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Building Wealth and Paying It Forward

February 3, 2012 By 3 Comments

Today’s post is a guest post from Jill Suskind. Jill blogs at Your Teen’s Money Skills and you can read more about her at the end of this post.

I am a personal financial blogger by way of my commitment to provide parents with the support they need to raise teens with great money habits and attitudes.  From this perspective, I address these questions in terms of what how we can produce a generation of wealth builders rather than debt builders.  And, I know it starts with me—I have to make sure my own house is in order before I can really talk to others about teaching this to their teens.

To me, wealth building means creating and following a money management system that allows for spending, saving, giving, and donating at the same time, in a coordinated way.  I start with the premise that money is a tool to fund the life of my dreams and make a difference in the world in ways that matter to me.  With that starting point, as my wealth grows, I am more and more able to increase my options, and I am more and more able to participate in philanthropic endeavors.

The advice I follow for myself, as best as I can, I offer to those who starting to build wealth, at any age.


The first step is to create a simple way to track my money.   When I started, I was surprised at how challenging this was, since my finances were such a wreck!  But, I worked on it a little bit each week for a few months until I knew how much money I had in my retirement accounts, all of my annuities, my savings and checking accounts, and even in my pocket.  Now, I update that document once a month.

The second step is to set a financial goal.  Mine is to have $2M socked away by the time I am 68 years old.  That means I have about 18 more years to reach that goal.  Every month, when I update my tracking document, I see my progress and I am motivated to keep driving for that goal.

The rest of my wealth building system has 5 pillars:

Learn—I read about money, wealth building, and money management constantly.  I feed my mind great money material so I will stay focused, learn important information, and consider valuable wisdom.

Practice—I practice my money management strategies and get better and better at implementing them.  I use the jar system that so many wealthy people use to build wealth.  This way, my money is aligned with my life and what’s important to me.  It’s a process, I tell myself.  I am getting better at forgiving my errors and moving forward.

Talk—I talk to people about money.  I am a high school teacher, so I talk about my money with my students as much as I can.  This helps me from keeping secrets from myself and it reminds me how important it is to keep the conversation open.


Give—I contribute every month part of my money to a cause I care about.   This habit reminds me that I am blessed with so much and that I have a responsibility to help make the world better for everyone.  It keeps me from being self-centered and worried about my own problems too much.

Align My Mind—I try to keep my thoughts on my commitments and not on my frustrations and complaints.  I make a conscious effort to think about, read about, talk about, and stay interested in success, and not on my own failures and foibles.

I can’t say I have mastered these practices, but I can say that I am moving in this direction, even if I stray from time to time.  And, that’s exactly what I teach teens:  Baby steps in the direction of our goals and dreams WILL get us there.

Compared to the disastrous and chaotic financial life I had for so long, I can also say IT’S WORTH IT!  In my journey, I find that this is a truly fulfilling and inspiring way to live and that is what there is to pay forward to our children:  to live well and teach them what’s really important so their journey is all it can be.

Jill Suskind  started teaching in public schools 25 years ago.  A few years ago, she started to talk to her high school students about money.  She was amazed that every time she brought up the subject of money, someone in the class would yell out, “Why don’t they teach us this?  This is what we NEED to learn!” Jill created Wealth Quest for Teens to meet the needs of educating teens about finances.

Filed Under: Blog, Featured Bar, Personal Finance, Retiring, Saving

Why Investing is Crucial for Women As They Plan the New Year

January 25, 2012 By 1 Comment

The new year has come and gone and things have settled down for most of us. Many people (myself included) begin the new year full of energy and ready to go. We are full of ideas and things we want to accomplish in the new year. Then somewhere around week two of the new year, things slowly start to fizzle out.  By the end of January, the resolutions and goals are forgotten about and it’s back to the same old routine of life. We might have wanted to save more money or lose those last 10 pounds this year, but settling back into what we are comfortable is just too easy.

As women, what if we could take one area of our finances and make a difference this year? I want to focus on investing because I think this is the one area that women fail to take action. Sometimes it’s out of fear, sometimes it’s out of lack of knowledge but whatever the reason, more women need to get started investing and they need to do it now!

According to the Women’s Institute for a Secure Retirement, elderly women are twice as likely to live in poverty as men and experts do not predict much change in the future because:

  • Women earn less money than men and have less to save;
  • Caregiving responsibilities make women more likely to leave jobs or work part-time and forfeit pension benefits as a result,
  • And women are more likely to work in occupational sectors, such as the service industry, where pension benefits are less common.

If you’ve been putting off saving for retirement, consider this article your wake up call. Here are four reasons why investing is important as you plan the New Year:

Reason 4. Build - We all know saving for the future is important, but for some of us, the future seems so far off we are not that worried about it. Instead of building our nest egg, we worry about what we want now and our spending and savings reflect that. Building your nest egg is an important component of your financial picture. Not only are you building your financial foundation, you will have the peace of mind knowing you can rely on yourself when it’s time to retire.

