When we spend less than we earn, we can begin to accumulate money. As we accumulate money, we can save and invest so our money can grow in value and produce income.

An important financial best practice is to establish, contribute to, and/or withdraw from savings and investments to maintain our desired standard of living throughout our lives.

We build the amount of money we have in our savings and investment accounts by the actions we choose to take or not take.  Below are positive action steps we can take to build the amount of money that we have.  Following these financial best practices can lead to a secure financial future.

Grow: Start, Contribute Regularly, Withdraw Only When Necessary

• I spend less than I earn so I have money to save.
• I have started contributing to a savings and/or investment account. 
• I contribute to my savings and/or investments accounts from every paycheck. 
• I withdraw from savings and investments only when necessary so I can maintain my desired level of living throughout my life.
• A worthwhile goal is to calculate and increase our net worth annually. 
  • In the Financial Worksheets section of this website, there is a Savings and Investment Inventory section. 
  • This section has worksheets to assess the savings and investments you own. 
  • The value of the investments you own can be used to update the assets section of your net worth statement.

Develop a savings and investment strategic plan that fits my personality and values.

• I follow a savings and investment strategic plan that fits my personality and values.
• I pay myself first 10% of take-home pay
  • At age 20, saving $2,000 per year/pre-tax, earnings could grow to $1,580,000 by age 65 at 10%* interest with $90,000 contributed
  • At age 40, saving $2,000 per year/pre-tax, earnings could grow to $216,000 by age 65 with $50,000 contributed.
  • At age 60, $13,400 by age 65 with $10,000 contributed.
  • *We may not always average 10% earnings but it is a goal to work toward.
• I have a strategic plan for saving for short-term needs and goals.
  • Save $1,000 to begin your savings habit.
  • Seasonal expenses = total the amount you need for infrequent or irregular expenses; divide by the number of pay periods to determine amount you need to save per pay period
  • Emergencies = Save 1 to 6 months take-home pay for unexpected emergencies
  • Short-term goals – get rid of debt, down payment for car, educational fund for self or children; travel/recreation
• I have a strategic plan for reaching long-term goals. Long-term goals might include educational fund for self or children, travel/recreation, down payment for house, retirement, or start a business.
  • If I am not contributing to a retirement plan, today I can start contributing a portion of each paycheck (gross pay rather than net pay is preferable). Some rules of thumb are:
    • Up to age 35 – 7%
    • Age 35 – 10%
    • Age 45 – 18%
    • Age 55 – 35% 
• I grow my money in a way that matches my personal risk tolerance level with appropriate savings/investment services and products to get an acceptable rate of return. To assess your risk tolerance level, go to:  https://njaes.rutgers.edu/money/assessment-tools/investment-risk-tolerance-quiz.pdf.
• I have an appropriate asset allocation model to balance growth and income for my age 
  • Age 18 to 24 Growth: 75 to 80%; Income: 20 to 25%
  • Age 25 to 34 Growth: 65 to 75%; Income: 25 to 35%
  • Age 35 to 44 Growth: 55 to 65%; Income: 35 to 45%
  • Age 45 to 54 Growth: 45 to 55%; Income: 45 to 55%
  • Age 55 to 64 Growth: 35 to 45%; Income: 55 to 65%
  • Age over 65 Growth:  25 to 35%; Income: 65 to 75%
• I choose appropriate savings and investments products to match my investment goals.
  • Preserve principal dollars
    • Savings accounts
    • Money market accounts/funds
    • Certificates of deposit (CDs)
    • Treasury bills
    • Municipal notes held to maturity
  • Maximize current income
    • Medium to long-term bonds – corporate, government, municipal
    • Common and preferred stocks
    • Mutual funds with income objectives
  • Growth of principal dollars
    • Common stocks
    • Zero-coupon bonds
    • Mutual funds dedicated to capital growth
    • Real estate
    • Bonds bought at discount prices
• I consider the following selection criteria when selecting financial services and products: 
  • Safety of principal
  • Liquidity                                                
  • Marketability
  • Return on money: income, growth, income and growth
  • Cost of investing
  • Size of investment unit
  • What are the tax consequences?
    • Going in:  Am I investing with before or after tax dollars?
    • While in the investment or coming out of the investment
    • Ordinary income tax brackets:  10, 12, 22, 24, 32, 35%, 37%
    • Tax-deferred income – payment of taxes is deferred until income is received
    • Tax-exempt income – there is no tax due
    • Capital gains brackets:  0, 15, 20%
  • Risk:  substantial, moderate, small, barest minimum  
• I evaluate my plan regularly to make sure my savings and investments are appropriately balanced to achieve maximum earnings consistent with my risk tolerance level.
• I have trusted financial advisors with whom I consult when necessary. Search for a certified financial planner (CFP®) certificant in your area  http://www.cfp.net/search/