College students: Here’s what you need to know for a financially stable future

College student in dorm

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A new report from Sallie Mae indicates that college students are eager to learn more about financing their lives.

According to the report, 38% of college students want to learn more about savings strategies and 33% want more information on student payment options — a promising outlook for the future borrowers of society.

The monetary habits students form early on are the stepping stones to how they’ll understand and treat their finances in the future, making financial literacy one of the most important factors in a young person’s life.

To provide education around the topic, certified financial planners and recent graduates weigh in on what college students need to know, plan for and practice before graduation.

Start building credit in college

Whether or not you have a good credit score — the three-digit number that credit bureaus use to determine your creditworthiness — is based on the financial information found in your credit report. The most common credit scoring system is by FICO, the Fair Isaac Corporation.

Sallie Mae’s report found that two in five college students don’t know their FICO® Score or don’t have one. Yet knowing your score and working to improve it is key to future financial success.

“Credit is an intangible resume that you share with creditors and lenders that reveals how much experience you have, how responsible you are and your ability to manage money,” says John C. Pak, financial planner at Otium Advisory Group.

According to Pak, students should begin to build their credit as early as possible in order to take advantage of optimal borrowing rates and limits later on.

Consider a student credit card

Student loans are a way in which college students can build credit, but if they don’t have a need for them, a starter or student credit card is another great option.

Pak recommends cards with no annual fee, low interest rates and high cash back percentages on categories like food and gas, such as the Discover it® Student Chrome or Discover it® Student Cash Back.

With the Student Chrome, you’ll earn 2% cash back on up to $1,000 per quarter on gas station and restaurant purchases combined. The Student Cash Back offers 5% cash back on rotating bonus categories (up to $1,500 per quarter) like gas stations, grocery stores and Amazon.com.

If you choose to apply for a student credit card, focus on only spending what you can pay back each month. Kathryn Mancewicz, a 2015 college graduate, advises paying off your credit card bill each month in order to prevent credit card debt on top of any student loans.

“I had a student credit card in college with a $600 limit. That along with a car loan that my mom cosigned and I then paid off helped me to build up my credit score to over 700 before I even graduated. Now I have never had a problem getting approved for any other loan I may have needed or wanted to take out since,” says Mancewicz.

If you aren’t quite ready for a credit card, a second option is to become an authorized user on a parent’s card.

“I hit a wall where I was being rejected for housing because I had no credit history, and I was fortunate enough to have a father who essentially lent me his good credit by allowing me to be an authorized user for his card,” says Rochelle Burnside, 2019 graduate of Brigham Young University.

Create a budget

In addition to building credit throughout college, having and following a budget is key to spending within your means and establishing savings.

As a 2018 college graduate, Tess Thompson recommends saving up over school breaks and vacations to be able to afford purchases throughout each semester.

“Figure out how much you have saved and then divide that over how many months you will need it to last. Then, break it up into how much you can spend weekly and even daily,” says Thompson.

Bankrate’s Student Budget Calculator allows you to build a budget of your own, with categories like school expenses, groceries, savings and loan payments. If you’re interested in mobile budgeting options, try a free budget tracker app like Mint.

The Mint app connects to your bank account and allows you to build a personalized budget based on your spending habits and necessary payments. You can also track your bills and credit card balances.

“Starting a budget in college will help you establish a good, lifelong habit early on. When you get used to budgeting on next to nothing, you won’t be the type to start blowing all your money as soon as you get your first real job,” Mancewicz says.

Build up savings prior to graduation

Before you turn the tassel, have a savings built up to help make your transition from college to the real world a smoother process.

Patrick Logue, financial advisor and owner of Prudent Financial Planning, suggests students have at least six months worth of expenses in an emergency fund. A solid amount of money squared away ensures that you’ll have enough to live on should you not find a job right away.

“If I’d been able, I probably would have liked to save $4,000 for a deposit, application fee and first month’s rent for an apartment, as well as moving fees and living expenses while I waited for my salary to kick in,” says Burnside.

Part-time employment

Working a part-time job during college is both a constructive use of free time and a means of building savings during college. In fact, an average of 70 to 80 percent of students is employed according to 2019 survey by NASPA–Student Affairs Administrators in Higher Education.

Pam J. Horack, financial advisor at Pathfinder Planning LLC, says the two most important factors for students beginning their financial life is having a part-time job and understanding accountability.

“If you don’t have any income except the ‘Bank of Mom and Dad,’ the concept of budgeting is irrelevant. Students don’t have anything at risk, so the money is meaningless,” says Pam.

Part-time jobs in college not only allow you to build savings but also give you more control over your finances. Specifically, finding a job on your college campus can cut down on transportation costs to and from the job and potentially offer student discounts.

“It’s not easy to save when several thousand dollars are committed to tuition each semester, but $1 is better than $0. Start a job specifically intended for squirreling money away, like driving for Uber or contributing class notes,” says Brandon Kazimer, a 2015 graduate of Western Illinois University.

The last word

When it comes to budgeting, building savings and establishing credit, start as early as possible.

Try a student credit card that will help you earn rewards for everyday purchases like food and gas. Get jump-started on a budget that takes into account all of your daily, weekly and monthly wants and needs. Lastly, try and have at least six months of expenses saved to ensure a smooth transition from college classes to the workforce.

The earlier you start, the more prepared you’ll be when it comes time to graduate. You might regret not starting early enough, but you won’t regret putting in the work for a financially stable future.

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9 Tips to Manage Your Money During a Career Change

Call it a sign of economic prosperity—Americans are quitting their jobs at an increasing rate. According to the Bureau of Labor Statistics, job quits continue surpassing layoffs and discharges—a trend that started in July 2011. In the month of March alone, some 3.4 million people quit their job, up from 3 million quits in January 2018.

Changing careers can be an exciting time, and when the job market is hotter than ever with record low unemployment rates, there may not be a better time than now to take a chance on a new start. For some, a career change means chasing a long-sidelined passion, while for others it means exploring a new industry.

While the promise of something new is sure to disrupt your current routine, it may also mean a disruption for your finances. Changing your career might mean entering a lower-paying industry, starting on the bottom floor with a lower starting salary or taking on a hefty cost to relocate.

In this post, we’ll offer some tips on how to manage your career transition without jeopardizing your finances.

Adjust your expectations about your new paycheck

Any career change will likely come with a change in pay. For those entering a new industry at a lower level than their previous position, there’s a good chance that will mean a lower salary. With that being said, you can and should still prepare to negotiate.

