Five Tried and True Financial Fundamentals

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When my interest in personal finance began to grow, I began to seek out knowledge from sources such as books, the Internet and personal advice, as well as various other sources. But if you’ve ever read more than one finance book, or read more than one personal finance blog, you realize there can be conflicting opinions and advice when it comes to what you should do with your money. Who’s right and who’s wrong? It can be hard to weed through the throngs of advice that people are trying to thrust upon you, but one thing I’ve learned to count on while learning about personal finance is repetition. If I read an idea or some advice in a book or online, I usually think

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10 Responses to Five Tried and True Financial Fundamentals

  1. Jordan says:

    “Of course, if you receive a matching contribution on your work sponsored retirement plan, it is usually the best idea to contribute the maximum amount of money that they will match, and invest the rest in a Roth IRA.”

    Why is this? I have heard this before, but I believe it is only true to certain people. Would it not be more beneficial for one in a higher tax bracket currently than when they retire to put all their money in the 401k. Though it could be argued that taxes in the future will be so large that it won’t matter what tax bracket you are in currently. Any sites that give an answer on this?

  2. Hilary says:

    Roth IRAs are only eligible for people who make less than a certain amount, so if you’re in the higher tax bracket, the Roth IRA won’t be an option anyway. Here’s the wiki article: http://en.wikipedia.org/wiki/Roth_IRA

    An econ prof. at my school seems to think that taxes will definitely be much higher in the future, so a Roth IRA makes sense. I don’t think there’s a definitive answer.

  3. AJC @ 7million7years says:

    You had me … until #5 … I’ll be posting soon on why 401k’s and Roth IRA’s can limit your retirement.

    Also, I prefer a more uplifting version of “live within your means': it’s “increase your means so you can LIVE!”

    Pretty much everything else, I agree with … great post, thanks!

  4. Jim says:

    Jordan, it’s always better to get the matching money from your employer because you start out with an automatic gain.

    For instance, pretend your employer matched 100% of your contributions for the first 3% of your wages and you made $40,000 a year. That means if you contribute $1,200 a year, your employer would GIVE YOU FOR FREE $1,200 a year. You automatically double your money.

    If you never invested that and just left it in a cash account in the retirement plan, you would still be better off than most of the people you meet every day.

    While taking that same $1,200 and investing it on your own would also be a great idea, you would miss out on the free additional money.

    Hope that helps!

  5. camille says:

    I am a young woman (freelancer) with a bit of debt an underfunded Roth IRA, and a flimsy emergency fund. I’m trying to figure out which one needs to most attention immediately. Is there a reliable formula out there for discerning this?

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  7. Jordan says:

    Hi Jim, I agree with the matching. I am trying to figure out why it is almost considered bad to put only up to the matching percentage and the rest in a roth. Why not everything into a 401K?

  8. Jim says:

    Jordan, that’s because within a 401(k) you are usually limited to the funds/stocks that your employer has selected. This can sometimes be a very poor selection (4-5 choices).

    If you contribute the additional money to an IRA of some sort, the sky is the limit when it comes to investment options. You can invest in any stock, any mutual fund – I’ve even seen people buy an investment rental house with their IRA.

    So, the main difference (there are a few minor other ones) is the number of investment options available to you.

    Hope that helps,

    Jim

  9. Jordan says:

    Thanks Jim. Fortunately my company has the same investment (a low expense life cycle fund) as i did with my IRA. I guess with that benefit i did not not see the other side.

  10. Pingback: thevicenarian.com » 5 Tried and True Financial Fundamentals [via SavingsAdvice.com]

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