A Home Inspector’s Weblog by Frank Schulte-Ladbeck

exploring homes and the lives in them around Houston

Which Brokerage Accounts to Set Up in Your Budget Plan

First time homeowners can be overwhelmed with the expenses, but by setting some money aside with each paycheck, you will find yourself in a better financial position. You do not need thousands of dollars to invest. In fact, the internet has made investing quite accessible for the average American. You will not strike it rich in the first year of investing; you are looking for a slow and steady wins the race attitude, so let us look at what you should make plans for.

From the news, I am given the impression that social security will be questionable in our futures. Retirement planning is becoming more important simply due to the fact that we are living longer. When I was a manager, I had a hard time convincing most people to consider making preparations for their retirement, since most of us see it as so far off. The fact of the matter is that the earlier that you start with any investment, the less money you have to put into it to obtain the return that you will eventually need. Company retirement accounts, like the 401k or 403b accounts, can be rolled over to an individual retirement account at your bank when you leave a firm, or they could be rolled over into a new 401k or 403b with the new firm. I like the option of 401k or 403b, since most employers offer to add money to your contribution. The money is taken from your paycheck, before you have the chance to use it somewhere else. Since you cannot easily take the money out of such accounts, you have the tendency to leave it alone, which allows it to build. The amount is up to you, but if you are worried about bills (and particularly if you are in your twenties- remember the money will build faster than you think with interest), at least contribute $25 per paycheck. Just have one less meal out with your spouse each month to cover it. If your firm does not offer a 401k or 403b, you can find IRAs offered at banks and brokerage firms, like Charles Schwab. Set up an automatic deduction every month. If you are sitting down planning out what bills to pay, you might very well decide not to make an investment in your account. Trying to take money from your checking before you pay the bills will put you into the habit of not considering those funds for bills.

Many first time homeowners have or are planning to have children. The educational system in the United States is geared towards children going to college, so most parents plan for that event. They forget that they should plan for how to pay the tuition. Universities are raising their prices faster than any other service provider, which is placing them out of reach for many. You should always look into grants, financial aid, and scholarships, but you should definitely include a 529 Investment Plan into your investments. The name comes from the tax code which deals with these investment strategies. If you start putting $25 a month when your child is born, you will find that you have more than enough for their college years. These plans allow you to buy various items connected with college, like books and lap tops, not just for paying for the classes. If your child receives a scholarship, you can take that money out of the 529 without being heavily taxed, so you can use it to help your child get started in life. The best place to set up such an account is at your bank. Make the withdrawals automatic, and you may find that they will charge less in fees. There are always fees attached to investing; you just have to look for ways to reduce them. Do not let fees deter you though, since the benefit to you will outweigh the charges that you will incur.

After having taken care of your retirement and child’s college, you need an emergency funds/home repair account. You never know what might happen on the job or in your life. You do know that at some point that you will need home repairs like a new roof that could be out of your pocket instead of the insurance firm’s coffers. Financial consultants will tell you to have anywhere from three to six months of salary in this emergency fund. I suggest thinking of this money not just for job loss, but also major expenses that you will need to deal with on your home. Obviously, you do not have a half of your year’s total salary lying around, and it will not be easy to obtain over the course of the year, so you should start building an account that you plan not to touch. Most banks have investment sections that offer their services to account holders. If you have a good deal of money already with the bank, or if you have your mortgage or other large financial connection with the bank, they may provide this service to you at a greatly reduced price. Generally buying the stocks will be cheap, but they will sell them at a higher price. Sometimes a bank or brokerage house will ask you to maintain an account with a certain amount of money to qualify for lower fees, but with the internet, you can find creative brokerage firms that will let you create an account from scratch, and they have reasonable monthly fees. For example, Sharebuilder has various programs that let you buy stock for a set fee each month. You can buy partial stocks, so you can buy into Apple or Google, which have high stock prices per share, even when you cannot afford one share per month. As long as you are buying a little bit each month, your account will grow. Over the course of two or three years, your investment could match the dollar amount that the advisors said that you should have in your emergency fund. Type in Sharebuilder into your search engine to find them, but also look at their competitors. You may find one that has a good deal for you, and then compare their offerings to your bank’s plans. Look at how much it will cost to buy stock, maintain an account, and to sell stock. These three factors will effect your cost, and they do vary from firm to firm.

These accounts should be your basic portfolio. Additional accounts would come later. I estimate that you should plan at least $100 per month for investing in these three accounts: $50 towards retirement; $25 towards the college fund; and $25 towards the emergency fund. Once you have your bills under control, you should look at increasing the amount applied to your investments. One tactic that I used was to put my bonus money into the investments. I also placed the money from pay increases into the investments. I just chose to live frugally for a while, until I had some money to fall back on. Next week, I will go more into your investment strategy, once you have these accounts in place.

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