Who Wants to Be a Millionaire?

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Do you remember the game show originally hosted by Regis Philbin called Who Wants to be a Millionaire? The show consisted of contestants being asked multiple-choice questions that got more and more challenging as potential prize money increased, but contestants were also given a series of “lifelines” to help aid them with difficult questions. Well today I thought we’d have a little fun. I have a unique trivia question for every single one of you and I would like to serve as one of your lifelines and offer six tips that can help you reach your financial accumulation goal, whatever it is.

1. Save first, spend second. Live a lifestyle that is below your means and make sure you are steadily saving your money in cash accounts, retirement accounts, and taxable accounts. As Dave Ramsey says, “If you live like no one else now, later you can live like no one else!”
2. Make sure you are saving money in your employer’s retirement plan (401(k), 403(b), 457, etc.). This is a great way to reduce your current taxes and really grow your retirement nest egg over time. Put in as much as you can, but make sure you are at least contributing what is necessary to receive the full value of your employer’s matching contributions if they offer them. For employees under age 50, $18,000 is usually the most you can contribute each year. For employees over age 50, $24,000 is usually the most you can contribute each year.
3. Make sure you are contributing money into an IRA. Whether you are eligible or better off contributing to a Roth IRA or a Traditional IRA may be worth using a lifeline on to ask your financial advisor or CPA, but the important thing is that you are saving and investing money. For people with earned income under age 50, $5,500 is usually the most you can contribute each year. For people with earned income over age 50, $6,500 is usually the most you can contribute each year.
4. Make sure you are saving money in a taxable account. Saving money in your employer’s retirement plan and in an IRA is great, but you aren’t really supposed to access that money until your mid to late 50s. If you do, you may be subject to ordinary income taxes and a 10% penalty, so you want to make sure you invest some savings along the way into a taxable account that you can access anytime you want to or need to. Withdrawals from a taxable account don’t come with tax penalties, and if you withdraw from assets you’ve had invested for over a year, you could receive the usually more favorable capital gains tax treatment.
5. Avoid debt and attack what debt you can’t avoid. Pay off all your credit cards every month. Pay off your student loans as fast as you can. Pay off your car loans as fast as you can or maybe even save up enough cash for your next car. See if you can get your debt down to monthly credit cards and your mortgage, and then put a little extra towards your mortgage whenever you can. It will save you interest expense and help you get debt-free sooner.
6. Protect what you have. Some people try to save money on insurance. That’s very wise to an extent, but you, your family, and your stuff needs to be adequately covered. Having sufficient health insurance, disability insurance, homeowners insurance, and auto insurance is critical. On top of that, having an extra layer of liability insurance (an umbrella policy) equal to the value of your assets is a very wise and surprisingly inexpensive idea. (Sufficient life insurance is important, too, but today we’re focused on making you a millionaire, not your loved ones should you get hit by a bread truck…)

As promised, here is a link to your trivia question. How much money would you have today if you invested $1 in the S&P 500 every day since you were born? I think it’s an interesting thing to know, and I think it helps an investor keep things in perspective as to where we’ve been and where we are now even though all we’ve been through and all that undoubtedly lies ahead.

That’s my final answer.

-Tom