Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, or again in a later start in l ife on saving for retirement, Reducedebtincreasewealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. So let's now get started. Mr. Chuck here in this week episode, I'm going to talk about 401k plans and whether you should use a financial planner or financial advisor, start out with a 401 K plan. The reason I'm going to talk about that is I was on Redick social app a week or so ago, and I noticed somebody asked the question, what is a 401k? My employer is offering it to me. And I didn't know what it was all about. I had no clue. They contributed it, you know, the employer contributed they had know nothing about it. I think everybody needs to have a basic understanding of what a 401k plan is, and you'd only have it if your employer offers it to you. Some employers offer it right when you start working for them and other employers don't offer it until after you've been there six months year, maybe two years depending on their employer. So what is a 401k plan? I've got this from encyclopedia COMM And I have a link in my show notes. A 401k plan is a tax advantage defined contribution retirement account offered by many employers to their employees, is named after a section of the US Internal Revenue Code. workers can make contributions to their 401k accounts through automatic payroll withholdings, and their employers can match some or all of the contributions. The investment earnings in a traditional 401 K plan are not tax until the employee withdrawals the money typically after retirement, okay, so that the important thing is it's a retirement plan. Offer by your employer. Most all of them have a match I think the most common is a 3% match. And what that means is you the employee will contribute up to 3% of your gross income to this plan, and then your employers makes the match matching contribution. And typically they're required to make the transfer the money to your account and this retirement plan once a month. I'm not going to go in detail so that there is a traditional plan and there's a Roth 401k plan. It's important to note if you're young just getting started, that you you just want to put money in your traditional plan. And the main reason is a want to defer the taxes until later in life and You need to build up a retirement account. And the second reason the most important is if it's a Roth 401k your employer is not allowed to make any matching contributions. So if you want to get the matching contributions, which everybody should, you need to go to a traditional 401k plan, employer matching. employers who match to employees contribution use different formulas to calculate that match. A common example might be 50 cents or $1. For every dollar, the employee can't contribute up to a certain percentage of salary. Financial Advisors off often recommend that employees try to contribute at least enough money to their 401k plans each to get the full employers match. He cannot withdraw now if you dislike any other retirement plan, you can't make her withdrawals, subject to penalty 10% penalty plus ordinary income tax. So it could be quite hard. And also don't put money in a 401k until you have your emergency fund set up or don't over contribute to a 401k. If you don't have an emergency fund already set up, maybe do 3% Have you employers do a match, and then any extra money after such a thing, you would build up an emergency fund. Once you get, say three to six months worth of money build up into a savings account for your emergency fund, then you can go back and look at increasing your contributions to your 401k. That's a important thing to note. 401k is generally made up stocks and bonds, mutual funds or insurance items, I guess would be a good way to say it. They employ he gets the Pick where you're making your what you're investing in ploy ease are responsible for choosing the Pacific investments within or 401k accounts from the selection their employers offer. These offering typically include assortments of stocks and bonds, mutual funds, as well as target date funds that hold a mixture of stocks or bonds appropriate in terms for the risks for when that person expects to retire. They may also include guaranteed investment contracts issued by insurance companies and sometimes the employers own stock. This is important to know you need to diversify what you're invested in and don't put it all into your employer's own stock, maybe 10% and your employer stock 10% and a range range of mutual funds and that's why I'm gonna be talking about In this episode about financial advisors because most financial advisors will help you with your 401k. The employer based on whoever is handling this 401 K plan gives you a list of things that you can invest and most of them are going to be with a brokerage account, such as fidelity, Charles Schwab, Merrill Lynch, you're going to be limited to what you can purchase in this plan based on what your employer account is set who has set up with and what they are, get offering you to invest in. Not everything you need to look at it, you need to diversify your investments, but when you get started out and you got very little money, it's like one or two investments and put it in and then over time You're gonna spread it out. The younger you are, the more high risk he can be. The older you are, the more conservative investments you should take. And we're going to talk about that later. And now that you have required minimum distributions once you retire at age 72, you must withdraw at least a Pacific percentage of your 401 K plan based on IRS tables, based on your life