perhaps some commodities like gold. Diversification generally delivers the best return given the overall risk.
Pro: Treasuries should be part of most diversified portfolios. Until recently, a lot of people found treasuries kind of boring because they didn’t deliver enough return. That’s because they aren’t considered risky at all, which is also why they are an essential component of a fully diversified portfolio.
Pro: Gold may also be a wise investment as a small part of a diversified portfolio. Gold and other tangible assets usually perform best in times of high inflation. So gold can serve as “insurance” against such times. The reason that people often flock to gold in times like these is that, historically, it has been an acceptable way to pay for things.
Con: If you put all of your assets in treasuries, your returns will be much lower. This lower return is not unjustified. After all, you’re investing in an asset that’s considered to be risk-free. The problem with this strategy is that you may not end up with as much money as you need for your retirement.
Con: It’s dangerous to put a significant percentage of your assets into gold coins. If experts recommend gold at all (and many more are these days) as part of your portfolio, most suggest keeping it to around five percent of your total assets. Unlike treasuries, gold carries risk – its price goes up and down. One other tidbit – gold has underperformed most other assets historically.
Con: There’s no cash flow with gold. Treasuries pay interest at regular intervals. You don’t earn any money on a gold bar or a gold coin. The only way to make money by holding gold is to sell it at a price higher than what you paid for it.
Next time, we’ll take this discussion a step further. We’ll apply some real world numbers to help you with your diversification decisions.
We are so thankful that you took the time to read our post today. Until next time, here’s to your bigg success!
A study by the United Kingdom’s Office for National Statistics shows that men with good jobs live longer. Specifically, the research shows that men in “routine” jobs are nearly three times as likely to die before the age of 64 as men with higher managerial jobs.
You might think this is because managers earn more money than regular workers. While there may be a correlation with income, this research classifies occupations by characteristics. Two characteristics of the managerial jobs are control and security.
So if you want to live longer, get a good job. Get a job that gives you a higher degree of control over your own life and provides you with more security.
https://biggsuccess.com/wp-content/uploads/2020/07/bigg-success_stacked-1080.png10801080George Krueger & Mary-Lynn Fosterhttps://biggsuccess.com/wp-content/uploads/2015/07/BIGG-Success-Nurturing-Your-Inner-Entreprener.jpgGeorge Krueger & Mary-Lynn Foster2008-06-11 00:56:362021-01-23 23:52:21Get a Good Job and Live Longer
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Companies are responding aggressively to the bad economic news. Layoffs, hiring freezes, and salary freezes have been some of the most common actions so far. 
In days gone by, mattress stuffers hid all their money somewhere in or around their home – in the backyard, in cans, between the pages of books, in the walls, in a cookie jar, and even under a removable section of floorboards. 