The Ten Year Savings Plan (216)


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The Ten Year Savings Plan (216)

  1. 1. “A unique voice on money, i w r d an do i l l ail d i wn fo ds, one singularly attuned to…his generation.” t e y t nt loa a c ac er I WIll h y tic act Vis u t o l tip e sp —San FranciSco chronicle o a iv it b e r s, b re i c on ads h . us h co m ee ts TEAch You by RAmIT SEThI founder and writer of ToBE No Guilt. No Excuses. No B.S. Just a 6-Week Program That Works
  2. 2. I Will Teach You to Be Rich financial options for Super-Achievers: Make the Ten-Year plan That few others do I ’m always surprised by the e-mails I get from people who have optimized every part of their investing strategy and are nonetheless still looking for more ways they can optimize their finances. It’s easy: Just ask people five to ten years older than you what they wish they had started earlier, then do that. You’ll get three answers right off the bat: 1. CReate an eMeRgenCy fund. An emergency fund is simply another savings goal that is a way to protect against job loss, dis- ability, or simple bad luck. Most people in their twenties don’t need emergency funds because we can just borrow money from our other savings goals or, worst case, go home to Mom and Dad. But if you have a mortgage or you need to provide for your family, an emer- gency fund is a critical piece of being financially secure. To create one, just set up an extra savings goal and then funnel money to it in the same way you would your other goals. Eventually, your emer- gency fund should contain six months of spending money (which includes everything: your mortgage, other loans, food, transportation, taxes, gifts, and anything else you would conceivably spend on). 2. InsuRanCe. As you get older and more crotchety, you’ll want more and more types of insurance to protect yourself from loss. This includes home-owner insurance (fire, flood, and earthquake) and life insurance. If you own a home, you need insurance, but young, single people don’t need life insurance. First of all, statistically, we hardly ever die, and the insurance payout is useful only for people who depend on your livelihood, like your spouse and kids. Beyond that, insurance is really out of the scope of this book, but if you’re truly interested, I encourage you talk to your parents and their friends, and search for “life insurance” online to research the various options. You probably don’t need to buy a bunch of insurance options right now, but you can certainly set up a savings goal so when you do need them, you’ll have money to use. One last thing: Insurance is almost 216
  3. 3. EASY MAINTENANCE never a good investment, despite what financial salespeople (or clueless parents) will tell you. So use it as protection from downside risk—like for fires or accidental death when you have a family—but don’t think of it as a growth investment. 3. CHILDREN’S EDUCATION. Whether or not you have children yet, your first goal should be to excel financially for yourself. I always get confused when I see people on TV who are in debt yet want to save for their children’s education. What the hell? Listen up, Momma: First, get out of debt and save for your own retirement. Then you can worry about your kids. That said, just as Roth IRAs are great retirement accounts, 529s—educational savings plans with significant tax advantages—are great for children’s education. If you’ve got kids (or know that one day you will) and some spare cash, pour it into a 529. These are just a few of the things you’ll be forced to think about in the next ten years. The best way to prepare yourself is to talk to successful people who are somewhat older than you and have their act together. Their advice can be invaluable—and can give you an edge on planning for the next decade. 217
  4. 4. Get the full book at About the book At last, for a generation that's materially ambitious yet financially clueless comes I Will Teach You To Be Rich, Ramit Sethi's 6-week personal finance program for 20-to-35-year-olds. A completely practical approach based around the four pillars of personal finance—banking, saving, budgeting, and investing—and the wealth-building ideas of personal entrepreneurship.