by Casey Walker
GUEST COLUMNIST
If you can earn $40,000 a year, after 24 years you will have received $1 million, even if you never get a raise. But how much of that $1 million can you hang on to?
Of course, that's $40,000 before taxes, before food and shelter costs, before vacations and holiday presents, before all the large and small expenses that seem so important, day in and day out. It is easy to lose sight of the larger picture and hard-to-control expenses that, taken individually, may seem inconsequential.
There's really only one way to take control of your financial life. You need to make a series of important choices through a process of planning. You need to take a disciplined approach to spending, saving and investing your money. Here's a five-point strategy to help you start doing just that.
Set your goals
If you don't know where you're going, any road will take you there. Stating your financial objectives, putting a number on your needs, is an essential first step. Once you have a goal, you can begin to measure your progress.
Saving money shouldn't be about deprivation, however. It should be about making informed choices among competing needs, and keeping your need for savings in the competition.
Automate your savings plan
Perhaps the best way to get going on the savings habit is to "pay yourself first" every month, or every payday. Treat your savings as you do the electric bill and the mortgage, as something that is mandatory, not discretionary.
To put some teeth into your "pay yourself first" program, consider an automatic investment plan. A given amount of money can be transferred from your bank account into your brokerage account each month and invested according to your instructions.
Exercise expense control
For many, controlling impulse purchases is a good way to begin to reduce spending. You might try to write down intended purchases, then wait a week or so before acting to give the impulse time to cool. Or convert the cost of an item to the time needed to earn the funds needed to make the purchase.
Once spending habits have been addressed, try these ways to make your money work more efficiently:
-- Invest in your debt. Do you know how much money you spend each year in interest on your credit cards? Many people are shocked when they add up the numbers. Paying down those balances is an investment in yourself that will free up cash for real savings down the road.
-- Defer taxes on your investments. Everyone should take full advantage of his or her 401(k) and IRA saving opportunities. Tax-deferred compounding in the Roth or traditional IRA means that goals can be met more quickly.
Have an investment solution
One important Wall Street truism is: Investment success results from time in the market, not timing the markets. In theory, everyone would like to buy at the bottom of the market and sell at the top, but that's not possible on a consistent basis. The better approach is to develop an investment solution and stick with it.
Your portfolio needs to be geared to your investment needs and tolerance for investment risk, as well as your time horizon. You may need to allocate your assets among stocks, bonds and mutual funds, variable annuities, fixed annuities, and unit investment trusts to develop a portfolio suited to your needs.
Start today
The most important thing to know about any savings program is that the sooner you begin, the better are your chances for success. You need to put time on your side to get the greatest possible benefit from compounding.
Casey Walker is a registered representative offering securities through Financial Network Investment Corporation at Tooele Federal Credit Union Investment Services located at 562 N. Main St. in Tooele. He may be contacted at 833-7220.