For those who are in their 20s, there are a great many new responsibilities that you are likely faced with. In many cases, you are just starting out in the “real world.” This could mean obtaining a new job, possibly moving to a new city, and maybe even getting married and having children.
With all of the new responsibilities you are facing – or will soon have – it may be difficult to try and find any extra funds to start saving for retirement. After all – that’s a long way from now – right? Right…which is exactly the reason why you should be starting to save for it now!
Starting and Sticking With Good Investing Habits
It has often been said that bad habits are hard to break. So, one of the best ways to stay away from bad habits is to establish good habits instead. One of the best good habits that you can establish when you are young is that of saving for retirement.
One way to help you in establishing – and sticking with – your regular deposits to your retirement account is to sign up for your company’s 401(k) plan (if applicable). Not only will you be setting aside funds from your paycheck, but in many cases, employers will also match a certain percentage of the dollars that you deposit – essentially giving you free money.
If your company does not offer a retirement plan – or even if it does – you should also consider putting money aside each year into a Roth IRA. Although the money you deposit into a Roth IRA is “after tax” money, the funds that are in the account grow tax free. And, when it comes time to withdraw these dollars at retirement, they can be taken out tax free as well.
Time Is On Your Side
When you begin to invest early in life, time really is on your side. One of the biggest reasons for this is because the younger you are when you begin to save, the less you will likely need to set aside on a regular basis to end up with your ideal amount of savings.
Think about it like this. Even if you were receive absolutely no interest at all on your money, there is a huge difference between starting to save when you are age 25 versus even just starting out ten years later at age 35. For instance, if your goal is to build up a nest egg of $500,000 – and you started to save at age 25 – you will have 480 months (or 40 years) in which to make your deposit of approximately $1,042. Yet, if you wait until you are age 35 to begin saving, you lose 120 months, and will then need to make a deposit of nearly $1,400 per month just to reach the same goal!
Stay Out of Debt
Regardless of how well you are able to save, one of the biggest determents to your financial security is debt. Therefore, it is imperative to buy only what you can afford and keep the credit cards at home!
Oftentimes the lure of impulse purchases can be too much – especially when you can pay for it with credit. But don’t give in to the temptation – as it can negatively impact all of the other forward strides you have made towards your retirement savings nest egg.
George Gallagher is retirement, finance, and education blogger. He also works with graduates looking to find student loan consolidation through credit unions.