Do your homework to find out what kind of salaries are common for employees in your new position. Get a clear understanding about what is standard in the industry, and use that to predict what your offer might look like and know what a reasonable salary is to request.

At this point you should also check in and make sure you can afford this transition. If you’re the breadwinner looking at a career with a lower average salary, how will that affect your family? Take this into consideration when you’re looking at major changes to your income.

Start living on your new salary now

In the instance that you will be taking a significant paycut with your new career, you need to change your budget accordingly. As soon as you have an idea of what your new budget will need to look like, it’s a good idea to start making adjustments.

In addition to how much money you have coming in, some costs may change with your new career as well. When you may have driven to your previous job, perhaps now you have to pay for public transportation or vice versa. If your new career requires you to move, you may be moving to a location with a higher cost of living.

Lisa Lewis, a Colorado-based career coach, went from working as an advertising manager to launching her own business as a career advisor in 2016. The transition cut $10,000 from her annual income when she first took her business full time.

“I knew I needed to minimize my overhead costs to be able to take on more financial risk,” she said.

One of the first things to go was her brand new Acura SUV. She swapped it out for a 2005 Toyota Corolla.

“[I knew] that paying hundreds of dollars in a car payment every month would make my transition riskier,” she said. And playing it safe in that department paid off in the end—despite her initial salary setback, Lewis was able to build her business, matching her previous income in her first year, and surpassing it thereafter.

Make your career change a part-time job

If you’re entering a new industry, find out what it will take to give you a leg up when you’re applying to jobs. You may need certain certifications or training to be a desirable candidate. Perhaps you need to go back to school and obtain a higher degree or a different degree to help you break into an industry.

For a smoother transition, sign up for any courses or certification trainings you might need while you’re still in your current job. You may be able to squeeze them in after work or on weekends. This way, you get a steady income and benefits while paving your new path gradually.

If you’re heading into a new industry, you may consider exploring that industry through internships or gigs you can do on the side before you commit to seeking full-time employment.

For those who are aiming to launch their own business like Lewis, quitting your job cold turkey might not be an option. It might make more sense to work on your new venture part-time after hours until you feel prepared to take off the training wheels.

According to Lewis, she started slowly, building her business part-time to see its potential to become a full-time venture.

“It took me 10 months to build from zero clients to a predictable, stable part-time income,” she said. “When I was generating enough revenue from the side hustle to justify making the leap to full-time, I made the decision to leave.”

Be prepared to miss a paycheck (or several)

Though there are plenty of movies that portray some character reaching the last straw and walking away from their career to chase a different dream or find love or whatever else—that’s probably not the best plan for you. If you’re looking to change careers—whether that means leaving architecture to be a chef or quitting as a fashion designer to be a model—you should plan ahead of time.

Say you’ve secured a new position, you’ve given notice at your current job, and you’ve arranged a week off in between leaving and starting at the new job. When you start at the new job, there’s likely going to be a bit of a delay before you see your first paycheck. It can be difficult to time your plan so that you don’t miss a pay cycle, so you need to be prepared to cover your bills should that happen.

If you’re leaving your job without a new one lined up, be sure you’ve got ample cushion in your savings account to carry you over. For some, three to six months’ worth of savings might be sufficient. But if you’re planning an extended hiatus or your new venture doesn’t come with the promise of stable income, you should bank on saving even more if possible. You might even take out a personal loan or explore other options to keep your finances on track while you’re not getting a paycheck.

Take care of important medical appointments before you jump ship

Along with potentially giving up a steady paycheck during your career transition, you could also be forfeiting benefits like employer-provided healthcare. Gap insurance might be available through COBRA or the Healthcare Marketplace, but your care might cost substantially more.

Depending on how long you anticipate a gap in coverage, it’s a good idea to take care of annual check-ups or planned procedures before you jump ship.

Use up your FSA or transit benefits

Take a look at your current employer’s benefits terms. If you have perks like a flex spending account or transit benefits, your contributions may not be accessible after you leave the company.

William Nunn, a financial planner from Louisiana, left a big bank to launch his financial planning firm earlier this year. What he didn’t realize was that he’d be forfeiting the $2,000 he’d built up in his employer’s medical reimbursement account. He learned too late he had just until the end of the month in which he resigned to use his funds.

“I was not happy to find out I was going to have to use savings to pay for deductibles and copays,” Nunn advised. “Find out these little details.”

Make sure you spend what you have in those accounts in order to avoid losing it when you leave. You can quickly find FSA-eligible items at FSAstore.com and drugstore websites like CVS and Walgreens have special sections for FSA-approved items.

Don’t forget your nest egg

While it is possible for you to leave your 401(k) under the administration of your former employer, that option is not available to everyone. And if it is available, it may not be the best choice, especially if you fear losing track of the account or could have better plan options with your new employer.

Initiate a rollover to your new 401(k)

Take a look at both plans and find out if your new plan would incur higher fees or fewer investment options. If you’re not happy with the new plan, and you have the option to leave your 401(k) with your previous plan provider, go for it. Most retirement benefit plans offer free 401(k) rollovers when you switch employers.

You might decide to rollover your old 401(k) to your new provider simply to keep things more simple. If you’ve switched jobs a few times, it can be hard to keep track of several accounts in different places.

Open an IRA

Some might decide to transfer their 401(k) to an IRA or SEP IRA. This is likely the best option for folks transitioning into a position without an employer-sponsored program, like freelancers or entrepreneurs starting their own business.

Don’t cash it out

Cashing out your 401(k) when you leave a job is an option, but we highly advise against it. Withdrawing funds from your 401(k) before age 59.5 can mean paying hefty taxes and early withdrawal penalties on the amount.

Ask about relocation benefits

If your new career requires you to relocate, find out if the company pays for any portion of your moving costs. Everything just mentioned about your budget would also be hugely affected if you also have to pay out of pocket to relocate.

Consider the benefits of your new job in relation to the cost for you to take it. If the transition will be costly, but you’d be able to make up for it rather quickly once you’re settled, it might be worth it. But if the transition is going to derail your finances, you may want to consider other options.

Bolster your network

Changing careers can be a huge milestone. Aside from the technicalities like money and job prospects, it’s a good idea to check in with yourself to make sure you’re making the right move.

Talk to your family and trusted friends as well to make sure you have the emotional support to go through this change. If your finances do get strained, could they have your back?

Additionally, start building a community within your desired industry. Find networking events and conferences to meet contacts and learn more about opportunities and getting into the business. Reach out to industry leaders and ask for advice.

