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Money Management Investment Programs

Typical money management investment programs include money market funds, market-rate checking accounts; low-risk, tax-exempt money market funds; or other vehicles with check-writing privileges. You may wish to establish several such accounts: one to fund expected everyday expenses as well as larger and less frequent money requirements; another for an emergency liquidity reserve and an investment money pool. These types of accounts will generate investment yield on temporarily idle money, with little or no risk or access restrictions.

Please note, an investment in a money market fund is not insured by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

After setting up these accounts, determine dollar limits for each. Limit your living-expense account to an amount that covers your average projected monthly expenses as well as other short-term money requirements.

Money flow in excess of these amounts should then be directed into an emergency liquidity reserve or maintained as part of an investment money pool.

Money on hand

Consequently, it is important to impose some rigor when deciding how much money on hand is really necessary. For example, before committing substantial funds to a reserve, consider the availability of insurance coverage and the potential for some short-term borrowing through a personal line of credit. This is important to meet expenses for emergency medical care or catastrophic damage to your home. Having the resources to fund tomorrow's goals depends upon your ability to manage your money today. By applying the general principles of money management, you will be laying the foundation of a comprehensive personal financial plan.

Retirement planning

The most obvious motivation to include retirement planning in your financial plan is the high cost of not planning for retirement.

By taking no responsibility for your financial situation you may be overlooking ways of accumulating capital and eliminating unneeded expenses. You may have higher income taxes and possibly be exposing your family to unnecessary financial risk. 

To avoid investments that won't meet your future income needs or do not reduce tax liability, be cognizant of your financial plan. Do not expose your family to unnecessary financial risk and be forced to rely on Social Security and your retirement or pension plan for your income needs.

Four solid reasons to start planning now include the ability to benefit from tax advantages, the power of compounding interest with limited funds available, the fact that Social Security or your pension plan may not be enough and finally your cost of living may not be reduced after retirement. 

Consider the following retirement savings options:

Defined-benefit plans

The retirement benefit is predetermined by the plan's formula. Examples include:

• Social Security 

• State pension plans

• Private/company pension plans

Retirement benefits are derived or calculated by a predetermined formula. Contributions are determined based on actuarial factors.

The amount of the required annual employer contributions depends on level of benefits to be provided; estimated number of years in accumulation period; interest; and mortality. Formula example: Creditable years of service x benefit factor x average of highest three years' salary = annual retirement benefit. Qualifying distributions may be "rolled over" into an IRA tax-free, then taxed as ordinary income when distributed.

Defined-contribution plans

The retirement benefit is determined by the participant's account balance at the time of retirement. Contributions are generally made with pre-tax dollars. Examples include:

• 403(b) plans 

• Individual Retirement Account (IRA) 

• 457(b) deferred compensation plans

• Salary reduction or CODA section 401(k) plans

• Simplified Employee Pension (SEP) plans

• Keogh (self-employed) plans

• Optional Retirement Programs (ORP)

• 403(a)/401(a) profit-sharing plans

• 403(a)/401(a) money-purchase plans

The benefits are determined by the amount of the employee's account balance, which equals the accumulated contributions plus earnings.

Annual contributions to the plan may not exceed maximums prescribed by law. Qualifying distributions may be "rolled over" into an IRA tax-free, then taxed as ordinary income when distributed.

Nonqualified plans

These provide the advantage of tax-deferred compounding on earnings. Note that income taxes are payable upon withdrawal and federal early withdrawal restrictions and tax penalties apply. However, all contributions are made with after-tax dollars. Examples include:

• Nonqualified deferred annuities

• Corporate-owned life insurance policies

• Private "top hat" deferred compensation plans

Cost of Living

Some cost-of-living expenses may decrease during retirement, depending on your lifestyle choices. Mortgage payments, FICA tax, clothing and job-related expenses are among the most likely costs to decrease.

However, some costs-of-living expenses may remain unchanged or increase such as income taxes, property taxes, healthcare expenses, household expenses, recreational expenses.

Investment education

Investment education illuminates your path toward financial success. It also expresses and provides you with alternatives that you otherwise would have missed.

Why develop an investment plan? The reasons for investing are as diverse as those who invest. But all investors have one thing in common: a specific reason or reasons for investing. These could include financial independence, improved standard of living, provision for major expenditures, organization and discipline in finances, and accumulation and preservation of wealth.

When you invest, you postpone immediate gratification in the hope of obtaining some greater future reward. Whatever the reason, by investing, you are doing something now to reach a specified future goal.

There was a time when most Americans thought of investing as something reserved for the well to do, and that only a few lucky, wealthy people could afford to take the apparent risks involved. But times have changed. Today, it seems that we are a nation of investors. In fact, investing has become a virtual economic necessity for millions of Americans who cannot hope to achieve financial freedom based on Social Security and company-sponsored pension plans alone.

And as the number of investors mushrooms, so do the types of investments. In addition to stocks and bonds, investors now have a dizzying array of other possibilities to consider, including CDs, tax-deferred annuities, mutual funds, collateralized mortgage obligations, zero coupon bonds, commodities, collectibles. The list goes on and on.

There is also an abundance of ideas about which investments are best for which investors. Choice is good, but too many choices can be confusing. So what can non-professional investors do? One of the most critical initial decisions is whether to do all the planning yourself or consult a professional financial advisor.

If you decide to create your own investment plan, remember that the process will require a commitment of time as well as a willingness and ability to carry out the process. If you choose to consult a financial advisor, you'll want to look for someone who can be objective, is interested in helping you; shares your sense of values; is professional, stable and accessible; and can be trusted with your financial interests over the long term. 

Professional financial advisors are compensated for their services in one of three ways:

• Fee only

• Commission only

• Fee plus commission

Some professionals providing planning assistance are accountants, tax attorneys, insurance specialists, annuity company representatives, tax-shelter advisors, stockbrokers, investment advisors, bankers and financial planners. When considering a financial advisor, be sure to inquire whether he or she has specialty designations such as Certified Financial Planner (CFP). This designation, among others, requires significant additional training, both initially and continually, and exhibits the financial advisor's interest in keeping knowledge and skills updated.