Building a Nest Egg

Introduction to Building a Nest Egg

Hello. In this episode of Finding The Need Financial Advice Founded In Faith let’s talk a little bit more about savings. What are the different ways in which you can save? You can always put money under your mattress. You can always put money in a shoebox, right? And some people are thinking With today’s interest rate environment at banks, what’s the harm in doing that? 

How to Protect Your Cash

Come on. Having some cash handy isn’t a bad thing. But you still need to protect it. And the FDIC still protects monies in CD’s and at the banks. And you need to take advantage of that. 11

Take Advantage of Employment Saving Opportunities

But you also have retirement plans through your employer. Are you putting money into the 401k plan? or the 403b plan, or your TSP? Or any of the different plans that are out there? And are you taking advantage of the company’s match? If they’re matching 5%, are you able to put away 5% of your income? If you can, then that’s something you should do. But the most important thing here is having cash on hand, whether that’s in a bank or whether that’s at home. Or whether it’s in your life insurance policies. 

The Value of Cash On-Hand

You need to have cash available because life happens. It just does. And if you do have to put an emergency like an air conditioning replacement or repair which are typically $4,000 to $6,000. And you don’t have any cash, you’re probably going to go to the credit card. And if you’re going to go to the credit card, do you have enough money in the bank to pay that off in one, two, or three months? I think most of you are going to say I don’t. And you may be taking that credit card payment out for 10 or 12 months. What happens if the car breaks down next? And now you’ve got a $2000 or $3000 car repair. On top of the $6,000 or $7,000 repair. Which is one problem. 

The Lure of Credit Cards

But then you’ve got interest. Most credit cards have interest levels above 10%. Some of them are above 20%. That can be a big problem if you keep adding to those credit cards. Here’s some advice. You’re not going to like it but here is some advice. Even if your company is offering a match of five, six, or 10% on their 401k plan. But you don’t have six months of living expenses put away, you need to put money away. You need to not do the long term in this case. 

Choosing Cash Over Credit Cards

You need to have what’s going to happen today money. Because if you put yourself on that daisy chain of credit card payments, and credit card payments, and credit card payments, you’re going to be sitting down with one of our advisors on how to reduce debt. And it’ll happen fast. These psychological things that we put in our minds about just paying off credit cards is real. We need to change that psychology of how you’re going to save. 

How to Protect With Various Assets

Back to our protect mechanism. When we talk about do we have all of our protection in Term? Or should we put it into an asset like a Life Plan? You need to have some of that money going into a Whole Life or Universal Life asset plan because of emergencies. If you look at it this way, forced savings, by making that premium payment, you’re putting money into a savings plan that you can use long term, or short term. That’s really important. We need to have money put aside for the now as well as for the later. 

Matching Money Put into Employer Plans

Let’s go back to the Employer Plans. That seems to be the go-to plan. At least in these episodes that I’m talking about with you all. Those 401k plans, and 403b plans, the TSP through the government, those are all great plans for the long haul. They typically all match. And you should be able to put money away up to the match, provided again, you’ve got enough money for the now. That’s one way of doing it.

Roth Accounts – Advantages and Tax Impact

Another way of doing it is setting up a Roth Account. These are qualified plans meaning the IRS qualifies how much you can put away, how much income you can have and so on. But if you fit the requirements of a Roth plan, and you are fine with paying your taxes now instead of later, then put money into a Roth Account. A Roth Account builds the money tax-free. It will be pooled and distributed. You can take distributions in retirement tax-free. And upon death, it will pass to your heirs tax-free. You have the 401k plan, 403b types of plans, and you have the Roth plans. Some of the more progressive companies are also including the Roth option in their 401k platforms. If you have the ability to do that, I would take some of that money and probably put it into the tax-free plan going forward.

Certificates of Deposit

You also have the ability to put money into CD’s (to help in building a nest egg). We also call them currently Certificates of Depreciation, not Certificates of Deposit. because they’re not really keeping up with the costs of living going forward. And in today’s really low interest environment you can’t expect a bank to pay you a lot. If you can finance a 30 year mortgage on a home for 3.5%. Or get a car note for 1.9% you can’t really expect a bank to give you a good savings rate on a C.D. or any type of savings account. It all works hand in hand.