The bottom line

The most important thing is to do what’s best for you, and have a plan (and a backup plan) to see it come to fruition. Think of your career change as an investment. It might be risky, but the return may be well worth it.

Three money mistakes I’ve made that you can avoid

When it comes to managing money, even mistakes that seem small could end up being costly. That’s why it’s important to learn from mistakes made by others so you can make smart financial decisions from the start.

Unfortunately, I made plenty of money mistakes when I graduated from school — but the good news is you can earn from my errors. Here are three big mistakes I made that I hope you can avoid by learning from my bad example.

1. Investing too little of my income

When I got my first job out of school, I signed up for the company retirement plan. I’d always heard that you should contribute 10% of your income, so I did that right away — and kept doing that for years. It wasn’t until over a decade later that I actually sat down, did the math, and realized investing 10% likely wouldn’t give me enough to be comfortable in retirement.

For more than 10 years, I was investing too little, since I hadn’t taken my own retirement needs into account — and that’s time I’ll never get back. The good news is that once I realized the 10% rule wasn’t a great one to follow, I was able to calculate my target retirement goal and increase my savings rate.

To make sure you don’t fall into the same trap I did, don’t trust the conventional wisdom when it comes to retirement savings. Instead, figure out how much money you’ll need and come up with a personalized savings plan.

Don’t worry if you can’t hit your savings goals all at once — it took me a few gradual increases to get up to saving around 18% of my income. But by investing raises before you get used to living on the extra and finding ways to cut costs, you can hit your savings targets, too. 

2. Trying to live on an unrealistic budget

When I first graduated from college, I was obsessed with paying off my student loans and wanted to use as much extra money as possible to get rid of that debt. So, when I made my budget, I allocated almost all my cash to student loan repayments and left myself hardly any money for food, entertainment, transportation, or other needs and wants.

Month after month, I found myself frustrated that I wasn’t living up to my spending goals — and it started to feel like trying to live on a budget wasn’t ever going to be possible. And I was right: Living on an unrealistic budget doesn’t work. Instead, it’s important to make sure you track spending, get an idea of where your money is actually going, and make tweaks as needed so you can accomplish financial goals while still having enough to live on. 

Now I’ve found that living on a detailed budget doesn’t actually make sense for me at all, so instead I’ve automated my payments to savings and other essentials and then I live on what’s left over. While this approach won’t work for everyone, it’s important you experiment and find a budgeting solution that feels comfortable for you — otherwise you won’t stick to it. You could use a 50-30-20 budget, for example, or a budget that allocates every dollar, depending on how you best like to manage your money.

3. Failing to set detailed financial goals

Another big money mistake I made right out of college: not setting my financial goals the right way. I had lots of ideas about what I wanted to do with my money, like paying off those aforementioned student loans, saving for retirement, and buying a house. But I had only a vague idea of how much money I’d actually need to do these things. 

Unfortunately, this left me with no plans for how much I should be putting toward each goal. As I mentioned above, this meant I wasn’t saving enough for retirement — and I was also putting way too much money toward paying down low-interest federal student loans. And, as far as saving for other things like my house down payment, I’d just randomly deposit money when I had extra — which isn’t exactly the best way to ensure you’re on track for a big accomplishment. 

Fortunately, once I started learning more about goal setting, I figured out my goals had to be specific, measurable, and attainable — and that I had to track my progress if I was serious about achieving anything. By setting detailed financial goals, such as saving for a down payment in two years and paying off student loans in five, I was able to appropriately allocate funds. And I was also more motivated as I monitored the growth of my savings accounts and the decline of my loan balance.

If you want to maximize your chances of success at any financial endeavor, be sure to set detailed goals for yourself. Know exactly how much you need to save for each goal and when you want to hit your target; use this info to decide how much to save each month; and track your progress. If you do these things, you’re much more likely to achieve your dreams. 

Don’t make the money mistakes I did

Now you know three of my biggest financial blunders. I hope you can avoid making the same errors I did so you won’t waste years saving too little for retirement, struggling to live on an impossible budget, or making little progress toward your important financial objectives. 

More mistakes to avoid: Four common errors when hiring a financial advisor

More mistakes to avoid: 10 mistakes people make online

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

Three money mistakes I’ve made that you can avoid

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When it comes to managing money, even mistakes that seem small could end up being costly. That’s why it’s important to learn from mistakes made by others so you can make smart financial decisions from the start.

Unfortunately, I made plenty of money mistakes when I graduated from school — but the good news is you can earn from my errors. Here are three big mistakes I made that I hope you can avoid by learning from my bad example.

1. Investing too little of my income

When I got my first job out of school, I signed up for the company retirement plan. I’d always heard that you should contribute 10% of your income, so I did that right away — and kept doing that for years. It wasn’t until over a decade later that I actually sat down, did the math, and realized investing 10% likely wouldn’t give me enough to be comfortable in retirement.

For more than 10 years, I was investing too little, since I hadn’t taken my own retirement needs into account — and that’s time I’ll never get back. The good news is that once I realized the 10% rule wasn’t a great one to follow, I was able to calculate my target retirement goal and increase my savings rate.

To make sure you don’t fall into the same trap I did, don’t trust the conventional wisdom when it comes to retirement savings. Instead, figure out how much money you’ll need and come up with a personalized savings plan.

Don’t worry if you can’t hit your savings goals all at once — it took me a few gradual increases to get up to saving around 18% of my income. But by investing raises before you get used to living on the extra and finding ways to cut costs, you can hit your savings targets, too. 

2. Trying to live on an unrealistic budget

When I first graduated from college, I was obsessed with paying off my student loans and wanted to use as much extra money as possible to get rid of that debt. So, when I made my budget, I allocated almost all my cash to student loan repayments and left myself hardly any money for food, entertainment, transportation, or other needs and wants.

Month after month, I found myself frustrated that I wasn’t living up to my spending goals — and it started to feel like trying to live on a budget wasn’t ever going to be possible. And I was right: Living on an unrealistic budget doesn’t work. Instead, it’s important to make sure you track spending, get an idea of where your money is actually going, and make tweaks as needed so you can accomplish financial goals while still having enough to live on. 

Now I’ve found that living on a detailed budget doesn’t actually make sense for me at all, so instead I’ve automated my payments to savings and other essentials and then I live on what’s left over. While this approach won’t work for everyone, it’s important you experiment and find a budgeting solution that feels comfortable for you — otherwise you won’t stick to it. You could use a 50-30-20 budget, for example, or a budget that allocates every dollar, depending on how you best like to manage your money.

