Tax Day can make April a stressful month for many as they rush to file before the deadline (that’s today, for those procrastinators). But that also makes this month a perfect time to pause and reflect on your finances. To encourage more people to do that, April is designated as Financial Literacy Month.

headshot of Weatherhead School of Management professor Bill Mahnic

We reached out to William Mahnic, associate professor of banking and finance, to find out five things to know about personal finance—from managing your retirement savings to making wise investment choices.

Mahnic has plenty of experience on the topic, having been on the Case Western Reserve faculty since 1994 after 22 years working in investment banking at National City Bank. Here on campus, he is the faculty adviser to Case Western Reserve University Capital, an undergraduate stock investment club.

In recognition of Tax Day, find out the five things you should know about personal finance.

1. Save 15 percent of your pre-tax income to fund your retirement portfolio.

The majority of people seek a retirement income that will replace 80 to 100 percent of their pre-retirement gross income. The research on the required annual savings rate to reach this goal reaches agreement in the range of 12 to 18 percent of pre-tax annual income.

My analysis generated an annual savings rate of 15 percent. This is a lot of money and people may be intimidated by this goal. I recommend that you start saving as much as you can today and increase your savings rate every year until you hit the 15 percent rate.

2. “Max the Match” in your employer-sponsored retirement plan.

The majority of large companies offer their employees a 401k plan. These plans allow employees to save for retirement on a “tax-free” basis. To encourage employees to participate in these plans, these employers will often match all or a percentage of the amount contributed by their employees.

The most popular plan will match 50 to 100 percent of the first 6 percent of an employee’s annual income. Assume your company offered a 100 percent match and you earned $50,000 this year. To “max the match,” you would contribute $3,000 (i.e. 6 percent of $50,000) and your employer would contribute $1,500 to the 401k plan.

Surprisingly, a recent national survey found that 1 of 4 employees who are enrolled in their employers’ 401k plan fail to get all of the match offered under their 401k plan. They are not taking advantage of the “free money” offered under these plans.

3. Keep your focus on the long term.

Your retirement fund is money that you will not spend until you retire. For most of us, retirement is a long way off. Yet, many people spend a lot of time fretting over the daily change in the value of their retirement funds.

Don’t allow yourself to get too excited or concerned over daily changes in the value of your portfolio. Your focus should be on the trend in the change of value of your retirement portfolio over the long term.

4. Keep your investment strategy simple.

A simple, effective, low-cost way to invest money in your retirement account is to invest in a Target Date Retirement Fund. This a mutual fund that will invest your money based on how close you are to retirement. The farther you are to the target retirement year, the more aggressive [and vice versa].

The annual fees are quite low and the majority of Mutual Fund companies offer this product.

A viable alternative to a Target Date Retirement Fund would be a Balanced Mutual Fund. This type of fund would invest a fixed percentage of your money in bonds/cash and stock (e.g. 50 percent in bonds and 50 percent in equities). Every year, the fund manager rebalances the fund if the percentage vary from the stated mix.

5. Educate yourself about personal finance.

The lesson we should have all learned from the Bernie Madoff case is that “we have to watch the people who watch our money.”

Take advantage of personal finance classes, videos or publications offered through your employer’s retirement savings program. The information is free and is of a high quality.

Subscribe to a monthly personal finance magazine. I personally receive Money Magazine and Kiplinger Personal Finance. They are monthly publications that give advice on everything from saving for college to how to pay down debt.

Spend time at the local bookstore in the personal finance section. Buy a book that will give you a better understanding of the basics of personal finance.


Editor’s note: Learn more about Case Western Reserve’s retirement plans at case.edu/finadmin/humres/benefits/retirement.home.html. Retirement counseling sessions also are available with TIAA and Vanguard. View the schedule of upcoming sessions. Or you can meet one on one with individuals from TIAA (call 800.732.8353 to schedule) or Vanguard (call 800.662.0106, ext. 14500, or register online at meetvanguard.com).