Saving for a Rainy Day? When to Buy an Umbrella!

What does an umbrella do? It gives you shelter from the elements- rain, sun, snow--when you have nothing to keep you safe, it serves to protect you. Umbrella insurance protects you against a catastrophic lawsuit or judgment after your regular homeowner’s or auto insurance policy runs dry. To sum it up, an umbrella is a shield that’s primary goal is to protect you.

One of the best parts about an umbrella is that it protects you wherever you wish to go- you’re not stuck inside or in one place- your rainy day fund should follow suit.

If you’re one of millions of Americans who has been socking a bit of money away here and there over the past few years, you might have a good amount of cash in an interest bearing savings account at your local bank or credit union. The compound interest is a pleasant site, but you think you might be able to do a bit better someplace else- but where, how…and when?

First things first, leave enough in an accessible account for an emergency fund. Three months salary is the minimum amount of cash you should have in the event of an emergency, like losing your job. If you still have a decent amount leftover, you might want to invest it for your retirement- the biggest rainy day you’ll ever have if you don’t have the protection of an umbrella.

Tax shelters are just one means of saving for your retirement.  The feds keep upping the amount that you can deposit into an IRA (Individual Retirement Account), as they know that Social Security isn’t enough for anyone to retire on (and it was never meant to be).  A traditional IRA allows you to deposit you hard-earned cash and write it off on your taxes (sort of like you never made it) up to $4,000 per year, $5,000 if you’re over 50 years old to “catch up”.  Taxes are due when funds are withdrawn.

Roth IRA’s are a bit different, as you pay the taxes on the deposit amount now, but you’ll never have to pay them again, no matter how much money this retirement returns on your investment.

You can open IRA’s at just about any financial institution in the US.  If you choose to open one at your bank or credit union, be sure that either FDIC for banks, or NCUA for credit unions insures all deposits, as recent legislation has just increased the amount of protection for retirement accounts under these insurers from $100,000 per IRA to $250,000. That’s good news, as the latest stats show that if you make $50,000 per year now, you’ll need about $350,000 in savings, plus your Social Security, to maintain your current lifestyle.  This doesn’t include any trips around the world, just to live how you currently live.

If you feel like you want to invest your money in something other than an IRA, it might not be a wise idea to just pick and choose stocks and bonds.  If you don’t know what you’re doing, you could end up losing some serious cash.  Instead, why not try putting some money into index funds.  These are in the same family as mutual funds, but instead of relating to a basket of similar stocks, they follow an entire index, like the S&P 500.

On a final note, if you would feel better contacting a financial advisor for your investment decisions, try to find one that isn’t paid on commission to keep them from giving you advice based on the financial products yield them the highest pay. 

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