Ever dream of winning the lottery? If so, you’re not alone. Millions of people believe this is the only way they will ever achieve financial security, says LSU AgCenter family economics professor Dr. Jeanette Tucker.
"The reality is that you stand a better chance of getting struck by lightning than hitting the jackpot," the family economist predicts, but adds, "Fortunately, you can save hundreds of thousands of dollars by putting a few fundamental principles about money into action – along with a little patience and discipline.
Tucker says six simple steps can pave the way to a secure financial future.
1. Think like a millionaire. Becoming wealthy begins in your brain, not your bank account. Most people who have a net worth of $1 million or more have started out with very ordinary incomes. What did they do? They learned to save money on a regular basis, make sacrifices when possible and scrutinize their purchases based on their needs rather than their wants. For these individuals, financial independence was more important than displaying their status through expensive possessions.
2. Pay yourself first. If you are like most people, there is little left for saving after the bills are paid. Instead, pay yourself first, before spending a dime of your paycheck. By making saving a priority, it will be easier to stay focused and achieve your financial goals. Financial experts recommend saving at least 5 percent of after-tax earnings. Consider having it deducted automatically from your paycheck. You’ll probably never even notice – until you see your savings accumulate.
3. Get rid of high-cost debt. Paying for purchases with a credit card may seem convenient, but many people don’t realize how costly these purchases are over time. For example, if you have a $3,000 balance at 19.8 percent interest, and you pay the required minimum payment, it will take 39 years to pay off the loan. And you will pay more than $10,000 in interest charges.
4. Take advantage of "free" money at work. Nearly half of all employers offer some type of contribution to their employees’ retirement savings. Yet, many employees fail to take advantage of this "free money" because it requires their own matching contribution. When an employer’s contribution and the employee’s match are combined, the retirement fund could earn a rate of return that you would be unable to top anywhere else.
5. Give yourself a tax break – legally. Who would you rather receive your hard-earned money – Uncle Sam or your family? One way to pay fewer taxes is by putting savings into an IRA or other tax-deferred account. There several types of IRAs, including conventional IRAs, in which deposits are not subject to federal taxes but your withdrawals are, and Roth IRAs, in which deposits are taxed but withdrawals are not. Because earnings are tax-deferred or tax-free until retirement, more of your money can grow and compound than if the money was in a taxable account.
6. Make your home your castle. While a home mortgage is the biggest debt most individuals will ever owe, it can also be one of the best opportunities to pile up substantial savings. By speeding up your mortgage payments, you can dramatically reduce the time it takes to pay off your home. Consider this: paying $34 more in principal each month on a 30-year $100,000 mortgage at 9 percent interest will reduce the length of time you have to pay by five years and reduce total interest costs by $38,100.
For local information and educational programs in related areas of family and consumer sciences, contact an extension agent in your parish LSU AgCenter office. Also, log on to the Family and Consumer Sciences section under the Louisiana Cooperative Extension Service at the LSU AgCenter Web site: http://old.lsuagcenter.com/.