How do I begin to plan for retirement in my 20s?
It's a great question! In fact, it’s the second most-asked question when it comes to early retirement planning. Here (unfortunately) is the first most popular question:
Why should I start planning for retirement in my 20s?
Because it’s your younger Self’s responsibility to take care of your older Self. If you don’t, there’s no guarantee anyone else will.
The earlier you start, the sooner you can get your money working for you. Your 20’s is a great time to start because this is the time in your life when you can afford to put away a large chunk of your income.
I'm in my 30’s now and I remember how inexpensive life was waaaay back then. I had a roommate, no cable and beat-up little car. Life was good… Ok, life was cheap. 🙂
Many consumers in their early 20's are often single; child-free and are joinng the adult workforce for the 1st time. This means an adult income, without the financial responsibilities older adults “enjoy”.
Here's why you want to start saving for retirement now: the earlier you begin, the better the chances that you're going to be taken care of when you’re older. Retirement may seem far off, but it will be here sooner that you think.
5 Easy Steps:
1.) Max out your company's 401k matching
If your company offers 401k matching or something similar, it's important that you max out the percentage of your salary your company is willing to match. Whether it's four, five or six percent, your company is offering you free money for retirement. Take them up on it. In fact, take them up on as much of that free money as you can.
I shudder to think how much free money I missed out on by putting off my 401k. Don't make the same mistake as me. Walk into your HR department right now if you need to. Seriously – I'll wait.
2.) Make paying down debt a priority
If you've never heard of the snowball effect of debt, it's essentially the way in which debt can “snowball” because of high interest rates. Basically it just amasses into one giant ball of debt that's seemingly impossible to pay off thanks to interest. Whether it's your car, your student loans or your credit card bill, the longer a debt sticks around the harder it is to pay back.
Speaking of debt...
3.) Avoid bad debts
I read a piece in TIME recently that explained that 20-somethings owe less than the generation before them, but unfortunately the debts we do owe are considered “bad debts” rather than asset-building debts. Credit cards, auto loans – these are considered bad debts since they don't appreciate in value.
Keep your credit debt at zero, use the bus or train to get to work if possible, and avoid as many bad debts as you can in your 20s. Again, you'll save on interest while keeping the amount of outstanding debt in your name minimal.
4.) Get frugal
This one's a given, but we all need the occasional reminder that “a dollar saved is a dollar earned”. Like I mentioned earlier, the time to live cheap is your 20s since there are fewer expenses to keep up with, and often less bodies depending on you as the bread-winner.
You could create a budget and stick to it pretty strictly, or you could make some general cutbacks and see where it gets you on a month-to-month basis. No matter how organized or unorganized you wish to go about it, making more out of less by getting frugal is one more way to save for retirement in your 20s.
5.) Set some goals
Where would you be today without goals? I know the goals I've set have pushed me throughout life, from making the basketball team to getting into college and ultimately moving across the country. Without goals, I'm not sure how I would motivate myself to strive for more.
The same is true with saving for retirement. It's pretty hard to calculate how much you'll need for a retirement that begins 40 years from now, but setting up some monthly goals – like putting away $100 a month to your 401k – can organize your savings and make your savings standards simple.
Did you know?
You might be thinking in order to retire, you have to be super frugal now. Not so!
According to a Retiree Next Door survey of 500 successful retirees they interviewed:
- 65% spend enough to live comfortably
- 35% live frugally
- Less than 1% said they spend lavishly
That means you can enjoy your life now and still save enough for your life after retirement. Learn more about the habits of successful retirees via the Retiree Next Door FREE eBook here: http://www.moneytips.com/retiree-next-door-ebook.
Thoughts? Learn anything new? Was there anything you knew already, but are now ready to do something about? Share this article with an awesome twenty-something you know.)
www.livericherchallenge.com <–my new, FREE financial resource for women, the LIVE RICHER Challenge