expectancy at the time you turn 70 and a half years old. So not only you cannot take it out until you're 59 and a half, you have to start making withdrawals by the time you're 72 years old. Now this is subject to change because they're always changing the rules on all these things. So if you want to read the full article, you want to go to www.investopedia.com slash terms. slash one slash 401k plans. And I have the link to this article in my my show notes. I personally never worked for employer that had a 401k plan. I worked for a government agency and government agencies have something similar but they're referred to as a deferred compensation plan a work about the same way you're deferring your income and to a later date, and by defer, I mean, deferring it from income tax. You're gonna pay income tax on these on this income sooner or later. The longer you can put it off, the better off you can be. Now, there's gonna be some people out there as well. Right now we're at a very low income tax rate. So you should be paying income taxes on the income now before the rate goes up. I disagree with that I think you should defer it. And once you get a sizable amount build up into your retirement account, whether it's a 401k, or it's a traditional IRA. Once you got, say 2 to 3 million as a bit depend on what you earn and your lifestyle and how you want to live and your golden years, once you get to a certain dollar amount that determined by you and your financial planner, then you should consider changing over to a Roth 401k plan. And the major difference is the money is still taxed with the money you put into the Roth plan is still tax, but it grows tax free. And when you draw it out, it's 100% tax free, that's a good thing to do. Once you have a sizable amount put in that traditional plan. Now a quick word from my sponsor. I said tonic I said tonic is a vitamin. It's a way you take a vitamin. It's how your body is built to take vitamins with isotonic rapidly is soared by the body highly concentrated of vitamins and minerals and maximum results. I've been taking isotonic vitamins for the last six years and I rarely get sick. I highly recommend taking isotonic vitamins. With standard tablets you have minimal assumption and diluted nutrients. I take the daily essential kit which is all the daily essential vitamins that you need for your body on a daily basis. Go to my website, reduce that increase wealth.com upper right hand corner click on the heart go to the website. Let us show you the future of vitamins Now I'm going to start talking about financial advisors. What are they? One you should have them and what do they do for you? So I've got an article here that's in my show notes from creditkarma.com. What is a financial advisor written by Ashley Corp panning, and I'm just gonna jump down here to what is a financial planner versus a advisor. Financial Planners can vary. Some tend to focus on giving their clients a more comprehensive perspective and help with their finances. Some financial planners will create a personalized financial plan to help a client was everything from budget To estate planning to figuring out what to invest in. That service may vary wildly from one financial planner to another. Some may only be able to offer limited number of products and services. Some financial planners has certified financial planners or certificates certification, which require extensive coursework through a broad, rostered program, a bachelor's degree or higher from an accredited college university and passing a CFP certificate certification exam. If you consider hiring a CFP, you can check this a certified financial planner board standard to verify their statuses. In a nutshell, financial planners do a little bit of everything. But they are limited. Some of them may be limited to what products or services they can do based on their expertise. a financial planner who's working for an insurance company most likely is only going to offer you insurance products. a financial planner working for a stock broker may offer to sell you stocks and bonds. You gotta be aware, because sometimes or fees are based on commissions on what they sell, that may not be a good fit. I don't like that because they're not looking out for your best interest. Financial Planners that are Investment Advisors. Generally their fees are based on a percent of your portfolio. A portfolio is what your investments are made up of a percentage. The more you have, the smaller the percentage. The better you do, the more your investments grow, the more you build it, the more of their fees are gonna be. But remember, they help you get there. So Investment Advisors This is from the article. This more specialized type of financial professional provides investment advice to others on the value of securities and on investing in or selling securities. Investment Advisors can be individual people or firms. Their focus is on analyzing the value of stocks, bonds, exchange traded funds and more. Investment Advisors author recommend that what and when their clients should buy, sell or hold depending on market condition and the clients goals. Some individual Investment Advisors may have a CFP or charter financial analysts or CFA designation. But keep in mind an investment advisor may be a better option to help you with investing rather than financial planning. They're only going to be focused on your investments. They're not going to help you with budget a financial advisor or planners may help you with your debt, they may help you set up a buy a budget. I don't know any of those Personally, I never sought one out for that type of advice. A lot of times