Aside from the unswerving advice to spend less than you make, personal finance wisdom has a way of evolving year by year, as the economy, tax laws, and other variables change.
True, most lessons these days have to do with it being harder and harder to build a nestegg, the need to start earlier and the importance of saving more robustly and wisely than ever before.
But even under that broad canopy, the important teachings in 2012 changed a bit from the previous year.
To get a handle on what was resonating with Americans in 2012, I just visited the “Readers’ Picks for 2012,” published by the Financial Security Project at Boston College. That list of the last 12 months’ 10 most visited FSP “Squared Away” blogs shows that folks across the United States in 2012 were most eager to absorb guidance on saving for college and retirement.
From that roster, I selected a few of the key takeaways to take away from the year past. I believe implementing any one of these will be very conducive to your fiscal health and vitality. And if I’m not mistaken, putting into practice two or more could end up injecting fifty to a hundred thousand greenbacks into your bank account over time.
Waiting for Social Security Pays Off Like Never Before
Conventional wisdom has long held that taking Social Security at 62 and getting smaller checks over a longer period will essentially net you the same amount over your retirement as waiting for age 70 and taking larger payments over a shorter period. Only the more dialed-in among us realized that that was a costly fallacy, and that waiting until later ages to take Social Security truly pays off in very real ways.
A new study shows that waiting is even more important in this era of decidedly low interest rates. How much more can folks earn? Single people can pocket tens of thousands more, and couples almost $125,000 more, over the course of their retirements by waiting until around age 70 to turn on the flow of Social Security payments.
Plan on Four Years, Not Six
Although not well acknowledged, it’s a fact that earning a degree in some majors at many larger four-year undergraduate institutions may actually require not four, but six, years of study. That can wreak havoc with efforts to save enough for a college education.
The reason is that at very large institutions, supply and demand forces may make it difficult for students to get into courses they need to graduate, leaving them in college longer and paying more for tuition, room and board. Parents are urged to discuss this reality with admissions counselors, bluntly asking whether their son’s or daughter’s chosen major can be completed in four years, as opposed to six.
Considering the opportunity cost of earning paychecks in a profession versus spending an extra two years in college, accurate answers to that question can save families vast amounts.
Boomer Women, Pay Heed
If you’re like numerous Baby Boomer women I’ve known, you’ve devoted a lot more of your life to spending than to saving. Once the kids have left the nest, that trend needs to be reversed, reports a Squared Away blog called “Boomer Moms, Here’s a Radical Idea.”
The key steps in that strategy? First, pay down that $15,000 to $80,000 credit card debt common to many couples. Second, if you’ve let your husband make the financial decisions, get involved and share the duties and responsibilities. Third, if you need a financial plan, hire a professional to guide you. You are likely to live longer than your husband, so you need to develop a plan to provide income throughout your life.
Associates Degrees or Certificates vs. Bachelor’s Degrees
I once suggested to a friend she consider a community college vocational program, as opposed to a four-year bachelor’s degree program, for her son. Though I’d intended no disrespect, she virtually disowned me. She had missed the point of my remark, which was that many four-year degree holders are returning to college at community colleges to get the training they require to actually land a paying job, according to U.S. Education Secretary Arne Duncan.
And that’s only logical. Many four-year programs teach theoretical principles, but the curriculum at community colleges across the nation is strategically designed to train people in skills needed by local employers. Once you’re employed in a well-paying job, your employer may help pay the piper when you return to academia for Bachelor’s, Master’s and Ph.D degrees.
Early Mortgage Paydown? Not
According to the Federal Reserve, mortgage debt has decreased from $11.1 trillion to $10 trillion in recent years. The reason is that as Americans pay off their credit card debt, many are turning to paying extra on their mortgages in an effort to pay them down or off more quickly. But that probably isn’t the wisest strategy.
It’s a much better move to invest newly freed-up dollars in your 401(k). Not only do most Americans need to better fund their retirements, but they gain the benefit of deducting those contributions from their taxable income. In addition, the investment income they make on those contributions is likely to outstrip what they will pay in mortgage interest. The lesson: invest in a higher-yielding investment as opposed to paying off low-cost debt.
Put all of these recommendations into practice in the coming year, and you could find the number ‘13 anything but unlucky.