3. Failing to set detailed financial goals

Another big money mistake I made right out of college: not setting my financial goals the right way. I had lots of ideas about what I wanted to do with my money, like paying off those aforementioned student loans, saving for retirement, and buying a house. But I had only a vague idea of how much money I’d actually need to do these things. 

Unfortunately, this left me with no plans for how much I should be putting toward each goal. As I mentioned above, this meant I wasn’t saving enough for retirement — and I was also putting way too much money toward paying down low-interest federal student loans. And, as far as saving for other things like my house down payment, I’d just randomly deposit money when I had extra — which isn’t exactly the best way to ensure you’re on track for a big accomplishment. 

Fortunately, once I started learning more about goal setting, I figured out my goals had to be specific, measurable, and attainable — and that I had to track my progress if I was serious about achieving anything. By setting detailed financial goals, such as saving for a down payment in two years and paying off student loans in five, I was able to appropriately allocate funds. And I was also more motivated as I monitored the growth of my savings accounts and the decline of my loan balance.

If you want to maximize your chances of success at any financial endeavor, be sure to set detailed goals for yourself. Know exactly how much you need to save for each goal and when you want to hit your target; use this info to decide how much to save each month; and track your progress. If you do these things, you’re much more likely to achieve your dreams. 

Don’t make the money mistakes I did

Now you know three of my biggest financial blunders. I hope you can avoid making the same errors I did so you won’t waste years saving too little for retirement, struggling to live on an impossible budget, or making little progress toward your important financial objectives. 

More mistakes to avoid: Four common errors when hiring a financial advisor

More mistakes to avoid: 10 mistakes people make online

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

Four reasons you should start paying down your debt now

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Being in debt isn’t a whole lot of fun. And it can also be a big financial disaster, depending how much you owe and what kind of debt you have. The good news is that there are proven methods to pay down debt — but the bad news is you have to get serious about debt repayment if you really want to become debt-free. 

If you aren’t currently working on a debt payoff plan, here are four good reasons why you should definitely start paying down your debt now.

1. You’re wasting money on interest

Debt is almost never free — you have to pay interest when you borrow. These interest costs can really add up, especially if you pay only the minimum on credit card payments. In fact, if you borrowed $5,000 on a card at 15% interest and paid a minimum payment equal to the lesser of 2% of your balance, or $10, you’d end up paying $7,789.37 in interest charges. And you’d be paying that balance off over more than three decades!

While this is an extreme example, interest is almost always costly on consumer debt. Even a $30,000 car loan at 4% paid off over 60 months would cost you more than $3,000 in interest. This is more than 10% of the cost of the car, assuming you financed the full purchase price. The longer you carry debt and the higher the interest rate, the more you’ll pay over time. 

If you don’t want to make every purchase cost more, work on paying off your debt ASAP. After all, don’t you have better things to do with thousands of dollars than sending the money to banks or credit card companies?

2. Your debt is making money management harder

Most debts are paid on a monthly basis. When you have credit card bills, car loans, student loans, personal loans, and other debts to pay, all these monthly payments take up a big percentage of your paycheck. This leaves you with less money to do other things — like purchasing the essentials, saving for college or retirement, or working toward accomplishing financial goals such as buying a house.

If you can pay off your creditors, all this money you were sending to debt payments would be yours to keep. That $30,000 auto loan at 4% interest over 60 months, for example, would cost you around $552 per month. If you invested $552 monthly over 30 years instead of sending it to a car loan lender, you’d end up with over $670,000 if you earned a 7% return on investment. That’s a pretty nice retirement nest egg you could build if you weren’t stuck sending that money to a lender every month. 

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3. Your debt is dragging down your credit score

When your credit score is determined, your credit utilization ratio is taken into account. This is the amount of credit you’ve used versus the credit available to you. A person with a $1,000 balance with a $10,000 credit limit is using 10% of available credit, so he or she has a credit utilization ratio of 10%. 

A credit utilization ratio above 30% is a red flag because it indicates you may be too deeply in debt and not able to manage your payments effectively. A lower utilization ratio, on the other hand, can boost your score big-time. By working on paying off credit card debt, you can reduce your credit utilization ratio, and your credit score should go up as a result of your efforts. 

Your record of on-time payments that you make while working on debt payoff should also help you earn a better credit score. And, since employers may check your credit along with auto insurers and other companies you do business with, having a good credit score is really important. 

4. Your debt could make it harder to borrow for important things

While you want to borrow as little as possible to avoid owing interest, there are times when borrowing is necessary — and even makes financial sense.

If you need to borrow to grow a business or pay for college, this investment in yourself could pay off by significantly increasing your income. And most people need to borrow to buy a home, which can be a good thing, since homeowners tend to have a higher net worth than renters. 

Unfortunately, if you have a lot of debt, it will be harder to get approved for loans that actually help you accomplish worthy goals. That’s because most lenders look at your debt-to-income ratio, which is calculated based on your debt relative to your income. A debt-to-income ratio that’s too high could result in a loan denial or you could be charged a higher interest rate if you’re allowed to borrow at all.

By paying off your debt, you can lower your debt-to-income ratio so lenders view you as a less risky borrower. This would enable you to get loans on good terms when you really need them. 

Start making a plan now

As you can see, working on debt pay down is very important — and it isn’t something that can wait. So, make a plan today to allocate extra money to paying debt; figure out which debts you want to pay off first; and start working on becoming debt-free. When you accomplish your goal, you’ll be very glad you made the effort — especially as you start to do big things with all the money you’re saving on interest. 
 

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

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Everyone wants to be debt-free, but you could be making this goal impossible to reach if you continue to do these things.
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New College Graduate? Here’s Some Money Advice | Here & Now

There are more than 1.8 million people graduating from college this year in the U.S., and as they begin their careers and begin paying off student loans, they’ll need to know how to manage their finances.

Here Now‘s Peter O’Dowd talks with CBS News business analyst Jill Schlesinger (@jillonmoney) about her financial advice for college graduates.

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Now To Love

Why You Need a Retirement Plan A, B and C

Mt. Tam Van and Bike

Stephen Chen

Did you know that according to a recent survey by Charles Schwab only 25% of people have a financial plan and that 60% of people live paycheck to paycheck?

Additionally:

  1. People in the top 10% of wealth tend to have plans and be active planners (so it’s a good practice to build and maintain a plan).
  2. 45% of people without plans believe that their finances don’t merit one (which is not true – everyone can benefit from the education and sense of control that comes from building a plan).

