Recently, the Federal Reserve Board has identified five financial behaviors that are key to successfully saving for retirement. Those who do these behaviors are more likely to be financially stable, making them more able to save for retirement. Those who don’t are likely to be financially unhealthy, and less likely to save for retirement.
The five key behaviors the Federal Reserve Board identified are:
- Did they save any money last year?
- Did they miss any payments in the past year?
- Did they have a balance on a credit card after the last payment was due?
- Including all of their assets, was more than 10 percent of the value in liquid assets?
- If their total debt service less than 40 percent of their income?
In their report, they took data from more than 38,000 families who participated in their survey of consumer finances over 20 years until 2013. They used many demographic characteristics in the report, but found that age had the strongest correlation to success. Those age 62 and older graded the best.
They decided this could be due to a couple factors. Those being learning better financial habits over time, getting beyond financial challenges of early and middle adulthood and the benefit of time in building a nest egg.
Developing good financial behaviors as early as possible is essential. Both creating and breaking habits is difficult to do, especially later in life. By learning and implementing good financial habits in teenage years, it can help navigate through the more difficult and testing years of early and middle adulthood.
Three out of the five key behaviors above are linked to debt. The amount and type of debt a person accrues can point to negative financial habits. Debt such as credit cards isn’t seen as good debt where mortgages and students loans are seen as a more forgivable type of debt.
Most people have some type of credit card, but how they use it is key. The Federal Reserve Board asked if they missed any payments and if there was still a balance. People who are missing payments or have a continuous balance, are less likely to have the funds to save for retirement.
Another question they asked is if they saved any money last year. Putting money away each paycheck into a savings account is a great habit. Even more so putting away money in a savings account and retirement account. Whether it’s through their employer, or an individual account, workers should be contributing to their retirement account with each paycheck.
Create good financial habits by opening a retirement savings account with Mountain West IRA. Their range of investment options and types of plans makes saving for retirement a breeze. Visit their website to learn more about self-direction and their retirement accounts.