Reason 3. Benefit – If you have yet to start investing, one thing you are missing out on is compound interest. It’s never too early or too late to get started investing but the earlier you start, the more you will be able to utilize the power of compounding interest. Investopedia defines compound interest as interest that accrues on the initial principal and the accumulated interest of a principal deposit, loan or debt. Compounding of interest allows a principal amount to grow at a faster rate than simple interest, which is calculated as a percentage of only the principal amount. By starting early, you are able to grow your investment account at a faster rate because time is on your side.

Reason 2. Control - Being in control of your money is a much better place to be than constantly living in a state of financial chaos. When you are in control, it can help alleviate financial stress and worries about the “what if” situations that may come up in the future.

The number one reason investing is important for women as they plan the New Year is Empowerment. Empowering yourself and your financial situation is such a huge hurdle that I don’t think many of us women ever get across. We rely on other people to make our financial decisions and along the way we lose a little bit of our own security. When you take action and do something to propel your situation forward, it can be a huge relief. Not only are you taking actionable steps today, you are planning to take care of yourself in the future.

Do you want to become one of the statistics I mentioned earlier in the article and live in poverty or do you want to change your situation? You have the control to make a difference this year so my only question to you is, what are you waiting for?

This post was featured as a part of a series by Betterment.com called Blogging for a Better New Year.

Filed Under: Blog, Featured Bar, investing, Retiring

What Happens to Your 401k When You Leave a Company?

January 20, 2012 By 5 Comments

Whether you were diligent about contributing to your 401k or were only able to set aside a bit of money each month, the money you’ve contributed and any interest earned is yours even after you leave a company. You have several choices when it comes to what to do with that money, so choose what works for you.

Keeping It There

One of your options is to simply do nothing. The money can stay in your current 401k and still grow as you expected it to do. If you plan to take this option, continue to monitor your investments on at least a yearly basis. If your investments aren’t working out, you’ll want to change them. Note, though, that there are management fees for the 401k accounts and you will still be paying these. If you have several different accounts, such as an IRA and a 401k with your new employer, your paying fees on all the accounts and it may be smarter to combine. Additionally, some companies will automatically cash out a plan that has less than a certain amount of money in it, which can earn you penalties and fees.



Employer Contributions

Many employers make matching contributions to employee 401k accounts, but these contributions are not always fully vested immediately. Typically, the money truly becomes yours only after working for the company a specified amount of time. If you worked for the company less than this, then the company will take back this portion of the money in your 401k.

Rolling Over

Rolling over the money into an IRA or a 401k with your new employer is a popular option. It combines your accounts, making it easier for you to manage your investments. If you plan to do this, the 401k holding company must send the payment directly to the new account. If it passes through your hands, you may have to pay taxes and penalty fees on the money.



Cashing Out

CBS Money Watch reports that nearly half of employees who leave a job receive the money in the 401k as a lump sum payment. Doing this incurs a 10 percent penalty if you are under age 55. You also have to pay taxes on the money that you receive. You also lose on potential earnings that you might have had if you had kept the money in the account.

I don’t recommend this option! But if you must cash out, use the money for something smart, such as buying a new home outright, then use the money you would have saved on mortgage payments to refund your retirement accounts.

What did you do with your 401k after you left the last company you worked for?

Filed Under: Blog, Featured Bar, Retiring

Women & Investing: Betterment Makes Smart, Goal-Based Investing Accessible to Everyone

January 2, 2012 By 8 Comments

Unfortunately the statistics show that women & investing do not go hand in hand. Statistics compiled by the Stockton Women’s Networkshow 38% of women 30-55 years old are worried they will live at or near the poverty level because they cannot adequately save for retirement. If that’s not scary enough, how about this: Among women who live alone, spending peaks in the 25-54 age group. There are about 15 million women who live alone, 48% are over 65.  54% of women have little to no money left to save for retirement once they pay their bills.

These numbers are heartbreaking! I hate seeing numbers like this and statistics like this are one reason why I started this blog. I not only want to help educate women on getting out of debt but also on the importance of building wealth! I want to help change those statistics so women are educated and motivated to save for retirement.

You may remember last year that I started educating myself on investing and decide to test out the waters with my own investment account. While it worked out fine and was a great learning experience, I’ve kind of been stuck at this “now what?” roadblock. I don’t have thousands of dollars to throw at that account monthly but I still want to  focus on becoming more educated on building wealth through my retirement strategies.

I initially heard about Betterment on Twitter. I had seen several tweets about people attending Betterment’s webinars so I was generally curious. I watched the demo, read about the company and why it was founded and thought why not give it a try? I haven’t done any more investing on my own since my original post mainly because I didn’t really know where to go next! Plus with the expenses involved in trading, I had to have larger sums of money to invest to make the trade worth it & I’m just not to that level yet. Enter Betterment.

What is Betterment?

It’s smart investing made easy. Betterment puts a personal investment account in your hands by blending the simplicity of an online bank account with the higher long-term returns associated with investing in stocks and bonds. The best part? You don’t have to spend nights and weekends researching—that’s our job.

That sounds good to me. Investing can be so intimidating and overwhelming. Where do I start? What if I make a mistake? Will I wipe everything out? I like the simplicity Betterment has to offer for a beginning investor.

