Fritz and Company - Building a Nest Egg


The Nine Basic Rules for Building a Nest Egg

Building a nest egg to give you a secure financial future doesn't require a degree in economics, just a degree of common sense. The rules are easy and time-tested, and the smart players always abide by them.

  1. It's never too late or too early to start. Think back five or ten years and say to yourself, "Where would I be now if I had started saving a little each month back then?"
  2. Get out of debt. Payments on certain things such as a home or a car may be necessary, but pay off the charge cards. That alone is a sound investment with a return equal to the interest credit card companies charge you.
  3. Establish a budget, a realistic one that accounts for everything, including the big financial drains like taxes, vacations, and holiday spending. While you're drawing up a budget, streamline your finances. Don't buy things that give you nothing in return. Don't splurge; think about what you're buying. Be sure you are properly insured with the right types and amounts of insurance.
  4. Set aside an emergency fund, enough to live on for three to six months. Consider building your emergency fund in a low-risk investment that's easily converted to cash, such as a no-load mutual fund or a savings account.
  5. Now it's time to invest, but follow rule number five: Invest safely and simply. Be cautious with your investments until you have built a portfolio and have some knowledge of how the financial world operates. Your first investments might be CDs, mutual funds, or savings bonds.
  6. Stick with your plan. Investing a fixed amount every month without fail is far wiser than waiting for a windfall from interest rate changes or a stock market jump. Inform yourself with periodicals, books, and television financial programs. Monitor your plan and gently steer it in a new direction if necessary.
  7. When you are ready for more sophisticated investments such as individual stocks, bonds, real estate trusts, or precious metals, diversify. Remember to diversify even within the broader markets. A mutual fund may provide a range of stocks, but you should diversify further by investing in different types of mutual funds, and in different "families."
  8. Include your spouse in planning sessions, or your spouse may live a nightmare trying to unravel your financial affairs if something happens to you. Also, input from a spouse gives fresh perspective for establishing realistic financial goals for the entire family.
  9. Have patience. You do not create financial security in a few months; you achieve it over many years. Seek professional assistance when you are in unfamiliar territory.

Tips to Get You Started...And Keep You Going

  • Be a smart spender. Always go to the store with a list so that you are not tempted by compulsive urges to splurge. Try to buy your casual clothes on sale. Leave your credit cards at home.
  • Pay off your credit cards. Consider locking up your credit cards until you are in a position to pay any charges currently. Use your monthly investment amount to pay off these cards, beginning with the accounts charging the highest interest rates.
  • Pay yourself first. Have your bank transfer money from checking to savings each month, or set up an automatic savings plan where you work. ($100 socked away regularly each month and earning only 8.5% interest grows to $18,000 in just ten years.) Make your own savings plan your most demanding creditor.
  • Plan for major purchases. Anticipate your need to replace appliances and automobiles during the next few years. Instead of buying these items with consumer credit (where the interest will not be deductible), pay cash. Open a savings account now and contribute enough to meet your goals within the required time frame.
  • Set long-term financial goals and write them down. Work within three time frames, setting one-year, three-year, and ten-year goals. Evaluate your progress each year, and make adjustments as appropriate to achieve your goals.

Contact our office for additional assistance in your financial planning.

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