PRIORITIZING YOUR SAVINGS -- 6-23-08

Every consumer knows they should save money. Unfortunately, many can't afford to, and, even when they can, they often don't know how to prioritize those savings. Here’s how:

First, as we noted in a previous blog, everyone (no matter how affluent or modest their financial situation) should have an "emergency fund", an amount of money equal to 5-6 months of your monthly costs (7-9 months if you're self-employed), in a safe, liquid account (such as a saving account, or money market mutual fund);

Second, once you have an emergency fund, you can, if want or need to, save for "short -term" investments, such as buying a home. If you're conservative, this money should be kept in the same place as your emergency fund; if you want to be a little less conservative, some of this money can be invested in "balanced" mutual funds. (For a list of suggested balanced mutual funds, see the BestMoneyinfo Mutual Fund list – you can find that list by clicking on the
Best Money info icon on the 969WTKK.com home page.)

Third, for most people, the rest of your savings should go towards retirement. Your goal is to save 20% of your gross family income (15% if your job guarantees you a pension) each year towards retirement, in a well-diversified portfolio of mutual funds. (Of course, this is a goal that people should strive for, but many consumers will not be able to afford. If not, that doesn't mean, however, that you’re destined to be destitute in retirement. Moreover, if they have to start saving later in life, such is a perfect example of "better late than never".

Finally, we can’t stress the following enough: while it may seem harsh, parents need to recognize that, given the respective costs of retirement and college education today, they cannot afford to save for their children's college education (other than gifts given to and money earned by their kids) unless they (the parents) are saving 20% of their annual family income (15% if they’re guaranteed a pension) towards their retirement each year.

SAVING FOR RETIRMENT – 6-14-08

There are a number of financial rules of thumb that we repeat time and again on “The Money Show”, but one especially bears repeating, namely,

-- Your goal should be to save 20% or your gross yearly income towards retirement each year (15% if you’re in a job that guarantees you a pension). The reality for most people, however, is that in most (if not all) years, this goal is not attainable. Does this mean you shouldn’t bother saving for retirement at all?

-- Of course not. Nor does mean that you’re destined to be destitute once your reach retirement (or that you’ll have to keep working until age 100). Instead, it means that you should try and save as much as you possibly can. (And, remember, for most, in order to save enough (or as much as possible) towards retirement, that means you won’t be able to save anything – or, at most, very little – towards your kids’ college education. A harsh reality, yes – but again, for most, a reality nonetheless.)

-- How should you invest those monies? Most preferably, in a well diversified portfolio of mutual funds, first by maxing out your 401(k), 403(b) or other work offered retirement plan (or, if you’re self employed, by starting and investing in your own retirement plan – such as a SEP or Simple IRA.). Next, if you qualify (and still have money to save), investing in a Roth IRA. Finally, if you still have money to save, investing in mutual funds outside of a retirement plan or IRA, but which you “earmark” for retirement. These “earmarked” funds should compliment the diversification of funds you’ve invested in in your work offered retirement plan(s) and/or your IRA(s). (For a list of suggested mutual funds from which you can develop a well-diversified portfolio, see the BestMoneyinfo Mutual Fund list—you can find that site by clicking on the Best Money info icon on the 969WTKK.com home page. You can also find more information in general about saving for retirement on the BestMoneyinfo site, and in the BestMoneyinfo e-book.)

SHOULD YOU TRADE IN YOUR VEHICLE FOR BETTER GAS MILEAGE? -- (6-9-08)

With gas prices at $4 a gallon and no decrease in sight, more and more consumers are considering trading in their vehicles (especially if they own a gas guzzling truck or SUV), for smaller, more gas efficient vehicles.

But financially, is this a good idea? Generally not. Why? Because in most cases, the cost of trading in a still viable vehicle for a smaller, more gas efficient one is not offset by the savings realized in fuel costs.

What should you look at when considering trading for a smaller, more gas efficient vehicle?

