Basic principles behind financial security

The "Salary and Benefits" survey in the October 1999 issue of RDH had a recurring theme. Although we have rewarding careers and earn an excellent income, the haphazard sprinkling of benefits awarded to dental hygienists causes the most worry. Although some hygienists are fortunate to have at least some benefits, the rest usually have to deal with finding (and paying for) adequate health insurance, setting up and funding retirement plans, and surviving unpaid sick days and vacations.

You worked hard to become a dental hygienist. You deserve to feel as successful and secure

financially as you do professionally.

Kathleen Adams, RDH, BS

The "Salary and Benefits" survey in the October 1999 issue of RDH had a recurring theme. Although we have rewarding careers and earn an excellent income, the haphazard sprinkling of benefits awarded to dental hygienists causes the most worry. Although some hygienists are fortunate to have at least some benefits, the rest usually have to deal with finding (and paying for) adequate health insurance, setting up and funding retirement plans, and surviving unpaid sick days and vacations.

All of these issues have one thing in common: money. Managing money, and understanding how money works, is extremely important in our profession. But you are not handed an instruction booklet with your first paycheck, and managing money is not usually a skill they teach you in the classroom or on the job. You will probably have to learn how to do it by yourself. Today`s article addresses some basic principles of how money works.

Financial success is not about finding the next "super" stock or following some "get-rich-quick" scheme. Rather, it`s about setting goals, adopting a realistic plan to work toward meeting those goals, and developing the discipline to stick with it.

It doesn`t matter how young or old you are, how much money you earn, or what your goals may be — a new house, new car, college funding, or retirement income — financial planning is a tool available to anyone who would like to make the most of his/her hard-earned money. Here are a few time-tested lessons that you can learn and apply to your own finances:

* Pay yourself first. For most people, the best way to accumulate money for a future goal is through regular saving and investing. This means including investing in your monthly expense plan, along with your mortgage or rent payments and the utility bills. The easiest way to do this is with an automatic monthly investment plan that deducts a predetermined amount from your checking account and invests it for you. This is an effective approach to saving because it not only provides built-in discipline, but the money is deducted before you even miss it. If you already make automatic monthly investments, you may want to consider how long it has been since you`ve given yourself a raise.

* Let compounding work for you. Time is your ally in the investment game. That`s because the sooner you start saving and investing, the more time your money has to grow, and the more it can accumulate and compound. Thanks to the power of compounding, your savings will multiply faster when you make regular, consistent investments and reinvest your earnings. The secret behind compounding is simple: You earn money both on your initial investment and on the earnings accumulated from prior periods.

* Invest for the long term. Experi-enced investors know the key to successful investing is time, not timing. Quick movements in and out of the markets can add to your investment costs and tax bill. And chances are you`ll move in and out of certain investments at the wrong times, buying at market peaks and selling at market lows.

* Maintain a liquid reserve. Without a special surplus set aside that is easily accessible, an unexpected financial need could derail your long-term plans. An emergency fund - an amount included in your fixed living expenses - will help you prepare for unforeseen financial needs and cushion you from a sudden economic emergency.

* Sure and steady wins the race. It matters less where you start. It matters more that you start. Starting is what counts. Saving and investing a little over a long period makes achieving a large goal more manageable. A new investment program can be started for as little as $50, making additional investments of as little as $25 a month.

You can always increase how much you invest as your income grows.

* Don`t spend tomorrow`s dollars today. The typical American adult has nine credit cards and average balances totaling $4,000, according to the American Banker`s Association. Principal and interest payments on consumer debt accounts for 11 cents of every dollar Americans earn after taxes.

If you carry a balance each month, you`re paying budget-breaking interest charges. And the interest charges you pay can dramatically increase the cost of your credit card purchases. If possible, pay off all your credit card debt as soon as possible and avoid using credit cards as a means to borrow money in the future.

* Be tax smart with your investments. Municipal bonds can offer income that is basically tax-free at the federal level. And many retirement funding vehicles, such as traditional IRAs, 401(k)s, and SEPS, offer tax-deferred growth. If you can invest in a retirement plan on a pretax basis, every dollar invested reduces your taxable income by the same amount, giving you an immediate tax break.

The secret to achieving financial security is to apply basic financial-planning principles. You don`t need to be a millionaire or earn a six-figure salary - you just need to make the most of what you`ve got. You deserve to feel as successful and secure financially as you do professionally.

FYI: How long will it take to double your money? The Rule of 72 can be used to calculate how long it will take. Simply divide 72 by the rate of return. For example, common stocks have historically returned an average of 10.5 percent per year since 1925, according to data compiled by Ibbotson Associates, Inc.

At that rate, an investment would double in just under seven years. At an average annual return of 7 percent, a 35-year-old investor could expect his or her money to double three times by age 65. And if the investor could increase his or her average annual return to 12 percent, then that same money could double five times by age 65.

Kathleen Adams, RDH, BS, is a financial adviser with Waddell and Reed (www.waddell.com). She is currently trying to initiate money management workshops for hygiene students and specializes in working with dental professionals. She can be reached at (800) 210-1357, ext 7328.

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