There’s a lot of speculation surrounding how to become a millionaire. Do they inherit a massive amount of wealth? Graduate from an Ivy League school? Earn a high salary? What would you say if we told you that an average person with an average income and no inheritance can still become a millionaire? Continue reading “Fake Millionaires!”
Many studies have been conducted over the years to pinpoint the common traits of savvy investors. Here are five factors that these studies have identified as the keys to successful investing.
First and foremost, strive to spend less and save more. The more you tuck away each month, the more wealth you will accumulate over time. To put this advice into action, always pay yourself first. This means putting at least 10% of your income from every paycheck straight into a retirement account. Then, make sure your expenses don’t exceed the remaining 90% of your income. Cut back on your spending if you must to make sure everything else gets paid.
We’re inundated with information 24/7, so it can be hard to ignore all the noise out there. However, as the old Bobby McFerrin song says, “Don’t worry, be happy.” Stop worrying about whether a bubble or a crash is happening right now. Stop worrying about what might happen with the market next week, next month, next quarter, or next year. Studies show that even if you invest at the market peaks each year, you still wind up with great, long-term results.
When you start investing early, compounding interest has time to work its magic. Here’s what happens: Say you put $10 into an investment account. The balance grows by 10% in year one, so now you have $11. The balance grows by 10% again in year two, but you don’t make $1—you make $1.10. This compounding effect leads to a sizable amount of wealth over an extended period. Starting 10 years earlier than someone else could result in a much more sizeable retirement account.
The world is not going to end if your investment account loses value from one month to the next. And if it does, then your financial plan doesn’t matter, right? All jokes aside, understanding that you need a positive outlook helps you stay the course as an investor.
Over the past 100 years, the markets have certainly seen ups and downs because of world wars, recessions, presidential assassinations, pandemics, and everything else you can think of. And yet, the trajectory has continued to move upward. Remember, the market represents the value of companies that produce high-demand goods and services. So it’s really no surprise that the market continues to trend upward over the long-term.
Have a Steady Temperament
Temperament cannot be learned. Rather, it’s an innate characteristic of your personality. A steady temperature allows you to consider the bigger picture and not lose sight of potential growth, even during periods of extended market upheaval. Others may get swept up in their emotions, but successful investors never abandon their discipline.
Looking to accumulate more wealth in 2021 and beyond? Turn to Nelson Financial Planning. We have over 35 years of experience helping our clients enjoy cost-effective financial plans and superior investment results. To schedule your free initial consultation, please call us at 407-629-6477.
Have you noticed the terms “pre-tax” and “post-tax” when looking at your retirement accounts? If you’re confused about what these terms mean, learn the difference between them to help maximize your tax savings.
One way or another, each dollar you earn as income usually runs through the tax system. The type of retirement account you set up determines whether this happens right away or years in the future. Here’s the big question: Is it better for you to pay taxes now or later? Let’s take a closer look at pre-tax contributions to help you answer this question.
What is a Pre-Tax Retirement Account?
“Pre-tax” means before paying taxes and usually refers to contributions made to a tax-deferred retirement account. These include:
- Traditional individual retirement account (IRA)
- Deferred compensation plan
Pre-tax contributions deposit directly into your retirement account. The money is not taxed as long as it remains in that account. This means your dividends, interest, and capital gains grow on a tax-deferred basis until you withdraw them.
Benefits of Pre-Tax Retirement Accounts
Many people choose to make pre-tax contributions because of these great benefits:
Pre-tax contributions save you money today by reducing your taxable income.
Pre-tax contributions are invested in stocks and bonds that pay dividends or interest each year. Being in a tax-deferred account means you don’t pay taxes on this growth. The compounding effect of these reinvested amounts can really snowball into amazing results by the time you withdraw the money after retirement.
When you make a withdrawal from a pre-tax retirement account, the money finally runs through the tax system. This is when you pay taxes on your retirement account contributions. Most retirees are in a lower tax bracket than when they were working. As a result, you will probably pay fewer taxes in the end than if you had opened a post-tax retirement account.
When to Consider Post-Tax Contributions
Pre-tax retirement accounts aren’t for everyone. That’s why the IRS also offers post-tax contributions. “Post-tax” is when you pay taxes right away, leaving you with tax-exempt retirement income. Consider setting up a Roth 401(k) or Roth IRA if:
You’re in a low tax bracket now and expect to be in a higher bracket later due to retirement income or because you think taxes will increase.
You would rather have your income run through the tax system now instead of at retirement so your nest egg isn’t subject to further taxation.
If you still have questions about pre-tax vs. post-tax retirement accounts, Nelson Financial Planning can help you decide which option is best for you. Our team consists of Certified Financial Planners who fulfill their fiduciary duty to keep your best interests in mind at all times. With our help, you’ll understand the rules better than ever so you can maximize your tax savings. Contact us today at 407-629-6477 to schedule your free initial consultation.
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