Plan A

Most people are counting on everything going right for their retirement plan to work out. For most people their Plan A looks like this: Work and ideally save/invest until 65, claim Social Security and Medicare and then live for 25+ years in retirement with income from a Pension (for about 30% of people), Social Security (Social Security accounts for half of retirement income for ~50% of the population) and drawing down Savings (excluding the approximately 20% of people with nothing saved).

Why You Need A Plan B (and maybe C)

If you break down the assumptions behind Plan A you’ll see why building a Plan B makes sense.

Working longer – for many people the core of their plan is to work deep into traditional retirement AND make as much money as they have been making during their careers. Per this recent New York Times article about 67% of people plan to work past age 65. There are two problems with this assumption:

  1. First – most people retire earlier than they planned due to health, layoffs, family circumstances or caregiving . Per a recent Pew Trust survey Although the median expected retirement age is 65, the median age at which people actually retire is 62.” 
  2. Second – many people reach their peak earning years around their 50s about the same time they start thinking about retirement. However, the key word here is peak – assuming that you’ll continue to make the same or more as your peak income for the next 10-15 years is a mistake. The downside of which can be pretty uncomfortable even for Harvard educated white collar higher earners.  

Saving Investing – based on recent census data the average retirement income and wealth of people age 65+ by quintile show how surprisingly low retirement income is across the board.

Retirement Income and Assets by quintile

Stephen Chen

Source: AARP Public Policy Institute

Assuming that half of people’s net worth is in their house, this only leaves the top 40% of the population with more than $100K of liquid savings.  Even for people with $1M saved for retirement that might translate to $40,000 (4% draw down) to $60,000 (annuitize) of lifetime income – probably a lot less than they have been making recently.

Social Security and Medicare – these programs are critical, but underfunded and some combination of changes across taxes, start dates and potentially benefit reductions will have to be implemented soon. Social Security is projected to only be able to pay 75% of promised benefits in 2035 and the Medicare Trust fund is projected to be depleted by 2026.

Retirement Income by source

AARP

What Levers Are Available for Your Plan B and C

Here’s a list of things you should consider as you prepare for retirement:

  1. Expenses – this is the single biggest lever for most people since the lower your expenses the less income and savings you need; and conversely the more you can save while working. Many people are considering relocating or downsizing inside the U.S.A. or internationally since your location drives housing costs, expenses, taxes and health care costs.
  2. Working – work is the single biggest source of income by far for everyone, but per above be prepared to think flexibly about work and ideally find a retirement job you love!
  3. Save Invest efficiently – first start saving and second invest efficiently to create a low fee and well diversified portfolio. Today investing has been commoditized and you can invest and re-balance for 0.35% using many robo advisors or do it yourself for 0.15%. Fees matter a lot – if you are paying someone 1% to manage your money – just know that it may be costing you about 33% of your long term returns (assuming returns of 4% annually and the fact that you lose future returns on the fees paid today.)
  4. Be smart about Social Security – today there are a number of tools and services available to help you evaluate the optimal way to claim Social Security based on your plan for work, your spouse and other factors. (In fact we are adding this right now for all of our users.) This is a big lever and can provide you a much higher lifetime benefit.
  5. Be smart about health care Medicare – this is the #1 concern in retirement and for good reason – it’s expensive and complex. Since most people are retiring from their main job before Medicare starts at 65 they have to figure out how to bridge healthcare from work to Medicare and then be smart about electing Medicare Parts A, B and D vs. Medicare Advantage.  
  6. Home Equity – this generally illiquid asset accounts for about half of retirees the net worth. Recently there have been a wave of Fintech firms getting funded to help people tap into this. The most widely used option is downsizing, but more people are exploring how much they could get from a Reverse Mortgage Calculator.
  7. Stay involved in your community – a key consideration for people making the transition to retirement is to have thought through what they want to do after they retire and who they want to do it with. As you look forward to potentially 25-30 years post your main career it pays to be thoughtful about how you want to use your scarcest resource, your time.
  8. Scenarios – life rarely works out the way we think, so it’s worth thinking through what your Plan B and C will be if things don’t work out as you envisioned in Plan A. You’ll also sleep better at night knowing that you are prepared.

While this may seem like a lot to coordinate the good news is there are new low cost online solutions that let you easily build and manage a plan for all of these things on your own or with expert help on a fee only basis. If you want to check how you’re doing you can run an easy retirement calculator here.

Princeton looks to break up the white male money monopoly


  • People walk on Princeton University campus in Princeton, New Jersey, on Aug. 30, 2013. Photo: Bloomberg Photo By Craig Warga. / © 2013 Bloomberg Finance LP

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One morning in May 2018, two venture capitalists rented a Zipcar in Midtown Manhattan. They picked a 300-Class Mercedes on special for $15 an hour, perfect for the occasion and their tight budget. On a pilgrimage to suburban New Jersey, Aaron Holiday and Nnamdi Okike were heading to the audience of a lifetime.

After the 1½-hour drive, the two men entered a red-brick, colonial-style building across from one of the nation’s most beautiful and exclusive college campuses. They walked into a third-floor reception area decorated with framed business magazine covers signed by famous investors, people such as venture capitalist Benjamin Horowitz and bubble prognosticator Jeremy Grantham.


For Holiday and Okike, it was time to reach for the golden ticket, the chance to run money for Princeton.


Only in their 30s, Holiday and Okike ran their company, 645 Ventures Management, out of a WeWork space near Manhattan’s hip Flatiron District. But they had impressive investment results. Their first fund had cashed in with early bets on software company Source3, acquired by Facebook.; on photo editor Fly Labs, bought by Google; and on hotel-software maker Alice, in which Expedia Group Inc. snapped up a majority stake.

Their background stood out from the many other investors pitching Princeton’s $25.9 billion endowment. Both are black. Holiday’s mother had worked 30 years for Sears, mostly as a bill collector. His father counseled drug addicts. Neither had attended college. Okike’s father had immigrated to the U.S. from Nigeria.

The men had met with 300 funds and wealthy investors. Few were ready to hand over money to a company founded only four years earlier. Princeton’s endowment represented the ultimate challenge. It chose only one out of every 100 investment firms it considered; by contrast, the famously selective university across Nassau Street made offers to six out of 100 applicants to its freshman class. The odds against 645 Ventures were daunting. This is not going to happen, Holiday told himself.

As they settled into a conference room, Okike and Holiday discovered they were meeting none other than Andrew Golden, president of the Princeton University Investment Co. for the past quarter-century.

