An electrician named Max rescued us from the cold one recent Sunday morning after our power went out. I've been reading and thinking a lot lately about wealth distribution and retirement, and while I was writing out the check to pay him, I asked if he had an IRA. He said he’s never heard of IRAs -- he may have been putting me on, but I don't think so. Max is 53 and has a wife and some children, a good job as an electrician plus his own electrical business. Here’s what I’d like to tell Max:
1. Start reading Michelle Singletary in the Washington Post to build up what you know about handling your finances and your future.
2. Google Roth IRA’s; this site seems to have good information: www.rothira.com/ Open a Roth IRA at Fidelity or Vanguard. Decide how much you can afford to invest up to the allowed maximum and then put all of it into stock index funds based on Nasdaq, the S&P 500 or the total stock market. (Index funds minimize the fees you pay to manage the money). You can start with as little as $500, but you should try to put in the maximum each year. If you and your wife have enough to fund an IRA for each of you, you should do it. She doesn’t have to have any earned income herself to have an IRA as long as you do.
3. If you have a mortgage, make sure you have a stream of income that will enable you to make every payment on time.
4. Never pay any credit card interest. If you want something and don’t have the cash to buy it, wait until you do.
5. Open a savings account to create a “rainy day” fund that would cover 3 to 6 months expenses.
6. Never be without health insurance.