· Most importantly, decide whether your current vehicle is still “viable”.
· What constitutes a viable vehicle? One that is safe, reliable, and does not “nickel
and dime you to death” with the need for constant repairs. And, indeed, most
vehicles today should remain viable for at least 100,000 miles (and, many, 150,000 miles
or more). Which means, most people should get at least 5 or 6, and often 7, 8, 9 or possibly
more good years out of their vehicle. And, again, as long as your vehicle is still viable,
financially, your best bet is to keep and run it until it no longer is viable, high gas prices or
not.

OK. What if your vehicle is still viable, but its getting “long in the tooth”, and you know that you’ll likely have to trade it in within the next year, 2 or 3? In this situation, is it worth trading for a more gas efficient vehicle “early” so as to save on fuel costs? Here, there are two basic factors to consider:

· How many miles do you drive each year? If you don’t drive at least 15,000 –
20,000 per year, any savings in fuel costs on the more gas efficient replacement vehicle in
most cases won’t cover the monies you’ll lose by trading in a viable vehicle early.
· How much do you owe on your current vehicle compared to how much its
worth? Bottom line – if you owe more on your current vehicle than its worth in trade
(i.e. – “upside down on your car loan”, as many people are) there is virtually no way that
the savings on fuel costs on a more gas efficient vehicle will offset the loss (and, in many
such cases, a big loss) that you’ll take when you sell or trade in your current vehicle early.

Finally, what if you really do have to replace your current vehicle because it’s no longer viable, or you have to buy a vehicle because you currently don’t have one? Here, while it should not be the only factor you weigh in deciding on what new (or, better yet, a slightly used vehicle, or a “new” vehicle that is last year’s model but still left over on a dealer’s lot) to buy, the fuel efficiency of the vehicle you choose is one of the factors to consider.

However, even in these situations, be careful. Many people, when looking for gas efficient vehicles these days, are gravitating towards hybrids, which are designed to be very fuel-efficient. The problem is, hybrids generally cost 2, 3, or even $4,000 more than a similar, non-hybrid vehicle. And, once again, unless you drive a lot of miles each year, its unlikely the fuel savings from the hybrid will make up for the higher cost you pay up front for the vehicle.

WHAT TO DO WITH YOU RETIREMENT SAVINGS IN TODAY’S DIFFICULT ECONOMIC TIMES -- 6-2-08

Here’s a stark reality. In times of economic stress and uncertainty like we’re experiencing today, most people have a burning desire to do, with their retirement savings (i.e. long term savings – at least 5 years) exactly what they shouldn’t do. What’s that? A) pull their retirement portfolio (hopefully, a well diversified group of mutual funds) out of the stock market; B) place these savings in a safe haven – such as cash reserves, treasury bonds (or, in extreme cases, under their mattress), and then, C) refuse to invest these savings back into the market until the market has ‘hit bottom.’

What’s the problem with this practice? The overwhelming majority of investors, do not know when the market has “hit bottom.” The result? By the time you figure out it has hit bottom, the market has already begun and made a large portion of its recovery; however, your retirement investments, sitting on the sidelines in “safe” investments” will (by the time you’ve figured it out) miss a large portion (and, in some cases, a very large portion) of the recovery.

So, what should you do with your retirement (i.e. – long term – 5 years or more) savings during difficult economic times like these? Exactly the same thing you should do during mediocre or good economic times: Check your retirement savings once (or twice, at most) per year to be sure they are invested in a well-diversified portfolio of mutual funds (if you’re not sure where to start, check the BestMoneyinfo Mutual Fund List – click on the “Best Money info” icon on this page to access – and then, do nothing!

And, if you find that hard to do, remember this. The only time you gain or lose on your investments is when you cash those investments in. So, since retirement investments are generally long-term investments (which means you won’t be cashing them in for a long period of time, during which time the portfolio, if well invested, will likely fully recover from any downturn and then continue to grow), in actuality, you really haven’t lost anything.