allocation and portfolio strategies, no matter what your age.
We suggest that you first tally your assets and debts to pinpoint where you stand. From there, move toward your goals–what you’re aiming for and how soon you plan to get there. If you see that any part of your savings plan needs tweaking, then you’ll have time to do so.
One sore spot is debt. And if truth be told, you’ve probably already heard that paying off credit cards and other high-interest lenders is a good goal to aim for. Other obligations such as student loans bearing a 7%-8% interest rate can be paid off in time on schedule. The worksheet will make any waste clear.
BUILDING YOUR SAVINGS
Now that you’ve got a budget that sets out your financial goals, we all know the way to get there is by saving or setting aside some cash. Financial planners recommend you save and invest a minimum of 10% of your income, although 25% or higher is a better figure to aim for.
If you’re now charging head-on toward your first mutual fund application you’ll first need a safety net of sorts–in other words, money you can dip into in this world of uncertainty and layoffs. As Deborah Breedlove hammers home in Wise Words (Moneywise, this issue), it’s a good idea to stash away three to six months’ salary just in case your world is upended and you’re forced to siphon off your savings. Depending on your salary and expenses, it might take a while for you to amass this amount, but you’ll find it well worth it. Saving any more than that in an easily tapped-into fund won’t be a worthwhile use of your funds.
Where do you stash it away? There’s no getting around the fact that your local bank has its sights on things other than giving you the highest possible interest rate. Instead of a bank account with a wee 3% interest rate, your savings will do better in a money market mutual fund. Money market funds are designed to keep your principal–the amount you’ve put into the fund–intact, and in essence function as a souped-up checking account. They pay a healthy a
mount of interest–currently as high as 5.8%–and allow you to draw down on your savings by check, if the need arises. That kind of liquidity separates the money market mutual fund from bank CDs, which assess heavy penalties for withdrawals prior to maturity.
You’ll be glad to know that there are money market mutual funds out there that don’t charge $2,500 or more to get in. The problem: while you won’t need as much up front, you’ll be giving up something in interest. According to IBC Financial Data Inc., a firm that monitors money market funds, the highest yielding funds, which required as much as $25,000 as a first investment, paid out 5.96% annually (as of June 17). Nations Prime Fund (800-321-7854), which had a $500 minimum, doled out 5.14%. By raising your investment to $1,000, you would recover much of