At Destination Four, it’s starting to feel like we’re really getting somewhere. This is the time when we turn from aggressive debt payment to aggressive savings. At this point, we are completely debt-free with the possible exception of a mortgage payment. In Destination Four we save for major purchases; retirement (True Financial Freedom); education and business investments. The priority for your savings should be determined by our life purpose and goals.
The “major purchase” savings account is established to pay for the replacement of large-ticket items such as vehicles, appliances, home furnishings and home improvements. Usually, people fund these purchases through the use of credit but following the money map means saving before spending and we will be much wiser spenders if we have gone through the effort of saving first.
It’s time to focus on setting money aside for the future through retirement investments. If you are not self-employed, you likely have access to any number of retirement account options, which allow you to set aside money before it has been taxed. In these retirement saving accounts, your money grows tax-deferred until you need to withdraw it at retirement. Usually, these types of accounts offer several investment options such as mutual funds, cash reserves, and possibly even company stock.
Many companies offer incentives for investing in their plan by providing a match on your contribution. For example, if you invest 4% of your gross salary in a retirement savings account, they may match 2%. Just be aware that their matching funds may not be completely available to you for a certain period of time. Retirement plans through larger companies often carry a “vesting schedule,” which means the money they are contributing to your investments isn’t quite yours yet. For instance, you may need to be with your company for five years in order to be fully vested (the point where all of “their” contributions becomes “your” money). If you leave the company before being fully vested, you may only get a portion of what they’ve contributed, if anything at all.
If you are self-employed, you can still set money aside tax-deferred for your retirement. If you have employees, you will want to extend the retirement options to them as well so you will be looking into SIMPLE plans or SEP plans most likely. If you are the sole proprietor and employee, you can use traditional or Roth IRAs for your tax-sheltered investments. The limits on the contribution amounts for these investments change periodically so make sure to consult a tax advisor about how much you are able to set aside.
If you are near retirement age, learn about the option for “catch-up contributions.” This option enables savers age 50 and over to increase contributions at a time when retirement draws near. Age-50 catch-up contributions are possible in 401k, 403(b) and 457 plans, and IRAs, but the rules differ among plans. Consult your financial, tax or legal advisor regarding your own unique situation and your company’s benefits representative for rules specific to your plan.
If starting your own business has been on your radar for a while, now is the time to begin setting aside funds to make that dream a reality. Drafting the business model will make it easier to determine how much money you will need to get going. It is also important to determine if you need a salary and how much it needs to be. Seeking godly counsel in this area is imperative to getting started on the right foot. Once you have some numbers to work from, have researched your options and determined your budget, you will be that much closer to becoming your own boss!
In this destination, funds can also be set aside for the children’s education. You will want to investigate a 529 account which lets you save tax-free for the education of minors.
Sometimes it might feel like it’s taking a long time for everything to fall into place, but with patience and perseverance, things do start to come together. Each point along the Money Map builds on the step before it, helping us to gain momentum and obtain the ultimate goal of True Financial Freedom.
“Everyone who listens to these words of mine and acts on them will be like a wise man who built his house on the rock. The rain fell, the floods came, and the winds blew and buffeted the house. But it did not collapse; it had been set solidly on rock. And everyone who listens to these words of mine but does not act on them will be like a fool who built his house on sand. The rain fell, the floods came, and the winds blew and buffeted the house. And it collapsed and was completely ruined.”-Matthew 7:24-27
We always want to build our future on the rock!
Check out the College Savings Calculator on the Compass Catholic website.