Golden wanted to know more, much more, about the algorithms that 645 Ventures used to select its portfolio. Golden, who once worked as a professional photographer, asked penetrating questions, as if he were training a telephoto lens at a distant subject.


“Are you putting together a recipe book or cooking a meal?” Golden asked. He was expressing skepticism about machines picking investments. In a promising sign, he then asked to look under the hood of what the founders called 645’s “data room.”

On their way home, Holiday and Okike couldn’t stop reliving the conversation with Golden. At one point, a truck bumped their rented Mercedes and drove away. They took it in stride. In another lucky break, Zipcar didn’t charge them for the small ding.

Getting a second look from Princeton would cause any investor to celebrate. But, for 645, it resonated more deeply. It had the chance to become a Princeton money manager owned by black investors. More to the point, it would be the only one.

– – –

America’s college endowments manage more than $600 billion, roughly equal to the gross domestic product of Taiwan. The biggest funds have a time horizon of centuries. Their leaders can afford to wait for the legendary payoff of startups that turn into the likes of Google and Facebook.

These vast investment funds remain almost exclusively the province of the white and the male, making them an anomaly in the world of higher education. Women now earn almost 60 percent of U.S. bachelor’s degrees, and nonwhite students, more than a third. The share of women on faculties is approaching one-half, if not in the most senior positions.

Yet the pipeline of women and underrepresented minorities starts narrowing in finance courses. It tightens in business school. At the pinnacle of investing, it all but shuts off. Firms owned by women and minorities manage just 1.3 percent of assets in the $69 trillion investment industry, though their performance is not statistically different from the industry as a whole, according to a Knight Foundation study published in January.

Men head the 10 largest college endowments. (Jane Mendillo did lead Harvard’s from 2008 to 2014 following a stretch as Wellesley College’s chief investment officer.) None of the people who run them is black or Latino, though the heads of Harvard’s and the University of California’s funds are of Indian descent. Some universities are diversifying their staffs. By August, nine of Princeton’s 23 investment professionals will be women-including two Asian Americans. There are two Latino men on the team.

Typically, endowments don’t manage the money themselves; they farm it out to the best money managers they can find. Princeton has more than 70, including 44 based in the U.S. Until 2018, women owned only one, Nancy Zimmerman’s Bracebridge Capital hedge fund, which also works for Yale. Black money managers owned none, though one did in the past. (Golden declined to name the company.)

Golden is a graduate of Duke University and Yale’s school of management, where he earned a master’s degree in public and private management. He started running Princeton’s fund after working five years for David Swensen in Yale’s investments office and a stint with Duke’s endowment.

Princeton and Yale use a similar strategy of making long-term bets on illiquid investments and have achieved some of the best results among university endowments, in part because of their early bets on successful venture capital firms. Over the 20 years ended June 30, 2018, Princeton has reported an 11.4 percent average annual return, right behind Yale’s 11.8 percent.

Because of its age (it was founded in 1746), the deep loyalty of its alumni, and its investing skill, Princeton is, by one measure, the richest major university in the U.S.: Its endowment per student is a stunning $3.2 million. It relies on the fund for half of its annual budget, a bigger proportion than any other Ivy League school.

Princeton picks perhaps three new investment firms a year. By design, two-thirds have less than a three-year record. Golden can build a meaningful position in the most successful companies by getting in early. Once an investment company becomes successful and well-known, everyone wants a piece, and entree becomes tougher. That strategy has led to some of his biggest successes, such as buying into Horowitz’s VC firm, Andreessen Horowitz, before it struck gold with investments in Facebook and Pinterest. (Bloomberg LP, which owns Bloomberg Markets, is an investor in Andreessen Horowitz.)

Entrusting money to untried companies requires using a mix of intuition and character judgment. Without intervention, the selection process tends to favor companies whose owners are already part of Princeton’s network and can therefore seem familiar, an implicit bias that can work against women and minorities-something Golden is seeking to counter, however slowly.

“I can’t imagine having a roster of managers providing the best possible returns without them being diverse and inclusive. We’re looking, ideally, for something that looks like America”

As one of America’s oldest universities, Princeton has a fraught history with race and gender. It admitted its first black undergraduates in 1945, decades after other Ivy League schools. It didn’t accept women as undergrads until 1969, sparking opposition from some alumni.

But Princeton has been a leader in expanding access to college, awarding among the most generous need-based financial aid packages in the country. In the class of 2022, 15 percent are the first in their family to go to college, and 18 percent are African American or Latino.

As part of his legacy, Golden, who turns 60 in May, would like Princeton’s outside money managers to become similarly diverse. Trim with a white-flecked beard, he looks and sounds more like a popular professor than a Wall Street type. He has a self-deprecating sense of humor, referring to himself at times as “Sparky” because of a small fire at his home more than a decade ago caused by a defective dryer vent pipe. His bio page on the Princeton website ends with a quip: “He wishes he had time to learn golf-he wouldn’t use it to learn golf, but he wishes he had the time.”

At the endowment’s headquarters recently, he peppered his conversation with literary, historical, and pop culture references, including Hemingway, Nixon, and the ’80s classic Fast Times at Ridgemont High.

In describing his quest for diversity, Golden at times seems to be echoing the admissions office, which likes to tout the demographics of Princeton’s student body. “I can’t imagine having a roster of managers providing the best possible returns without them being diverse and inclusive,” he says. “We’re looking, ideally, for something that looks like America.”

Last August, Golden picked San Francisco-based Forerunner Ventures as Princeton’s second money manager owned by a woman. Golden had met its founder, Kirsten Green, at an endowment conference in 2015, and his team had been tracking her. Green, now 47, was already an established Silicon Valley figure, having raised several hundred million in three funds.

A certified public accountant who once specialized in retail for Deloitte Touche, Green demonstrated the kind of special insight and experience Golden seeks. Walmart had bought two of Green’s investments, retail marketplace Jet.com and men’s retailer Bonobos. In March, Airbnb acquired another, lodging booker HotelTonight.

She also won a key endorsement from Joel Cutler, a co-founder of General Catalyst Partners, which manages money for Princeton and has invested alongside Green in companies such as glasses retailer Warby Parker Retail Inc. “I really want to believe we earned our way into all the relationships because we have top-tier returns,” Green says. “I want people to invest with us to see all of that, not only because we are a woman-led firm.”

Golden’s diversity push began about 15 years ago. An endowment board member at the time, John Rogers Jr., who runs Ariel Investments in Chicago, suggested surveying Princeton’s external managers annually to find out how many women or minorities they had in senior positions. Few, if any, he discovered. “If you want to be a successful 21st century company, you can’t look like the 1940s,” Rogers says.

