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Making Your Money Grow

January 12th, 2012 at 02:57 pm

With a little help from behavioral economists, I presented the following points this week at our monthly University of Evansville Lunch & Learn. It was a good discussion with a good group of people!

Making Your Money Grow…
With A Little Help From Financial Psychologists

1. We frustrate ourselves with our inability to control our investments
2. We could have more control over our investments, but we get greedy
3. We dwell more on losing investments than winning ones, and become fearful

So…

1. Keep your goals reasonable and realistic
2. Once your goal is established, determine how much risk you must take
3. The longer you have to save, the more risk you can stomach

Maximizing Your Savings

10. Start with your retirement plan…understand your options…learn about various investments to find out what’s best for you…put in enough to get the company match.

9. Don’t forget the flexible spending account if it's available through your employer. You’ll spend about 25% less in taxes on the money you put into the FSA.

8. Keep some money outside your retirement plan in separate accounts, including an emergency fund, new car fund, vacation fund, Christmas fund, house improvement fund. Studies have proven that people save more when they set up specific accounts.

7. Above the company match, consider a Roth IRA ($5,000 annually; $6,000 if 50 or older). Not all of your money should go into retirement. You can always take out your contributions penalty free, and you may never have to pay taxes on a Roth.

6. Annuities are as close as most of us come these days to receiving pensions. Annuities guarantee you money at an interest rate higher than you can get with a bank savings account or certificates of deposit.

5. Dump your debt. Pay off student loans, car loans, the mortgage, and get your credit card balances to zero. The Dave Ramsey way—smallest debt to largest so it becomes a 'snowball.' Many others recommend first paying off the bill with the highest interest rate. The best way? Whichever works for you.

4. Keep a list of every expense for just one month. It's boring. It's nerdy. But it works to find those nickel and dime expenses that add up.

3. Invest in retirement ahead of saving for your children’s college. Hopefully you can do both, but remember that you can get tax credits and low-interest loans for college, not for retirement.

2. Make sure that money you are trying to save gets deposited automatically, before you ever see it. For most people, once it's in their hands, or even in their checkbook, it's spent.

1. Set a specific goal(s) on paper no later than this weekend. Make sure the goal is realistic, and has an end date. If you have a spouse or significant other, decide on your spending and saving goals together. That's not easy since there's often a spender and saver in each relationship, but communication--and patience--go a long way.

Financial Psychology Reading:
Your Money Personality, by Dr. Kathleen Gurney
The Intelligent Investor, by Benjamin Graham
The Behavior Gap, by Carl Richards
Nudge, by Richard Thaler and Cass Sunstein

3 Responses to “Making Your Money Grow”

  1. creditcardfree Says:

    Great list!!

  2. rob62521 Says:

    Super ideas!

  3. Jerry Says:

    I like this list a lot. I saw my parents work hard to get out of debt a few years ago and it is amazing to see how much freedom it leads to... it offered them some insurance of being able to travel and changed their lives dramatically.
    Jerry

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