Retirement

Your Money: Getting Started with Savings

It’s time to organize your money.


When you’re in your 20s, retirement seems so abstract, it could be thousands of years away.

Maybe you feel the same way right now. Why save so many decades into the future, when every last dollar counts here and now? Saving for anything can, in fact, feel impossible.

But what if you’ve just laid the groundwork to make it easier to save a little? That’s what we’re going to work on today.

Getting an early start on retirement is smart for the same reasons you want to put it off: Time is on your side. If you set aside what you can now, the magic of compounding numbers — when you start earning interest on interest — can add up to more weight over time.

In other words, saving early may result in less savings over the long haul, which will take some of the pressure off as you juggle other demands that inevitably arise. Maybe those demands will be more All the money They take over their work, or maybe you need some time off to care for an aging parent.

And (most) no one wants to work forever—the sooner you start saving, the sooner you can stop working and spend more time doing what’s meaningful to you. .

The easiest way to save — for everything, really — is to automate. When you have money automatically and regularly delivered to its destination, you don’t have to remember to do anything. This also goes for purely gratifying financial goals, like saving up for a big trip.

It’s empowering, and will move you closer to the things that make you happier and more financially secure. It will take some time and patience – but your future self will thank you.

Before you start, you need to figure out how much work you have to do.

  • Dealing with debt. Before you start saving, make sure you have a plan to pay off any high-cost debt, such as credit card debt, where the interest rate (about 22 percent) is much higher than the amount you’ll save. Earn while investing your savings in the market. time (7 to 8 percent).

  • Get organized. Get a copy of your pay stub or check your direct deposit to get a sense of your take home pay. (Freelancers should calculate their average monthly income.) Then write down all your expenses—rent, all insurance not already deducted from your paycheck, utilities, groceries, transportation costs, car payments. , mobile phones, student loans and any other debt.

    How much is left? Some? Congratulations! You have some room to spare. Turn it off? Is there anything you could cut back on to make room for some savings?

  • Create a buffer. Building a financial cushion — in the form of an emergency savings fund — can help you avoid turning to credit cards if you suddenly lose your job or find yourself in a financial hole, such as a $1,000 car. Covering repairs.

    Financial planners recommend keeping three to six months of your expenses in emergency savings (placed in a high-yield online savings account, which offers the best rates). That seems like a lofty goal when you’re living on a starting salary that barely covers your bills. So Start small, even if it’s saving $50 a month — $83 a month will get you up to $1,000 a year — and add more if and when you can afford it. Set up an automatic plan that moves that money from your checking account to your savings account. Then, don’t touch this money.

Many people with student loan debt often wonder if they should focus on paying off those loans before saving for retirement. Short answer: probably not. (If you’re really struggling to pay off your federal student loans, check out the income-based repayment plans I mentioned yesterday.)

But if you can, there’s a strong case for investing and paying off your debt at the same time.

The example below practically screams why. Can you see how much you’re likely to give up just by focusing on paying off debts for 10 years?

If you have access to one. 401(k) or a similar workplace retirement savings plan, you’re in luck – only 69 percent Private sector workers do.

You may have already heard that some plans come with a nice little perk: free money. Employers can provide matching contributions when you save. For example, they can match every dollar you contribute up to 4 percent of your salary.

That means you’re effectively putting away 8 percent of your income, which is closer to the 10 percent experts recommend (they often recommend saving as much as 20 percent, but 10 percent is a good starting point. – Consider increasing it by a percentage point each year you increase).

What if you don’t have a workplace retirement savings plan?

Roth Individual Retirement Accounts (or Roth IRA) are often the right choice for young people (although they are subject to income and contributions. Limitations). That’s because you’re accumulating money that’s already been taxed, and you’re probably in a lower tax bracket now than you’ll be later in life, when you’re likely to earn more. Is.

Compare with Traditional IRA., which gives you a tax deduction now, but you pay income tax when the money is withdrawn. This means that your Roth IRA balance is what you will have to spend, while the traditional IRA balance will be reduced by the amount of taxes you will owe later.

How should you invest your money? Short answer: A diversified mix of index funds. These are low-cost mutual funds that track broad swaths of the stock and bond markets (exchange-traded funds, which are like mutual funds but trade on an exchange, are a similar option). For more details on your investment options, see this guide.

Besides retirement, you certainly have other savings goals. Maybe you’re saving for a car, a wedding or a special trip. Because these goals have a shorter time horizon than retirement, or something you’ll need to access within three years or less, you’ll want to risk less of that amount. The easiest strategy is to automatically transfer money to a high-yield online savings account. With short-term goals, the money you save is more important than your return.

But if you need the money in three to 10 years – give it a call. Medium term objective – You may have more options, depending on how flexible you can be with your time.

It can be tempting to invest your savings in the stock market, for example, in hopes of higher investment returns. But it comes with more risk. As one financial planner wisely said: You have to consider what it might feel like to lose half of your stock investment in any given year, with some time, even years, to recover. may seem Do you have the time (or the stomach) for that?

You can take a hybrid approach and invest in a mutual fund that is 60 percent bonds and 40 percent stocks, for example, or bond investments that offer more stability (although in them their own risks). But tread carefully.

Even if you don’t have a lot of money to save right now, setting up the infrastructure for saving is the hardest part—and as your income grows, it’s much easier to save and invest more. will be done.


  • Do you have a high yield online savings account? Some banks, including Ally and Capital One, let you set up different savings buckets for specific goals, which you can label (emergency funds, vacations, down payments). DepositAccounts.com is a Helpful guide To help you sort through the options.

  • If you have a retirement plan at work and haven’t thoroughly explored investment options, set a reminder in your phone’s calendar to check. What index fund options do they have? Also familiarize yourself with any target date fund offering. (This is a ready-made mix of investments that you can choose and then forget, and is a combination of stock and bond mutual funds that gradually and automatically become more conservative as you get closer to the years you expect to retire.) Coming up. If you were born in the year 2000, 2065 or 2070 Funds may be appropriate for your situation.)

  • If you don’t have access to a workplace retirement plan, familiarize yourself with robo-advisors, or Companies who rely heavily on technology to manage your investments but often also have human financial advisors. These are good options for people who have simple needs, or who have a savings and investment plan that they want to set up and run on autopilot. Morningstar rated it as Picks the top Here



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