| No wonder so many of us run from discussions on | | | | institution, including many sites online, for terms as short |
| financial matters, ignore our bills, and spend too much | | | | as three months. Of course, the longer the term you |
| money, as if in rebellion. It's scary out there. | | | | “lock in,” the higher the rate you will obtain |
| Last year, the Employee Benefits Research Institute | | | | under most market conditions In other words, |
| released the results of a study concluding that the | | | | whatever interest rate you lock in at the beginning will |
| majority of Americans are unprepared for retirement, | | | | remain the same throughout the course of the |
| are not saving enough for it, and have unrealistic | | | | investment. Once you've invested in a CD, however, |
| expectations about how much they will need to live | | | | you cannot continue adding to the same one during the |
| comfortably in their golden years. Texas is no | | | | life of that investment, until renewal -- which is one |
| exception. With its high poverty rate, and even higher | | | | reason you may want to go with a shorter term. |
| rate of those going without health insurance, it's lucky | | | | The primary disadvantage of CDs lies in the substantial |
| many can get through day-to-day life. | | | | penalties inflicted if the investor withdraws his or her |
| Being one of the millions in debt myself, I can | | | | money before the allotted time. The average APY for |
| understand this. The rising cost of housing, food | | | | a six-month CD is currently 3.59%; for a one-year CD, |
| -- even clean drinking water -- can drive anyone with a | | | | 3.77%; for a five-year CD, 3.96%, although some |
| limited income to distraction. I decided to stop changing | | | | banks may offer better deals. CDs are a good idea if |
| the television channel with every new disastrous | | | | their current APYs are higher than contemporary |
| financial report, and to start researching, when an | | | | money market accounts, and you don't expect to -- or |
| investment counselor said to me with matter-of-fact | | | | perhaps don't trust yourself to -- handle the money for |
| conviction, "You know, young adults now just may | | | | a while. |
| need a million to retire." After the initial (and expected) | | | | Health Savings Account: |
| incredulous gasp, I decided gulping air wasn't going to | | | | Health Savings Accounts, or HSAs were created by a |
| do me much good. As usual, knowledge and simple | | | | 2003 Medicare bill, and are, without a doubt, worthy of |
| planning gave me hope. Here are a few tips on digging | | | | consideration for many individuals and families. HSAs |
| yourself out of the panic. | | | | strive to address the growing problem of underinsured |
| Checking and Savings Accounts: | | | | Americans (Texas knows this well, with over 25% of |
| The first step in building a sound financial future is | | | | its population going without any insurance) by allowing |
| practicing money management skills with both checking | | | | investors to save for qualified medical expenses and |
| and savings accounts. Most of us have at least one of | | | | future retirement health expenses, on a tax-free basis. |
| them; keeping track of their balances is an entirely | | | | These accounts are only made available to those with |
| different matter. | | | | qualifying high-deductible health insurance policies, and |
| Free checking accounts are fairly easy to procure. At | | | | are a great choice for many young, middle-class |
| one point, it was common for financial institutions to | | | | Americans. HSAs provide incentives for saving |
| charge monthly fees for the privilege of stashing | | | | towards healthcare, and a bit of financial padding in |
| money with them, but the banking industry rakes in so | | | | case of disaster. The major disadvantage is that |
| much profit from successfully luring their customers | | | | penalties are inflicted if the money is withdrawn for |
| into other investments that it's just not necessary | | | | unqualified expenses prior to the age of |
| anymore. The theory is that if one has a free account | | | | 65. |
| with a particular financial institution, there's a good | | | | Retirement Accounts: |
| chance that person will return to that institution for | | | | The types of retirement accounts available to |
| other investments as his or her income grows -- | | | | Americans are too numerous to mention, and are |
| investments that will make both the customer and the | | | | highly dependent on employers in most cases. Entire |
| bank happy. | | | | sections of libraries and many websites are dedicated |
| By all means, take advantage of this. Texas abounds | | | | to this subject. The first, and most important thing to |
| with students -- students needing any freebies they | | | | do, is to check with your employer to see if, or what, |
| can get -- so it shouldn't be difficult to find a bank | | | | retirement plans are offered. Some companies offer |
| offering free checking and savings accounts, especially | | | | employee benefits, including flexible 401(k) plans and |
| in cities like Dallas, Houston, and Austin. Look for a | | | | matching funds. Look seriously into these options. |
