Last week – Of Mice and Mutual Funds
Last week was week 9 in Dave Ramsey’s “Financial Peace University“. Week 9 was all about mutual funds and other investment strategies. Some of the key points:
- The best way to invest is to be OUT OF DEBT first.
- Don’t put all your eggs in one basket – diversify.
- Only work with investment advisors who have the heart of a teacher.
It was good to get into some detail about saving, what your options are, and what will work best for most people when investing.
This week – From fruition to tuition!
- Independence in retirement is up to you. Don’t depend on Social Insecurity.
- Fund college education only after you are funding your retirement.
- If you don’t have a will, get one TODAY!
Where should I put my retirement funds?
As was discussed last week, Ramsey suggests putting your money into some good mutual funds, with a nice diversified spread of investment types – from international stocks all the way to small company stocks. Check out last week’s lesson for details.
The first thing you need to do when planning for retirement, is actually make a plan. Decide how much you’re going to need in retirement, and figure out how much you’ll need to save in order to have that much (adjusted for inflation) in the future. There are plenty of good calculators out there that can help you figure this out. Do this before anything else to figure out how much you need to save.
So where should you be putting your retirement funds to save for retirement – in your company’s 401k plan, or in a Roth IRA?
Ramsey suggests that if your company does a match, to invest in your company’s 401k, up until the match. Once you reach the match, switch over to investing in your Roth IRA. As of 2008 the max contribution to your Roth IRA is $5000. Once you’ve reached that, you can max out your 401k as well if you like. You can put in as much as $15,500 as of 2008. Do this for up to 15% of your income (or more if you need to catch up, and you have the extra income). Dave also reminds us that:
Don’t forget that you can only contribute to Roth IRAs if your income is at least $4,000 a year and no more than $154,000 a year, married and filing jointly.
That won’t be a problem for me. 
photo credit: Martini Captures
So go forth and invest!
Should I pay for my kid’s college? If so, how?
I’ve talked about paying for your kid’s college costs on this blog before, in this post. Basically I asked the question about whether parents should feel obligated to pay for their kid’s education, before anything else. The conclusion I came to is that the parent’s retirement and other costs should come first, but that helping out isn’t necessarily a bad thing. At the same time, I believe making the child pay for part of their own education through work, grants and scholarships is also a very important piece of the puzzle. They’ll appreciate it more! Dave Ramsey says that you don’t have to go into debt to send your child to college. Here is a funny quote that Dave Ramsey has on his website about kids and college:
“I believe that we parents must encourage our children to become educated so they can get into a good college that we cannot afford.” – Dave Barry
Ramsey actually suggests encouraging your child to go to a good school – in state – where tuition will be lower. You can save a ton of money by taking that step alone.
So let’s say you’ve decided to help out your kids with the cost of college, what options are there to start saving for their education now?
- Education Savings Account (ESA): You may save $2,000 (after tax) per year, per child that grows tax free! Beneficiary must be under 18 years old. Money must be used for education purposes only. Otherwise, a 10% penalty and taxes will apply. Money must be used or rolled over to a qualifying family member by age 30 or a 10% penalty and taxes will apply. Singles with an income over $110,000 – or Married couples with an income over $220,000 are not eligible.
- 529 Plan: If you do not meet the income limits for an ESA, or if you want to save money above an ESA, you can use a certain kind of 529 plan. You can save up to $12,000 per year, per child in a 529 plan. The money must be used for higher education only. Otherwise, a 10% penalty and taxes will apply to the gains only.
- UTMA/UGMA Plans: UTMA (or UGMA) stands for Uniform Transfer (Gift) to Minors Act. According to Dave Ramsey, while this is one way to save with reduced taxes, it is not as good as the ESA or 529 plans.
Do I need a will?
Yes! If you don’t have one, get one. It can mean the difference between your loved ones having to fight for your assets in your death, versus just having the money divided as you wish. Do them a favor and get one now.
This is one of the things on my “to do” list.
Next Week
Next week is a lesson called “Working in your strengths”, where Dave Ramsey talks about doing the things you love – in your work. Sounds like a good one!
- Dave Ramsey's Financial Peace University: Week 9 - Of Mice and Mutual Funds
- Dave Ramsey's 7 Baby Steps By The Numbers: Getting Started
- 5 Roadblocks To Help Prevent Impulsive Spending Decisions
- Dave Ramsey's 7 Baby Steps: Step 3 - 3 To 6 Months Of Expenses In Savings
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