Nurses Guide: How to save for tomorrow!
This article will cover a broad overview of how, where and when a nurse should start saving for future goals and dreams.
Most people spend a good portion of their paycheck on current lifestyle so that they can enjoy life today and do things that make them and their family happy. The big question is how much should not be spent today and thereby be put aside for future spending and future lifestyle.
First of all it is important to understand that each individual person has an unique planning situation and therefore should have a plan designed specifically for their personal circumstances but we will cover a few general questions that can help nurses better understand their options.
Should I participate in my company sponsored retirement plan and what % of my paycheck should I save towards this specific account? This is one of the questions that gets asked the most and it is extremely important to understand how to get the most out of these plans. First thing to take note off is that these plans are constructed with one purpose in mind which is retirement. That means that withdrawing money from such an account before age 59 ½ can have tax consequences and possibly also create penalties. Due to the tax consequences it makes the money that sits inside of these plans illiquid. Most company sponsored plans such as 403(b) or 401(K) have a company match which means that the company that sponsors the plan will match a specific % of what nurse puts aside.
So a great general rule to live by is that since the retirement plans are very illiquid and individual should build up a savings plan with liquid “short term” money first and once a comfortable 3-6 months of savings have been put aside the 403(b) or 401(k) plan should be implemented. At this point putting enough money into the plan to get the full match is recommended. That means that if the employer matches 3% an individual who earns $100,000 should be putting $3,000 aside in order to get the free $3,000 match from the company. Putting more aside than the matching should only occur when other savings options have been put in place as well.
Where else should I save money?
So far we have addressed that at least 3-6 months of living expenses should be put aside in a liquid accessible account and we have talked about putting money aside into a retirement account that in most circumstances should not be touched until age 59 ½ due to potential tax and penalties.
Those two above mentioned accounts take care of short term savings needs as well as some long term saving needs. Now it would be advisable to also have savings/investments that address a mid to long term need so that business opportunities, real estate and unexpected life events can be taken care of as well without incurring these unnecessary taxes and penalties.
How much should I be saving?
It again depends on individual factors but in general it is advisable to get your savings rate to at least 15% of your gross income and to make sure that as you make more money over time you also save more money. At some point in the future your personal financial balance sheet has to create cash flow to support your life style. Knowing exactly how much will be needed in the future is impossible as inflation, life events and other factors are much unknown. What we do know is that nobody else will pay for your retirement, house down payment, Kids College and other future lifestyle expenses. That means that saving for tomorrow has to begin today and understanding all the different options that are available is important.
Written by Jan Axel Tribler Co-Founder of CreativeNurse
2016-15862 Exp. 1/18