| checking account without a minimum balance | | | | However, rather than briefly attempting to delve into |
| requirement, and one that doesn't, of course, charge | | | | the plethora of accounts that may, possibly, be |
| monthly fees. | | | | available to you, this article will focus on an account |
| Free checking accounts are not usually | | | | available to all, regardless of employer |
| interest-bearing, so put only enough money in it every | | | | -- the Roth IRA account – which has become |
| month to cover your monthly bills, plus a little padding. | | | | increasingly popular since becoming law in 1997. |
| Keep track of your balance; the greatest risk with | | | | Now, IRAs have been around for some time, but |
| these accounts is the astronomical overdraft fees | | | | traditional IRA accounts require funds going in, and |
| most of them charge. Once all of your bills are paid at | | | | coming out, to be taxed. This means that whatever |
| the end of each month, stash extra income in an | | | | dividends or proceeds an investor earns over the |
| interest-bearing savings account. The average APY | | | | years will be taxed upon withdrawal. Considering that |
| (Annual Percentage Yield) on low-balance savings | | | | IRA interest rates are compounded, this could (and is |
| accounts hovers somewhere just around 0.5%, but at | | | | intended to) add up to quite a bit over several |
| least it's something | | | | decades. |
| Short to Middle-Term Investments: | | | | Roth IRA accounts, on the other hand, do not tax |
| Once you feel you've established a healthy pattern of | | | | funds upon withdrawal. Funds invested into the |
| money management -- no overdrafts, a properly | | | | account are considered taxable income going in, but |
| balanced ledger, and all bills paid in full -- start looking | | | | the compounded interest or proceeds can accumulate |
| into other investments. Most of the time, you'll need at | | | | tax free, until the age of 59½, at which point |
| least $500.00 to invest in other types of accounts, and, | | | | they can be withdrawn without penalty or taxes. A |
| at least initially, look for those with better APYs than | | | | Traditional IRA, on the other hand, is not taxed going in, |
| your current savings account, but will not inflict penalties | | | | but is subject to tax coming out, at whatever rate of |
| for withdrawing funds whenever you need them. | | | | income will apply to you at that time -- the assumption |
| Money Market Accounts: | | | | being that you will withdraw most of this money during |
| Money market accounts are great investments at any | | | | retirement, when you will not have other earned |
| age, but they're particularly advantageous for beginning | | | | income driving up your tax rate,. This means that |
| investors simply because there are no penalties for | | | | whatever your Roth IRA account balance statement |
| withdrawing any amount at any time, no waiting period | | | | is, is the amount you have for retirement, free and |
| to continue investing (you can, likewise, deposit money | | | | clear. No more taxes. If an investor begins an IRA |
| at any time), and the funding is usually only a check | | | | account in his or her twenties, and contributes a |
| away. There are several types of money market | | | | modest amount every month (possibly matched by an |
| accounts, so be sure to investigate the minimum | | | | employer), principle and compounded interest could |
| investment required, interest rates, and restrictions on | | | | conceivably yield a million or more dollars over four |
| each before making any commitments. | | | | decades. The way to think of a Roth IRA, as opposed |
| Money markets work by pooling investments from | | | | to a Traditional IRA, is that you are paying taxes on |
| thousands of contributors into an assortment of | | | | the seeds instead of on the crop. |
| (usually short-term) funds – from municipal bonds, | | | | Now, that's something to think about. Maybe retirement |
| to stocks. The result is a fluctuating interest rate that is | | | | is possible... |
| almost always at least a few percentage points higher | | | | See, that wasn't so hard. Respect yourself (and your |
| than that of a standard, low-balance savings account. | | | | anxiety levels) enough to seriously investigate financial |
| According to USA Today, non-bank money market | | | | opportunities. There's a good chance you're missing |
| funds are currently at about 5% APY. | | | | something you have the funding for -- right now, sitting |
| Certificate of Deposit: | | | | in a no-, or low-, interest-bearing account. If you have |
| Certificates of Deposit, or "CDs" have been around | | | | any kind of steady income, financial security should be |
| longer than the replacement for the tape cassette. | | | | within your grasp. A comfortable retirement is in your |
| Interest rates are fixed, rather than fluctuating, are | | | | future. Just take a deep breath, open your bills, and |
| usually comparable to money market accounts and | | | | start acting like the adult you always dreaded you'd |
| can be purchased at a bank or other financial | | | | have to be someday. |