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Plan for Your Financial Future

by Liz Zack

USA TODAY Careers Network, July 19, 2001

Taking a new job probably means changes in your morning commute, the people you work with, your company benefits and probably your paycheck. In the midst of these transitions, it’s important to make smart financial decisions, whether you seek the help of a financial planner or do it on your own.

Figure out your financial goals.

Changing jobs is a great opportunity to reexamine your financial plan, or to get one going if you haven’t already. Have your short- or long-term goals changed with this job? Begin by dividing your financial goals into two camps: the next five years and life beyond. Do you plan to buy a house soon? Have a child? Quit your job and go back to school? Determine short-term plans.

In this volatile market, advisors suggest having a financial cushion. Aim to set aside three to six months salary (closer to six in this market) as a just-in-case fund. Keep this money in an account where you have immediate access to it.

Depending on your specific goals, plan to set aside savings for any big expenditures in the next five years. Buying a house or going back to school will require ready funds. You’ll want to keep it in an account where you can make modest interest without being subjected to the volatility of stocks. Think bonds.

Think ahead to retirement.

Financial planners are emphatic: If you get a raise at work, increase your retirement contributions.

“Contribute more money as your salary increases, ” says Joyce Franklin, principal at Franklin Advisors in San Francisco. “Don’t beat yourself up if you’re at your at your first job, or you’re in your 20s and have college loans to pay off. But save what you can even if it’s only a $100 a month.”

If you invest the maximum 2003 amount of $11,000 a year and assume an 8% rate of return, you’re looking at almost $900,000 in 25 years. “The power of compounding is a magical, wonderful thing,” Franklin says.

Putting the past behind you.

Keeping money in a past employer’s stock? Consider getting rid of it, or at least balancing out the rest of your portfolio.

“If you were at a company where you were buying a lot of stock in an employee purchase plan or through a 401(k) plan, especially after Enron, people should be very conscious about not overloading their portfolio with company stock,” Franklin says. “This is a great time to rebalance. Working for a company your paycheck is already tied to that company. You don’t need to be putting additional 401(k) money into that plan.”

Take matters into your own hands.

Even if your new employer doesn’t provide a 401(k), you should still save for retirement. Deductible IRAs allow you to invest funds which will accumulate tax-deferred.

In 2002, if you’re under age 50, you can invest $3,000 into this type of fund. However, because you can invest up to $11,000 in a 401(k), if your employer offers that option, it’s clearly the better way to go.

Even when you participate in your employer’s plan, if you earn under $95,000 a year, you also can contribute to a Roth IRA. The Roth IRA grows tax-free forever. You don’t have to withdrawl your investment at a certain time, like you do for a CD, and if you have it for at least 5 years, you can use it to buy a home.

Still confused?

What about the details? What should you buy? There’s plenty of help available. Firms like Fidelity Investments devote sections of their Web site (www.fidelity.com) to advice on setting up retirement portfolios and offer suggestions on exactly where to put your money. If you’re already a customer, this service is often free.

Fidelity, like other brokerage houses, makes general recommendations. “We try to educate the customer,” says Ken Furman, manager of the Morristown, N.J. Fidelity Investment center. “We’ll present three or four different options and let them make the choice.”

On the other end of the spectrum, planners like Franklin can spend anywhere from 15-20 hours working up a personalized plan to meet your needs. This is a great option when you want to invest and have money to pay a planner – costs range from $150 to $250 an hour.

A third option, usually free to the investor, involves commission-based advice, where the planner suggests funds that reward him with small commissions.

Looking for a financial planner? Check out:

 

      The Certified Financial Planner Board of Standards

 

      The Financial Planning Association

 

    The Registered Financial Planners Institute

© Copyright 2002 USA TODAY, a division of Gannett Co. Inc.

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