FPU: Saving and Investing

The past last two lessons were focused saving and investing.  Week 9's lesson focused on different types of investments and the importance of keeping it simple so you can understand what you are doing and to diversify your investment options.  Ecclesiastes 11:2 states, "Give portions to seven, yes to eight, for you do not know what disaster may come upon the land."  This helps spread your potential risk stabilizing your returns. This lesson titled, "Of Mice and Mutual Funds" covered various types of investments from money market accounts, single stocks, bonds, mutual funds, rental properties, annuities and also some horrible investments.  Dave concluded, "If you do not understand an investment well enough to teach someone else how it works, DON'T BUY IT!

This weeks lesson (week 10) was titled, "From Fruition to Tuition: Planning for Retirement and College".  Like the title suggest it extends on the overview of the investment lessons and started talking about "coats" you can put investments in to save for retirement and college.  Baby step #4 is to invest 15% of your household income into tax-favored or qualified plans.  Some examples of these include IRA, SEPP, 401(k), 403(b), and 457's.  One of Dave's (and my) favorite "coats" to use is the Roth IRA.  One of the big benefits of this "coat" is that it grows tax-free.  Roth IRA's provide more choices, more flexibility, force more investment, and are great for those planning on higher tax brackets at retirement.

Dave's suggestion for the way to fund your 15% toward retirement is this way. 

1st- Fund your 401(k) or 403(b) up to your company match
2nd-Above the match work toward maxing out your Roth IRA
3rd-If you still haven't got to 15% of your income then got back and finish using your 401(k) or 403(b)

Baby Step 5 is to save for your child(ren)'s college using tax-favored plans.  Dave recommends first saving in an Education Savings Account (ESA) which is nick-named the "Education IRA".  This allows you to put up to $2000 after tax into the account to grow tax-free.  Above the ESA, Dave would recommend using a 529 that allows you to have complete control of the mutual funds at all times. 

This past two weeks was full of a lot of information and I am looking forward to taking these two steps a lot more seriously soon.  We are very close at being debt free but the principal of our mortgage (I have included everything above 20% in my baby step 2 so I can get rid of PMI quicker).  I will keep everyone updated on our progress at meeting this goal.