Historical outsiders-that is, people who aren’t typically white and male-with Princeton links were making that case. Rogers, who’s black, played basketball at Princeton with Craig Robinson, the older brother of Michelle Obama, who also graduated from the university. Kathryn Hall, who runs her own asset management company in San Francisco, was the chair of the endowment board at the time. Another board member calling for greater diversity was Shirley Tilghman, who was then Princeton’s president, the first woman ever to hold that position.

Golden, who grew up in South River, New Jersey, the son of a dentist, is the grandchild of Russian-Jewish immigrants. Like other Ivy League schools, Princeton once had strict Jewish quotas to keep out people just like his ancestors.

Golden rejected the approach of some of the largest pension funds, which commit to investing a set percentage of their money with companies owned by women and minorities. He said he wanted to continue with the university’s strategy of starting with small investments in new managers. Along the way, Princeton had tried to encourage diversity by prodding existing managers to diversify their leadership. In 2017, after a decade of disappointing survey results, the university decided to try another strategy as well.

It’s hard to know how Princeton compares with other elite endowments, which are notoriously secretive. The rest of the five- largest private funds-Harvard, Yale, Stanford, and MIT-either declined or didn’t respond to questions from Bloomberg Markets about the makeup of their outside managers.

Lobbyist Robert Raben, who founded a nonprofit pushing for diversity in money management, says some private endowments won’t return his calls or disclose any information about the demographics of their outside investment managers. (Harvard has met with Raben.)

Raben, who’s spoken with Golden half a dozen times, praises his effort but urges him to move faster. “We’ve established everywhere in professional settings that diversity of background, diversity of networks strengthens outputs,” says Raben, who’d been an assistant attorney general in the Clinton administration. “Asset management, in part at elite institutions, is a holdout.”

At the same time, Golden risks drawing the wrath of those Princeton faculty and alumni who’ve long been skeptical of the college’s embrace of affirmative action and other efforts to promote inclusion. Robert George, a professor who directs Princeton’s James Madison Program in American Ideals and Institutions, says the endowment would be better off focusing on investment returns. “We should hire or contract with the people who are most likely to give us good decisions and access to markets,” George says.

Golden says he’s committed to maintaining his excruciating selection process, which involves an average of 350 hours of staff time to vet each candidate. “We don’t want to mess with the core elements of success,” he says.

– – –

645’s own journey shows why Golden’s effort is destined to move at a gradual pace. Holiday and Okike spent four years building the company, forgoing salaries part of the time and staying at Airbnbs as they pitched to potential investors. And that’s even though these two are a rarity: unconventional candidates who nonetheless check every meritocratic achievement box and travel in all the right circles.

They are ridiculously qualified, their résumés wrapped in ivy. The son of two doctors, Okike, who is 39, has a bachelor’s, a law degree, and an MBA, all from Harvard. He worked for eight years at New York-based Insight Venture Partners, where the companies he helped select for backing were acquired for more than $5 billion. A 6-foot-5-inch former track star who ran the 400 and 800 meters at Harvard, he literally stands above the crowd.

A head shorter, Holiday, 37, is, like Okike, bookish, given to reading physics texts and the tomes of the late cosmologist Stephen Hawking. He studied computer science at historically black Morehouse College, then developed trading software at Goldman Sachs. He earned an MBA at Cornell, where he led a campus venture fund.

Okike and Holiday are world-class networkers who vacation in Martha’s Vineyard, a gathering place for both Boston Brahmins and the black elite. They named their company after one of the Massachusetts island’s telephone exchanges: 645.

Holiday won his first introduction to Golden through Scott Kupor, a partner at Andreessen Horowitz whom he’d met through the Cornell fund. Ken Chenault, the former chairman of American Express Co. and now a venture capitalist at General Catalyst, which has been a longtime manager of Princeton’s money, told Golden he’s invested personally with 645. “I like how they were going about building their firm,” Chenault says.

Last July, two months or so after Holiday and Okike took their drive to Princeton, Golden and a team of investment staffers made a site visit to the WeWork space on East 28th Street. The next month, one of his lieutenants phoned with the news: Princeton committed to their $40.6 million fund. Holiday was standing behind Okike, who was seated, when the call came in. “We did it!” Holiday said, squeezing his partner’s shoulders with both hands.

As significant as they may be, Princeton’s investments in black-owned 645 and woman-owned Forerunner represent a rounding error: less than $50 million out of a $26 billion fund.

But Golden likes to think of it differently. Forerunner and 645 were two of only three managers Princeton picked during the past year. If successful, they could one day become major holdings. “By definition, it’s a glacial move to get to truly untapped pools of talent,” he says. “It’s planting seeds that grow into tall trees.”

Today’s effort resembles an initiative Princeton started about 15 years ago. To gain a deeper understanding of overseas markets, Golden says, the endowment decided to seek out the best international investors based in their home countries. Those managers now represent more than 30 percent of the portfolio.

It would be hard to overstate the impact of Princeton’s vote of confidence on the young VCs who’d been toiling away in their WeWork space. Several months after Golden picked 645, whose team of seven people now manages about $50 million, the company moved into permanent digs in an office building across from Grand Central Terminal.

The silver-framed photos greeting visitors suggest the founders’ ambitions: Okike with Billy Beane, the numbers-minded Oakland A’s general manager, star of Michael Lewis’ “Moneyball” and idol of quantitative-minded investors everywhere; and Holiday with Robert F. Smith, a prominent African American investor who founded Vista Equity Partners and has put money with 645.

“We could really move more into the big leagues,” Okike says. “Once you have a strong institutional investor, all things open up. This is an opportunity, but we have to make the most of it. Now we’re in the game.”

– – –

Lorin covers endowments for Bloomberg in New York.

The hidden cost of your 401(k)

With 401(k) balances near all-time highs, retirement savers are probably feeling pretty good about themselves these days.

The first part of this year saw record contributions, thanks, in part, to a strong stock market, according to Fidelity, the nation’s largest provider of 401(k) plans.

Eventually though, savers will have to take distributions from those accounts.

And that’s when they may realize that their nest egg isn’t as flush as they previously thought.

More from Invest in You:
3 steps to determine whether you’ve earned the right to invest
Take this simple step if you want to be rich someday
Here’s what it takes to become a 401(k) millionaire

Because contributions to regular 401(k) accounts are made with pre-tax dollars, at some point they’ll have to pay the piper (in this case, the federal government and perhaps also the state they live in).

