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How To Start Saving Early For Retirement

How To Start Saving Early For Retirement

Many young people don’t think about starting a retirement fund because retirement is decades away. However, in order not to overwhelm yourself when you’re older, it’s a sound idea to start saving now. You can start small, so that your savings will grow over time. You can also start to increase your savings as your income increases. Follow these tips to secure your financial future.

Know Your Retirement Needs

The first thing to know about retirement is that it’s expensive. But don’t worry too much, because for young adults, it’s still quite far away. However, this doesn’t mean that you avoid saving now. You need at least 70 percent of your pre-retirement income to maintain your standard of living when you stop working.

To set benchmarks of what that amount will look like, you should save one times your current salary by the time you’re age 35. By the time you’re 45 you should save three times your current salary, and by the time you’re 55, you should save five times your current salary. You should have eight times your ending salary by the time you retire.

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Start Contributing to Your Retirement Fund Now

Even if you still have debt you’re paying off, like student loans, it’s important to start saving for retirement. Young people should be saving for retirement simultaneously with paying down debt. It may seem impossible, but your secure financial future is just as important as becoming debt free.

See if your company has a 401(k) plan. Most employers pay 50 cents for every dollar you put toward your retirement savings, up to the first six percent of your salary. It’s a 50 percent return. Money in 401(k) or IRA benefits from a lifetime of tax-free compounding.

If your company doesn’t have a retirement fund, use a Roth IRA, instead. You fund it with the money that’s already been taxed as part of your normal paycheck, but when you withdraw it later, it’s tax-free.

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Find Ways to Save

Find small ways to save money and budget for your current income. Little lifestyle changes, like making coffee at home instead of getting a cup of coffee at a coffee shop can save you almost $100 a month. When you bring your own lunch to work, you save almost $10 a day. Look to create a budget that will regulate your spending in different categories, including food, entertainment, gas, utilities, rent, and so on.

If you’re paying off student loans, opt for income-based repayment of your federal student loans instead of a standard plan. It can help — if you make $50,000 and owe $30,00, for example, you’d reduce payments by $68 a month.

Don’t Overwhelm Yourself

For savings and retirement fund contributions, start small. Contribute a modest amount and then increase yearly, and as your income increases. Start by contributing three percent of your salary, then bump it up by a percentage point a year until you’re up to the recommended savings rate of 10 percent.

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Invest in Stocks, Bonds, and Annuities

Investments are a smart way to make money on your money. Stocks typically grow at an annual clip of 10.4 percent, while bonds historically return 5.4 percent a year. Be aggressive and put 90 percent of your investments in stocks, interchangeably referred to as equities.

Hedge against risk of loss by diversifying your investments to own as many different types of stocks as possible. Life-cycle mutual funds make it easy for novice savers to buy a diversified array of stocks that are tailored to their age and retirement goals.

There are other retirement specific investments to look into as well. Annuities are financial products sold by financial institutions designed to accept and grow funds from an individual. Upon annuization, the annuity pays out a stream of payments to the individual at a later point in time (usually retirement). They’re used to secure a steady cash flow for an individual during retirement. To calculate possible annuity amounts, use the annuity calculator.

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Hybrid annuities are becoming increasingly popular. In essence, hybrid annuities are insurance contracts where buyers can use fixed and variable annuity components to allocate funds. They’re a fixed index annuity with one of the newer, more innovative income riders. They resolve the concerns about asset growth and retirement income, like long-term care funding or wealth transfer to heirs, while still providing the owner with a secure income.

 

Retiring doesn’t have to be scary or overwhelming if you start saving early. Don’t end your career depending on social security to support you. Continue your standard of living well into your older years, and enjoy your retirement.

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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