Last week, my friend Andy shared this post from MarketWatch on the “10 things rich people know that you don’t.” Naturally, I wanted to see if I knew these 10 things. Mom and Dad – I’m happy to report that your good financial habits rubbed off and I’m aware of all 10 habits. The bigger question is whether I’m taking action on these habits or not. Well, let’s just say there’s always room for improvement:
Check! From an early age, I made sure to put a portion of birthday/Christmas/Easter/etc. money into savings. And once I started working full-time, I made sure to contribute to my 401(k) from Day 1.
Pro tip: At a minimum, you should contribute the amount your employer will match. For example, if your employer matches 50% of the first 6% you have withheld from your paycheck, you’ll want to have 6% of each paycheck withheld and deposited in your 401(k) (or 403(b) plan if you work at a school, hospital, or tax-exempt organization). Otherwise, you’ll be leaving free money on the table! Don’t work at a traditional office job? You can always contribute to a solo (one-participant) 401(k), IRA, or Roth IRA, among other options.
Check! This is super easy with my employer’s 401(k). We also have automatic transfers set up for our savings account, Roth IRA’s, and brokerage account. We also have our mortgage and some bills set to pay automatically. That way, we don’t wake in cold sweat thinking we forgot to pay our cell phone bill.
Kind of. For 2014, the maximum amount you can contribute to a 401(k) is $17,500 or $23,000 if age 50 or over (provided you have earned income of this much). These amounts increase to $18,000 and $24,000, respectively, in 2015. While I’m making more than $17,500, and contributing more than my employer will match, I’m not quite maxed out.
As for traditional and Roth IRAs, the maximum you can contribute to all of your traditional and Roth IRAs in 2014 and 2015 is the smaller of: $5,500 ($6,500 if you’re age 50 or older), or your taxable compensation for the year. Done!
Pro tip: Not sure how much to contribute to each account? Money Under 30 has you covered with this fancy flow chart.
Never carry credit card balances
Check! We pay off our credit card balance each month. End of story.
Pro tip: If you accidentally missed a payment, use Ramit’s script to have the late fee and interest charge reversed.
Live like you’re poor
I’d say “Check!” if you rephrase the habit as “living below your means.” One easy way to do this is to automatically transfer funds to savings and retirement accounts. That way, we don’t miss the money and aren’t tempted to spend it. Sure, we splurged a little on cable, but negotiated lower rates. Plus, we bought a reasonably priced house, refinanced our mortgage, and do many other things to be responsible with our money.
Check (a majority of the time). Temptation comes in all sorts of forms: Pinterest, Instagram, blogs, TV, magazines, promotional emails, and on and on. Once you determine your priorities (i.e., family and financial freedom), it’s easier to cut out the things that don’t matter and avoid temptation. That’s not to say I’m not tempted by cupcakes and a good latte, on occasion ;)
Check! Goals should be SMART: specific, measurable, attainable, realistic and timely. Our last really big goal was buying a house. Now we have longer-term goals to pay off our mortgage, save for retirement, and save for Monica’s college education. Curious about how much you need to save for a particular goal? Bankrate probably has a calculator for that!
Check! My financial education began in the home with my parents. I learned more of the nitty gritty financial knowledge in college with a Masters in Accounting, accounting major, and finance minor. Couple that with a CPA, a lengthy personal finance blogroll, a future Series 65, and I’m quite the financial nerd. (And proud of it!)
Diversify your portfolio
Check, but probably not at the level of a high net worth individual. The original post talks about “spread[ing] their wealth across a variety of investments, from stocks, mutual funds, ETFs and bonds, to real estate, collectibles and startups.”
Spend money to make money
Check. The original post talks about hiring a financial planner. I also interpret this habit as investing in my professional career and post-college education. For Fiscally Chic in particular, I’ve been to FinCon to network and learn more about blogging and invested in a site redesign.
How did you do? Are you practicing some or all of these habits?