A majority of Americans have changed how they manage their money as a result of the Great Recession, says Philip Taylor, founder of PTMoney.com. On the positive side, we’re saving more and have less interest in taking on a lot of debt. But on the other hand, we’re more reluctant to become home owners and are shy about returning to the stock marketing with our retirement savings.
“The fear of market volatility is probably the evolution with the biggest impact, especially on young investors who have a long investing time horizon,” Philip says.
But sitting on the sidelines isn’t the best strategy. Here, the CPA and personal finance blogger shares his best tips for managing our money, especially as they relate to saving for retirement. Read on:
What’s your personal finance background?
I am a CPA and have a few years’ experience preparing personal income tax returns. However, while those things certainly helped to boost my tax and investing knowledge, they honestly don’t do much for my overall financial health. I credit life experience and discovering Dave Ramsey’s advice for really helping me get my financial act together. I made several financial mistakes along the way. But I never gave up, and I always tried to move in a positive direction.
Tell us about PT Money…when and why did you start your site, and who should be reading it?
PT Money is a personal finance blog where I share my story with money. It’s also a place where readers can get information that will help them fix their finances so that they can have freedom to live the life they want. For some, that’s starting a business like I did. For others, that may be becoming a stay-at-home parent, retiring early, or traveling the world.
I started the site back in 2007 as a way to hold myself accountable, connect with others headed in the same direction, and because I saw it as a potential small business.
What aspects of money management do you think we’re most in need of a wake-up call?
I think people still struggle with the basics: living within their means and paying themselves first. Every day there are more and more demands on your money. But you can’t out-earn your spending. You need to learn to live well within your means. A great place to start is to make the most important thing, saving, the first item in your budget every month. Create automatic savings deposits that happen each month as soon as your paycheck arrives.
What do you think are the biggest misconceptions Americans have about saving and investing for retirement? Why do you think we’re so behind in our savings?
I think some view saving for retirement as pointless. Either because they don’t understand the long-term opportunity, or because they don’t think they’ll ever be able to save enough. We’re behind because we aren’t starting soon enough, we’re not making it automatic, and we’re not learning to live within our means. Those basics make all the difference.
What’s your baseline advice for anyone who’s worried about saving for retirement? Where should we start?
Just get started. Open up a brokerage account; start with a small, automatic contribution into a tax-advantaged retirement account. IRAs and 401(k)s are great places to start. Pick a low-cost index fund just to get you started. Once you get comfortable with the simple act of automatic savings, you can begin increasing your contribution percentages and learning about things like asset classes (type of investments) and not putting all your eggs in one basket (diversification).
What have been the most effective and efficient ways you’ve found to save money?
What’s worked for me is consistently and automatically investing as much as possible each year into low-cost target date funds and index funds held within 401(k)s and IRAs. I make these contributions right after I get paid and before I pay any other expenses. People who’ve successfully retired using this approach report that when looking back, they never missed the money – out of sight, out of mind.
What are your favorite investments for those saving for retirement? How should a person’s investment strategy evolve over time?
I’m a huge fan of Vanguard’s target-date retirement funds – specifically the 2040 fund, which is made up cash, a bond fund, and a stock fund. These funds are low cost (less than .20 expense ration), and they adjust their allocation automatically based on a date I set. I also own a rental property, and I see the cash flow from that investment as something I’ll rely upon as another source of income in retirement. I’m of the opinion that as you age, your exposure to the market should decrease (i.e., fewer stocks; more bonds, cash, and fixed income).
What are some of your favorite tools or resources for people who are saving for retirement?
For learning, I’m a fan of ObliviousInvestor.com, Vanguard.com, and the Boglehead Forums. They are great places to start. I’m also a fan of low-cost investing services like Betterment.com.
Connect with Philip on Facebook, Google+ and Twitter.