a debt counselor is who you're going to be seeking out to help you reduce your debt or get your debt under control, which we covered in an earlier episode. When using an investment advisor, their fees should be based on the percentage of your portfolio. They should be a fiduciary meaning that they work in your best interest. That is very important because not all investment advisors will work to your best interest. So if you go to your local bank, To seek out an investment advisor, they're gonna sell you things that the bank wants them to sell you to go to an insurance company to seek out an investment advisor. They're gonna sell you things that the insurance company wants them to see you. And typically they're going to push the products that gets them the best and the highest commission and for disarray, investment advisor will know your history. They will know your risk tolerances, they will ask you a bunch of questions, you'll fill out a questionnaire when you're first time you made them. They'll know what your long term goals and plans are. They will set up a plan for you and help you make the investments. They do all the investments for you. You make you'll contribute money to a an account, like as Charles Schwab account And then the advisor will make the purchases of the different things that you should be buying. And they'll make sure that you have a diversified plan, and you're not stuck too much into one area. If you've got a 401k and your employer wants you to buy their stock, an investment advisor will tell you if that's a good risk or not. If how much you should buy, and you definitely get definitely don't need to put 100% of it, your 401k into your current employer, because that's what happened was Enron and when Enron one buck, went broke, everybody had all their investments there went broke along with it, so they had no retirement. So you need to diversify across the board at your risk level tolerances. The younger you are, the more aggressive, the older the ER The closer to retirement, the least aggressive and they do all that for you. They keep your plan your investments balance. If you put X amount, say you put $1,000 in five different things. Well, the value of these five different things are going to go up and down at different rates. So they will sell off the ones that go way up too much, and rebalance it so you are equally invested across the board so your you can keep your diversify and tact. So Investment Advisors are very important. Once you have enough money to get their services and different ones start out at different amounts. You mean you have to have $10,000 invested already, before they even talk Some of them might be 500,000, some might be 100,000. It all varies on the different advisors. So they'll tell you that right up front, because that'd be their first question, how much do you already have in the market? stock market? Do you have a 401k and once you get a good advisor, they will look at your 401k. See what's offered within your plan, what your employer is offering, what you can invest in, and they'll steer you, they'll advise you which ones you should invest in, and which ones you shouldn't. And they'll help you keep that portfolio in your 401k plan balanced the way they do your investments that's outside your retirement plan. So it's important to have one especially you have more than 15,000 on this using that as a go by, because your first 15,000 probably should be set up As an emergency fund, liquidate so you can get to it easily. So a high yield savings account is what I always recommend, nowadays a high yield savings because it's not that much, it's like one and a third percent make goes up and down. So it's a lot better than this year average bank savings account. That's like a quarter of 1%. Most financial advisors or financial planners only deal with the investment side of investment investing. They don't have anything to do or don't work with clients that are having debt issues, that related issues. And I think the primary reasons for that they're afraid they're not going to get their fees. That's why you need to seek out a debt counseling service and there's nonprofits and there's for profit to help you if you're trying to get out of debt. We covered that early on in an earlier episode. And I even had an episode talking about Do It Yourself debt reduction plan, which is what this podcast is all about that along with reducing your debt, I need to address issues what to do once your debts getting paid down, you have more money, you put it in your emergency fund, you get to a point where when do you have too much money and our emergency fund? It's rare but possible if you have more than six months savings in your emergency account, nine months if you're self employed, and you have enough socked away for your short term financial goals, then you need to start thinking about investment. That's why I talked about investment advisors on this episode because when you have that much money, you need help. Unless you want to do all the research on what stocks to buy, what mutual funds to buy, there's thousands and thousands of investments out there. Some are good, some are great, some are terrible. You need to know what you're doing, because you want to keep your money and not lose your money. We're going to have more on this in future episodes. That's the end of another episode. I hope you found it useful. And if you'd like to share this episode with your friends, please do so. I'm open for any suggestions for improvement, or for information that you would like to talk about in future episodes. 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