has established other investment accounts, including a mutual fund with a balance of $35,000 and a money market account valued at $43,000.
Melvin took a similar path to wealth building. Over a six-year period, he worked at General Motors, General Mills, and IBM. At each company he opened a 401(k), rolling over the funds each time. In 1990 he joined PepsiCo. Inc. and began contributing to a 401(k) plan that he chose not to close or roll over. Sixteen years later, the account is valued at $75,000. When Melvin left PepsiCo in 1994 to join The H.J. Heinz Co., he worked full time for four years at Heinz and then part time while pursuing his doctorate. As he did with his account at PepsiCo, Melvin has kept his 401(k) plan at Heinz; today the plan is worth $116,000.
Along with his salaried position at the university, Melvin earns another $30,000 annually in speaking engagements. To date, he has approximately $80,000 in his $403(b) account, a retirement plan for university, civil government, and nonprofit employees.
By the time the Smiths retire at age 55, their two sons, Ryan, 15, and Evan, 12, will be attending college. The couple has set up 529 college savings plans for each one, with a combined balance of $44,000, to ensure that their children’s education costs are covered.
The Smiths have built wealth for their golden years by adhering to the following financial strategies:
Use direct deposit to build savings. Direct a portion of your paycheck to a money market account to shore up your savings and emergency cash reserve. By paying yourself first, you allocate critical funds before dividing your paycheck to pay bills and other living expenses.
Get an early start on retirement savings and investing. It pays to start investing early in retirement savings, whether it’s a 401(k), 403(b), or Section 457 plan. There’s also a practical benefit to having your employer automatically withdraw the money from your pretax salary. “By having the money taken out directly, we never really missed it, and it forced us to be consistent with our contributions,” says Melvin.
Max out your employer-sponsored retirement plan. Invest the maximum contribution amount your employer allows. “Always remember that it’s free money that your company is giving you by making matching contributions,” says Jennifer.