I will start and close with a disclaimer: I am NOT providing financial advice. This is merely a reflection of an experience I have had that was beneficial to me. If you would like to further your knowledge, you may follow up with finance professionals and/or begin a Money Club of your own.
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A close friend of mine who is highly successful invited me to a Money Club, a group of minority women discussing financial planning and health. A Money Club can obviously be composed of any demographic. However, as highly educated women, many of us have never received an
education on finances. Unless you specifically majored in Accounting or Finance, many of us have not taken courses in college, and therefore do not understand how to: a) make a budget, b) save for retirement, and c) financially plan for the present and future. I appreciate HR representatives immensely. However, many of us tend to get 15-30 minute presentations on 401k’s with the bottom line: “Max out your 401k. It’s good for you!” Therefore, forming a monthly Money Club seemed like a good idea to improve our financial health.
The benefit of this particular Money Club was that a highly successful woman in Finance was hoping to give back to other women in the form of education and knowledge. We met at an informal place for snacks. To start the meeting, we each introduced ourselves and what brought us to
the meeting. What emerged was that each of us had varying levels of financial knowledge, fears about finance, differents hopes of what we wanted to gain from our
attendance. Instead of overwhelming everyone, we began to focus on 401k’s/retirement.
So as to not overwhelm the reader, here are the main points that emerged:
• 401k’s used to be a vehicle for very wealthy people to
receive tax breaks
• 401k’s were implemented by companies in order to reduce the burden of providing pensions
o Most companies have stipulations on the 401k’s
(e.g., you can withdraw after X date)
• 401k’s charge management fees and/or index fees, which I did NOT know.
• Scenario: If you are making a 7% return but you are being charged management fees of 2%, well you
do the math…
• 401k’s tend to provide you with only a few funds to invest your money vs. a Roth IRA that allows you to choose from a variety of stock options and funds
• If you want to lower your tax bracket, you can choose the 401k (pre-taxed dollars) and/or Roth IRA (taxed now not upon withdrawal)
• If you choose to open a Roth IRA, most people maintain a diversified portfolio of companies and/or index funds
• Some companies pay you dividends. The caveat is this counts as income vs. capital gains (the tax is lower).
• When choosing where to put your money, one of the important aspects to consider is the cost of the service
o To manage/invest index funds, there tends to me low
rates (e.g., .02%).
o To manage/invest in other companies, the cost tends
to be higher
• Do not just consider past performance of a stock, examine the strategy of the investment manager
Following a very fruitful discussion, the homework for the upcoming month was examine:
1) What portion of your net worth is in your 401k?
a. Net worth includes salary, other income, cash
savings, retirement minus debt (e.g. value in
balances vs. what you owe)
2) What are the fees and returns of your 401k?
3) Once you know these answers, what are you going to
do about it?
I am so excited about this Money Club, which seems like a rare opportunity. I hope to spark interest among others, including minority women to begin a club of their own. It is great way to share ideas related to financial health. It always helps to have a financial expert and/or individuals with more finance experiences in the group.
Disclaimer: I am NOT providing financial advice. This is merely a reflection of an experience I have had that was beneficial to me. If you would like to further your knowledge, you may follow up with finance professionals and/or begin a Money Club of your own.
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