Page 53 - Book3E

to become debt free and apply the power of compounding interest to your savings efforts that will reap handsome rewards in the years to come.
3. Set some realistic goals for savings—Consider using automatic savings programs to help you achieve your goals. Whatever you do, don’t squander the interest compounding power of your 20s and 30s. If your employer offers a 401(k) plan, use it to the fullest advantage. Even small amounts of money you invest in your 20s and 30s have ample time to expand into significant amounts if invested early and consistently. If your employer offers a 401(k) match, ask your Human Resources representative to help you calculate how much you should contribute in order to take full advantage of it. You don’t want to leave any free money not working for you.
On the other hand, should your employer not offer a 401(k) plan, set up an IRA at a brokerage firm, mutual fund company, bank, or other financial institution and contribute the maximum every year.
Author and financial consultant Deborah Fowles says that even if you contribute to your 401(k) plan regularly, you can still sabotage your wealth-building efforts if you invest too heavily in conservative funds. By beginning in your 20s and 30s, you can afford to assume some risk by investing in stocks and bonds. Allocate your investments between several types of funds and sectors of the economy.
Also remember not to cash out your 401(k) when you change jobs. If you do, you not only pay taxes on the balance and a 10% tax penalty, you'll have wiped out the benefits of saving in your 20s and 30s. If you change jobs, you may be able to leave your money in your employer’s 401(k) plan. Another option is to roll it over directly into a new employer’s plan or into a special IRA.
4. Build an emergency fund—Once you’ve paid off your credit card debt, focus on building an emergency fund equal to a minimum of three to six months' worth of living expenses: rent, utilities, car payments, food, transportation, insurance, etc. Put this money in a
The Different Stages of Life and their Financial Demands 45