Jodi Vawdrey is a Financial Advisor with The Northwestern Mutual Life Insurance Company Milwaukee, WI (Northwestern Mutual) and a Registered Representative with Northwestern Mutual Investment Services, LLC a subsidiary of Northwestern Mutual, broker-dealer, and member of FINRA and SIPC.
1. Why save? It helps form the foundation of a sound long-term financial plan.
2. Savings is a habit – The key to long-term success is committing to routine savings. The sooner you start the better
3. Create systems to automate your savings. Sound financial planning today helps make financial security possible tomorrow.
4. Set goals – easier to stay focused
5. Savings gives you choices in the future
Think of saving into three buckets
1. Short Term – two categories – 1 to 2 years
a. deferred spending like adults vacation, kids toy, teens purchase vehicle
b. true savings - emergency savings and opportunity fund; education trip, start business, switch jobs, move
c. savings accounts include bank, credit union – low risk , low yield – not earning anything but won’t lose it either – it will be there when you need it
d. type of account – savings, money market, look for special accounts for kids / teens
2. Mid Term – may also have two categories – 2-10 years
a. Deferred spending like purchasing a home, paying for college, purchasing a vehicle
b. True savings - emergency savings, opportunity fund
c. Savings accounts include banks, credit , investment companies (cautiously) – little higher return – little higher risk
d. Types of accounts, money market, CD’s, possibly investments such as mutual funds
3. Long Term – 10+ Retirement, children’s education, second home. Make sure long-term savings, emergency funds and adequate amounts of insurance are part of your budget. A strong plan invests for tomorrow and protects you today.
a. Savings accounts – higher risk, higher return – need to consider inflation – typically invested
b. Types of accounts include things such as 401k, IRA, Roth IRA, permanent life insurance, investment accounts, real estate, annuities etc.
How to start
1. Start immediately – with allowance, first job, today
2. Create the habit – A budget is the foundation of your financial plan. Whether you’re saving for a vacation or for retirement, a budget will help you reach your goals.
a. If I told you to spend most of what you earn – 80% and only save 20% how does that sound?
b. Remember savings provides choices so more save more freedom you have – kids 50/50
c. New to saving and have lots of bills start with as little as $5 per week
d. Ultimate goal 70/30 – 70% spending – 30% savings
e. Divide savings into 3 buckets, short term, midterm, long term – based on goals or 10% each
3. Create the habit – automatic so you don’t have to think about it
a. Adult - 401k, direct deposit, automatic transfer, account out of site out of mind difficult to get to - don’t use savings account where you spend – easy to go online and transfer – change bottle – Susan B Anthony dollars
b. Teen / young adult – same as above – piggy bank, parents, if working start Roth IRA
c. Children – piggy bank – something visual
4. Set Goals – easier to stay focused – sense of accomplishment
a. Toy, vacation
b. Emergency savings - $1,000 to start then 3 to 6 months of expenses (Christmas is not an emergency)
c. Education / Retirement – work with Financial Advisor to set goal
5. Increase amount until you saving the ideal % for you to reach your goals – 70/30 etc.
a. Put raise into savings
b. Change amount every six months
c. Stretch yourself – especially with emergency savings
6. Remember savings provides you choices
a. Reward yourself – when you make a conscious decision not to spend put that money in your vacation or toy fund
b. Peace of mind with emergency savings
c. Pay cash for everything – including vehicles – not paying interest
d. Retire early!