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I recently received this inbox from a high school classmate…“Since you’re a financial advisor, can you give me some free financial advice? Excuse me, Money Coach.”
I responded with, “Laughing out loud! Financial advisor, financial planner, money coach, all the same as it relates to me. What’s your question?”
She responded, “I have almost 75 thousand saved in cash. It’s in a high yield savings account. My question is, once the federal reserve cuts interest rates, should I move my money to a Money Market Account, Roth IRA, stocks, CD? Should I move it all or some of it? I have it all in a high yield savings account because I am getting around $200 in interest each month.”
I replied with, “Great job on saving money! Saving money is a plan, not a product. I need to understand why you’re saving the money before I can guide you on the best financial product to use. Predictions are that rates are going to go down 0.25 percent up until it reaches 1 percent by the new year.”
She responded, “Thanks! I’m saving just to save. I don’t have anything that I need. I just save as much as I can.”
I replied, “It’s great that you are willing to save. All savings should have a mission statement attached to it.”
Establishing a mission statement or savings goal not only tells you what investment products to consider, but it also lets you know the time horizon and how much risk you can endure. Until you figure that out, a High Yield Savings or a Money Market account is fine. Your main concern is preservation of principal, not return on investment at this point. All short-term savings goals should be parked in a savings account, High Yield Savings Account or a Money Market Account. Historically, the yield on those products hover between 0.5 percent and 2 percent, not keeping up with inflation. “I assume you have money saved/invested for retirement in addition to this?”
She replied, “Yes, I have a 401(k) that roughly has about $400k. I’m behind the 8 ball on that. Should probably have over a million. Stock scares me because of the ups and downs. I probably should have put more of my check into it, but I’m very leery.”
I replied, “You’re ahead of the 8 ball, especially for a Black person. You’re about 51 years old, right? I need to know and understand your full story for my column to inspire others. Do you mind sharing? I’ll keep you anonymous.”
Below is her story:
“Planning for retirement can be a daunting task, but my journey has been one of focus, discipline, and the desire to avoid financial stress. Growing up, I was determined not to fall into the trap of living paycheck to paycheck. While my early years may have reflected that reality, I made a conscious decision to change my trajectory.
Finding Focus and Stability
“After a phase of partying and distractions, I decided to get serious about my financial future. I’ve always prioritized living below my means, which has allowed me to maintain excellent credit throughout my life. I made a strategic choice to buy a small, affordable house that I could manage even if I ever found myself in a less-than-ideal job situation. Thankfully, I have no car note and no mortgage—two significant financial burdens that many people face.
Smart Saving Strategies
“Currently, I save the majority of my income in a High Yield Savings Account, while also contributing to my 401(k). For the past six years, I’ve worked part-time, using that income as my primary source for living expenses. My motivation is clear: I want to retire comfortably, without the stress of financial insecurity.
“When I first started my current job in the health care sector, I was fortunate to have a pension plan. However, that later transitioned to a 401(k) system, which matched 6 percent of my contributions. I immediately began investing that full 6 percent, ensuring I was setting myself up for a secure future.
“With only 11 years until I reach retirement age at 62, I am more focused than ever.
Balancing Work and Play
“While I still work full-time in health care, I save the entirety of my full-time paycheck. It’s a unique approach, but I’ve found it works for me. I allocate 10 percent of my paycheck to my 401(k) and the remaining 90 percent goes into my High Yield Savings Account. I also strive to earn around $3,000 a month from my part-time job, which covers my living expenses.
“Life isn’t all about work, though. For fun, I enjoy traveling and make it a point to visit new places at least two or three times a year. I also love attending comedy shows and dining out with friends.
Plans for Retirement
“Looking ahead to retirement, my vision is clear: I plan to continue my travels and enjoy life without the weight of financial worries.
The Power of Discipline
“The decision to save my entire full-time paycheck was not made lightly. It was a recent choice that stemmed from my ability to earn variable income through my part-time gigs. By saving my full-time income, I can invest in my future without compromising my current lifestyle.
“I don’t have children, which certainly contributes to my ability to save aggressively. It requires discipline, but I’ve discovered that it’s a winning strategy.
“My journey to a comfortable retirement is rooted in smart financial choices, disciplined savings, and a commitment to living below my means. By prioritizing these principles, I am not only setting myself up for a stress-free retirement, but also enjoying my life in the present. With careful planning and a clear vision, I believe that anyone can achieve financial stability and peace of mind for the years ahead.”
After learning her story, I offered up more free advice and ended our conversation with this, “Thanks for sharing! Great job! You’re a poster child for aggressively saving money. In all of my years working in personal finance, I’ve never heard of anyone working a part-time job to cover living expenses and saving their entire paycheck from their full time job. That’s amazing! That takes commitment and discipline! If you ever need help fine tuning your saving/investment strategy in an effort to segment your saving and investing goals and optimize your return on investments, hit me up.”
(Damon Carr, Money Coach can be reached @ 412-216-1013 or damonmoneycoach.com)