Investing For Your Future
Monthly IFYF Investment Message
May 2006
Back to Archived Monthly Investing Messages.
Research studies have shown that a person's environment can have a powerful influence upon his or her behavior. If you want to invest to accumulate wealth for future financial goals, take a look around you. Avoid or change situations that lead to counter-productive actions, such as over-spending on high-interest credit cards, and take advantage of available resources such as an employer 401(k) or 403(b) retirement savings plan.
Many employers provide investment resources for their workers. For example, tax-deferred retirement plan deposits are debited automatically from your paycheck before you have a chance to spend the money. Some employers offer additional investment support services such as automated retirement plan contribution increases when a worker's salary rises, periodic portfolio re-balancing, and financial planning advice or seminars. Smart employees take advantage of these learning opportunities and act upon the information that is provided.
You can also control your financial environment away from your workplace. For example, sign up for regular purchases of U.S. Savings Bonds (see www.savingsbonds.gov) or for a mutual fund automatic investment plan that debits your bank account regularly to make share purchases. Look for mutual funds that match your investment goals and have low expenses ratios (e.g., stock and bond index funds) and good historical performance relative to market benchmarks.
Another way to control your financial environment, to free up money to invest, is to develop personal "restrictors." Consider this analogy from the world of NASCAR auto racing. Ever since a 1987 car wreck nearly killed hundred of spectators when a speeding car went airborne, races at several tracks require cars to be outfitted with something called a "restrictor plate" to slow them down. Similarly, to avoid overindulging in poor financial practices, some people develop specific cues that they've "had enough." Some examples include:
- Spending no more than $750 on holiday gifts and entertainment.
- Carrying a revolving credit card balance of no more than $500 at a time.
- Charging no more than $200 per month in new purchases.
Often, social pressures to spend money provide a negative environmental influence. This may require assertiveness in dealing with others so that they can support, instead of sabotage, your efforts to invest for your future. When explaining your decision to spend less and invest more, provide reasons (e.g., savings for a child's wedding or education) that nobody can object to and avoid making family loans as either a borrower or a lender.
Give children a structured allowance to avoid their "nickeling and diming" you and to teach them how to live within a fixed budget. Studies indicate that most parents are not doing this. Only 30% of 8-to-12 year olds and 27% of teenagers receive an allowance.
Commitment to take action to improve your personal finances and invest more money can happen at any time of the year, not just on New Year's Eve. Start by evaluating your immediate environment and the obstacles and resources that surround you. For further information about beginning a savings and investment program, read Unit 1 of Investing For Your Future at www.investing.rutgers.edu and visit the Web sites www.americasaves.org and www.smartaboutmoney.org...