Saving In the New Economy-A Light At the End of the Tunnel?
Because of the economic turmoil going on in the recent past, you may have cut your spending, shifted priorities, and started saving more. Last year's market decline spurred many to do this. However, saving effectively for the future can be a little more complicated than it first sounds. How should you save your money for the maximum benefit? What is the best approach to planning your savings to ensure a financially secure future?
The following is a suggested “savings hierarchy” that can be used by all UT employees, regardless of your current income or savings level.
- Pay down high-interest credit card debt.
If you have credit card debt with a high interest rate, more than 9% for example, first use any extra savings to pay down the balance. If you have multiple accounts, you should work on the one with the highest interest rate first. Continue to make the minimum required payments on the other cards (so you don't get hit with any penalties). When that first card is paid off, you can move on to putting your extra money toward paying off the card with the next highest rate. Each card gets progressively easier to pay off, because you have more money to work with. Continue to do this until you're out from under all your high-interest debt.
- Contribute as much as you can into your UTSaver 403(b) or 457(b) plan.
Your University of Texas UTSaver 403(b) and 457(b) retirement programs offer an easy way for you to maximize your savings through payroll deduction. These options have the added benefit of tax-deferred growth and compounding returns. The sooner you start, the more potential your money has to grow. However, even if you are in your thirties or forties, it's not too late. You may be able to contribute up to $16,500 to your UTSaver 403(b) and/or your UTSaver 457(b) plan for 2009. If you're age 50 or older, you can add extra "catch-up" contributions to your voluntary UT Saver plans to make up for lost time, allowing you to possibly contribute up to $22,000 into each plan per year. You also have the option of contributing as little as $20 per month if your finances are tight. Getting started with retirement savings and continuing retirement savings strategy are keys to the success.
- Start working on other key goals.
Automatic investing plans can also work for other saving goals. Have a set amount of money automatically transferred each month directly into an investment account from your bank account. When saving for a child's college expenses, consider tax-advantaged accounts like 529 college savings plans and Coverdell Education Saving Accounts.
Courtesy of Fidelity Investment Services.
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