One of the questions I had about Betterment was around the type account I was setting up. (See, I’m new to this too!) Was I setting up an investment account, an IRA, a Roth IRA? What exactly was I doing?! I contacted their customer support and got a very quick response. Here was the answer:

Hi Jenny,

Thank you so much for setting up a Betterment account. The short answer is that it can be both. When you set up a Betterment account by default you have a taxable investment account. We are the broker dealer and funds you deposit are automatically invested into a set portfolio, while the allocation between stocks and bonds is chosen by you.
Once you have an account, you are able to then open up an IRA account as well. To do this, you can sign into your Betterment account and at the very bottom you can choose to open up a new goal (sub-account) or you can open an IRA account. You are then given the option to open a ROTH or Traditional IRA, and you can also choose to roll over IRA’s or even a 401k into an IRA.

That answer helped clarify things for me. I already have a couple of IRA’s & a Roth IRA so right now, I’m looking for an investment account but I like having the IRA options as well. I had another question around withdrawing the funds & here was their answer:

Regarding withdrawals, there are no fees and no penalties for withdrawing funds from your taxable investment account. With Betterment you only have but the one advisory fee and nothing else. This allows you to make consistent contributions to your investment and IRA account without having to worry about stacking up trade fees because you have 8 securities you are diversified across. In fact, at even $7/trade that would mean you would pay $56 each time you deposited money into your account. With Betterment, there is no charge for any of the trades made when you deposit, withdraw or change asset allocation.

Another nice thing about our only having a fee on the balance of your account is that there is no charge when you have no balance. We know that people need access to their money, and if you need to withdraw funds from your account there is no charge. Also there is no charge to have your taxable investment account and only have money in the IRA portion. While we do currently require that people set up a full Betterment account to take advantage of the IRAs, we will only charge a fee on the services you actually use, and only when you’re using them.

I’m glad they brought up the point about the cost per trade because that was one problem I had when I was toying around with investing on my own. I couldn’t very well just buy $25 in stocks because the fees would make that type of trade pointless! Since Betterment has no fees to deposit, withdrawl or change asset allocation, it’s a better option for me.

I still had a follow up question after this response so here is what I asked: You said ” While we do currently require that people set up a full Betterment account to take advantage of the IRA’s…” do you mean that I am required to set up an IRA (Roth or Traditional) or can I just keep the taxable account?  I’m new to investing on my own outside of the 401k so I just wanted to make sure I understand this.

My second question was answered just as timely as the first and here was the response:

Hi Jenny,

You do not have to set up an IRA to have a Betterment investing account, but you do have to set up a Betterment investing account to set up an IRA. It’s a bit chicken before the egg, but by default everyone who sets up a Betterment account automatically is setting up a taxable investment account, and then you elect to set up an IRA. I hope that helps clarify.

So what that means is when you set up a Betterment account, you are setting up a taxable investing account which you can withdraw from as needed. Any withdraws are subject to capital gains tax on the amount you made which is sent to you in the form of a 1099-Misc form for your taxes.

If you wish, you also have the option to set up a Traditional or Roth IRA (Individual Retirement Account) to save for your retirement. With this type of account, you can deposit to it but you would not want to withdraw from it until you retire otherwise you will face a taxable penalty.

Betterment Benefits

Betterment provides benefits for any investor who values time, accessibility, and market returns. Here’s a list of just a few:

  • A straightforward pricing model without hidden fees.
  • No minimum balance.
  • Automatic deposits to minimize your average investment cost.
  • Focus on the two investments that matter the most – a great stock basket and a conservative bond portfolio.
  • An incredibly simple user experience that makes it easy to understand your money and control your exposure to risk.
  • Automatic, seamless diversification (which means higher returns with lower risk).
  • Automatic rebalancing every quarter.
  • Automatic dividend re-investment to save you time and energy.
  • The ability to see how others like you invest.
  • Transactions in exact dollar amounts, instead of whole shares.
  • Goal-based advice and accounting.
  • Access to your account, whether at home or on the go.
  • Dedicated customer service, so in addition to receiving advice online, you can chat with real people when you need them

My Thoughts & Feedback

I set up my Betterment account & it was just as easy as they said. I linked my Betterment account to my PerkStreet Checking account & funded my account with $25. My next step is to confirm the two small deposits Betterment has put into my PerkStreet Checking account (which I am still waiting for). Then my accounts will be linked & I’ll be ready to go!

I think the thing I like about Betterment the most is its so easy to use. Investing is intimidating and seems complicated but the platform Betterment uses eliminates that for you. Betterment makes it easy to avoid becoming one of the women & inveseting statistics. I get asked by A LOT of you how to start investing and after reviewing the process & what they have to offer,  I think Betterment is the place to do that.

Next Steps:

Betterment is offering a free webinar on How to Build Your Perfect Investment on January 5, 2012. If you are interested in learning more about what Betterment has to offer, follow these steps:

Don’t forget to check out Betterment’s Blogging for a Better New Year throughout January for great advice to help you finally meet your financial goals in 2012. I’ll be featured as one of the bloggers at the end of January, so you won’t want to miss out!

 

Filed Under: Blog, Featured Main, investing, Personal Finance, Retiring, Saving
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