Best financial advice I’ve ever received: Soni Harney

March 16th, 2012 Soni Harney
Soni Harney

Editors Note – this article is part of our series “Best financial advice I’ve ever received.”  People frequently ask bankers the best piece of advice they have ever gotten. So for this series, we’re asking MidWestOne employees to share the best money management tips they’ve ever gotten.

I feel that the most important – and also most valuable – financial advice out there is this:

“Start saving for your retirement early in life.”

Although most people know how important it is to save for retirement, there are many people out there who push it off into the future because it just seems too far away. But the truth is- the sooner you start putting money towards your retirement, the better your results.

After all, the longer you put off saving for retirement, the more you are missing out on the power of compound interest.

Compound interest refers to interest you earn not only on the money you originally invested, but also on any interest the investment has already earned. When it comes to compound interest, time is literally money. Consider this:

  • If you save $100 per month starting at age 20 (with 5 percent rate of return) your savings will total nearly $203,000 at age 65.*
  • What if you waited 10 years? If you save $100 per month starting at age 30 (assuming the same 5 percent rate of return) your savings will total nearly $114,000 at age 65. That is a difference of $90,000!*
  • And if you waited another 10 years and started saving $100 per month at age 40, your savings will only grow to approximately $60,000.*

That’s why I think one of the most important things you can do for your financial health is to start saving early. Here are some tips to help you build a solid nest egg:

Participate in your employer’s retirement plan.

If your employer offers a retirement plan (such as a 401(k)) make sure you participate immediately – especially if your employer offers a “match” for your contributions.  When employers match your contributions, you are essentially receiving “free money.”  If your employer does not offer a retirement plan, open an IRA or Roth IRA yourself.

The long-term impact of contributing to a 401(k) plan or a retirement account such as an IRA when you’re in your 20s or 30s is dramatic, as compound interest accumulates over the decades until you retire.

Pay yourself first.

The first bill you pay each month should be to yourself. Before you pay your monthly expenses, go shopping or use your income for anything else, automatically set aside a portion of your income to save. This habit, developed early, can help you build a tremendous nest egg over the years.

Use this same approach when you receive a raise or a tax refund – instead of depositing that money into a savings account, place it in a 401(k) or IRA instead.

Don’t be intimidated.

The stock market can be intimidating – especially after the ups and downs of recent years. Don’t become so overwhelmed that you end up being paralyzed with fear.

Seek out the help of an investment professional if you are uncomfortable managing your retirement savings yourself. Also, consider a managed fund arrangement based on your target retirement year, so someone else oversees the details for you.

Keep the momentum going.

The safest path to a secure retirement is regular saving. So, as you progress in your career and earn more money, increase your savings effort as well.  When you receive a raise, make sure you also increase your 401(k) and IRA contributions accordingly. And if you find you have additional money in your checking account, be sure to pay yourself first, before you go out and spend it somewhere else.

* Future values calculated with simple Time Value of Money calculation, economical and/or conditional factors not considered.”

Soni Harney

About the author

Soni Harney is Senior VP and Director of Human Resources at MidWestOne Bank. She guides and manages HR services, policies and programs for all MidWestOne employees.

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