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Every payday, all that comes to mind is paying off your bills. And after you finish paying those off, it’s likely you spend a good portion of your monthly income on food, entertainment, and leisurely activities. But how often do you think about saving for retirement?
Saving for retirement as early as in your 20s allows you more time to save, which means more time for your savings to grow. Putting away as much as $250 a month equals $3,000 in savings a year. That means if you start at age 25 and save for 10 years, you’d end up with $30,000 by the time you’re 35 (crazy, right?).
Here are a few ways you can start saving for retirement today.
Create a budget
In order to effectively save for retirement, you need to track your spending. Knowing where your money goes will allow you to set limits and begin setting aside money for retirement savings. You can create a financial calendar and list categories for where you spend money including bills, credit card payments, student loans, food, and travel. Assess your monthly budget and see how much you can begin to roll over funds to savings.
Cut down on unnecessary monthly expenses
The first step in saving is to assess your financial situation and cutting out unnecessary things. Instead of buying a cup of coffee, make yourself a cup at home, or instead of paying for your costly gym membership, find ways to work out outside. Evaluate your everyday habits, and decide what you can do without.
Use that 401(k) to your advantage
A 401(k) is an employer-sponsored retirement saving plan simply named after the section of the tax code that governs it. With a 401(k) plan, workers can save a portion of their paycheck before taxes are taken out. Employers then match that investment at varying rates. Some companies will provide 50 cents for every dollar, and other companies will provide dollar-to-dollar matching. Do your research to find out how much you need to invest to get the highest possible match. Also, note that there’s usually a waiting period before you can tap into your employer’s contributions.
Decide between paying off debt and saving for retirement
While it’s important to pay off debts, it’s important to compare the interest rate on your debt to the rate of return for potential retirement saving. You don’t have to be debt-free to start saving for tomorrow. If your annual percentage rate on your debt is low, saving for retirement should be your main focus.
Live below your means
By no means does this mean you should live in a run-down residence. However, if there’s an apartment that will save you a couple of hundreds of dollars a month that’s a little further from the city, take it. Also, give yourself some room to splurge from time to time and treat yourself (the key is to not get too carried away).
xx, The FabFitFun Team