Money taken out in retirement is taxed at your ordinary income rate, which, for the top tax bracket, is currently 37% — plus state marginal rates. (If your income is lower in retirement than it was prior, you’ll likely find yourself in a lower tax bracket, but you’ll still have to pay taxes — at your new lower rate, of course — on any withdrawals from retirement savings.)

“People forget about the tax impact,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “It’s going to be a shock to them, finding out the government may be getting a third.”

To lessen the tax bite, financial pros recommend a few key tips:

For starters, as you are building a nest egg, consider a Roth 401(k) or Roth individual retirement account in addition to a traditional 401(k), said Howard Hook, a certified financial planner and CPA with wealth management firm EKS Associates in Princeton, New Jersey.

This is a better bet if you’re going to be in a higher, or the same, tax bracket down the road, he said. Contributions to a Roth are taxed up front and then withdrawals are tax-free in retirement.

One caveat: Contributions to a Roth IRA do have income limits, although the threshold is high. Alternatively, there’s no income limit on who can participate in a Roth 401(k) — and the maximum annual contribution for workers under age 50 is more than three times higher.

You can contribute $6,000 to a Roth IRA with an additional catch-up contribution of $1,000 if you’re 50 or older. Similarly, you can save up to $19,000 a year in a Roth 401(k) plus an additional $6,000 if you are over age 50.

Once you’ve reached retirement, manage distributions from all your taxable, tax-deferred and Roth accounts in a way that will keep you in the lowest tax bracket as possible, Hook said. Tap the accounts that allow tax-free withdrawals first — such as Roth accounts and brokerage accounts, which are only taxable when you sell appreciated assets to distribute cash.

The hidden cost of your 401(k)

With 401(k) balances near all-time highs, retirement savers are probably feeling pretty good about themselves these days.

The first part of this year saw record contributions, thanks, in part, to a strong stock market, according to Fidelity, the nation’s largest provider of 401(k) plans.

Eventually though, savers will have to take distributions from those accounts.

And that’s when they may realize that their nest egg isn’t as flush as they previously thought.

More from Invest in You:
3 steps to determine whether you’ve earned the right to invest
Take this simple step if you want to be rich someday
Here’s what it takes to become a 401(k) millionaire

Because contributions to regular 401(k) accounts are made with pre-tax dollars, at some point they’ll have to pay the piper (in this case, the federal government and perhaps also the state they live in).

Money taken out in retirement is taxed at your ordinary income rate, which, for the top tax bracket, is currently 37% — plus state marginal rates. (If your income is lower in retirement than it was prior, you’ll likely find yourself in a lower tax bracket, but you’ll still have to pay taxes — at your new lower rate, of course — on any withdrawals from retirement savings.)

“People forget about the tax impact,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. “It’s going to be a shock to them, finding out the government may be getting a third.”

To lessen the tax bite, financial pros recommend a few key tips:

For starters, as you are building a nest egg, consider a Roth 401(k) or Roth individual retirement account in addition to a traditional 401(k), said Howard Hook, a certified financial planner and CPA with wealth management firm EKS Associates in Princeton, New Jersey.

This is a better bet if you’re going to be in a higher, or the same, tax bracket down the road, he said. Contributions to a Roth are taxed up front and then withdrawals are tax-free in retirement.

One caveat: Contributions to a Roth IRA do have income limits, although the threshold is high. Alternatively, there’s no income limit on who can participate in a Roth 401(k) — and the maximum annual contribution for workers under age 50 is more than three times higher.

You can contribute $6,000 to a Roth IRA with an additional catch-up contribution of $1,000 if you’re 50 or older. Similarly, you can save up to $19,000 a year in a Roth 401(k) plus an additional $6,000 if you are over age 50.

Once you’ve reached retirement, manage distributions from all your taxable, tax-deferred and Roth accounts in a way that will keep you in the lowest tax bracket as possible, Hook said. Tap the accounts that allow tax-free withdrawals first — such as Roth accounts and brokerage accounts, which are only taxable when you sell appreciated assets to distribute cash.

Want a happy marriage? I’ve counseled 1,000 couples—and this is the best way to fix your money problems

Stories like John and Barbara’s make up our financial belief systems — and they’re hard to escape. Even statements like “you must save 15% of your gross income for a secure retirement!” from a financial expert can become part of our belief systems.

But when you make an effort to understand the stories behind your partner’s financial beliefs, things will start to make more sense, your judgments will start to fade and you’ll find it much easier to be compassionate and see things from their point of view.

2. Let go of your ‘clinginess’

The problem, however, isn’t how your childhood stories shape your financial values — it’s how much you cling to them. Your “clinginess level” determines how much conflict you’ll have in your relationships. And if you and your partner both refuse to be flexible about your beliefs, it’s a no-win situation.

But shifting your belief systems should be a lot easier once you’ve learned the stories behind your partner’s financial priorities. The next step is to focus on finding common ground. Knowing what financial priorities you share will give the comfort and encouragement to make things work.

3. Work as a team to compromise

Once you’ve identified the things you agree on, start talking about the differences that are hurting your relationship.

As you’re having this discussion, don’t try to impose your beliefs on each other. In order to compromise, you must be willing to stretch yourself with new challenges.

Think about how you can take two different financial beliefs and turn them into one strong financial belief. It won’t always work out, and that’s okay. The most important thing is to keep an open mind and be honest. The objective is to build a shared foundation of financial beliefs.

Figure out how to align on your values and goals: Do you want to buy a home? Do you see children in your future? Do you want to retire early? These are all important matters to discuss.

4. Be vulnerable

Make no mistake: Things will get heated. Leave your ego at the door and remember that you’re a team. Let go of your need to be right and really listen to your what your partner is saying, even if what they’re saying means you might be wrong.

If you sense that you’re starting to get angry, tell yourself: Maybe I’m missing or not understanding something. Maybe there’s another way of handling this issue that I haven’t thought of. (It also helps to balance the serious tone with some humor).

And remember, your financial journey together doesn’t end after one conversation. Keep experimenting with different methods until you find a solution that works. Your situation as a couple may change, so keep scheduling time to follow up and discuss how things are going.

Marla Mattenson is a relationship and intimacy expert, specializing in coaching entrepreneurial couples. She teaches couples how to uncover the hidden patterns in their relationships and work using a non-traditional approach from her background in neuroscience and mathematics. In her 23 years of work, Marla has worked with more than 1,000 couples.

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