The following article is a guest post from Brittany Fisher over at Financially Well.
So you’re fresh out of college and in the midst of your first real job. Retirement is the last thing on your mind. Understandable, but, considering the ever-rising cost of living, now is the best time to start saving for the future.
Read on for a few tips to help you get started.
Contents
Focus on saving
“But I have to pay my rent!” This sounds like a rational enough excuse, and you should absolutely take care of your immediate needs first. But think about the little extras you can probably live without. For example, that Starbucks each morning could easily be replaced with homebrew for pennies on the dollar. Five dollars per day for a latte equates to more than $1,800 a year in cash that could be accumulating interests in a savings account.
Take advantage of your company’s 401(k)
Want your coffee money to grow? BankRate.com suggests stashing your cash in a company-sponsored 401(k). Your contributions are pre-tax, meaning the money you put away now isn’t counted each year when taxes come due. This could help you get a slightly larger return or pay less at the end of the year. Additionally, most companies offer 401(k) matching programs as a benefit to attract and retain highly skilled workers. Sign up as soon as you are eligible and allocate the maximum you are allowed, especially if it’s matched — it’s free money!
Look to Insurance
Having a safety net is the best way to make sure you’re covered in the event of an emergency. So just as you have car insurance to help with your vehicle in case something happens, so to should you have health insurance and life insurance. Health insurance, even policies with high deductibles, can help you avoid astronomical medical bills should the unthinkable happen. And life insurance is a great way to make sure any debts are covered and that your partner and family have funds to tend to your arrangements if you were to pass away unexpectedly. If you’re younger than 40, you’ll even be eligible for fairly inexpensive rates, so there’s no reason to avoid signing up.
Consider a Roth IRA
Many smaller employers don’t have the resources to offer a 401(k) savings plan so the next choice for young professionals is a Roth IRA. The major downside here is that contributions are not tax deductible, but you can access your money in case of an emergency without a tax penalty.
Invest aggressively
The best time to hit the market is now, while you are young. Historically, stocks yield a return of 12 percent. This fluctuates from year to year, with some years even losing money. Over the long-term, though, stocks are the way to go if you have time to let your money simmer. Stocks, which are also called equities, give you the added dignity of owning a slice of the corporate pie. If you want to play it a little safer, you can look for a balanced investment fund, which earmarks about half of your money to more stable bond products.
Take the time to educate yourself about finances
There are more than 270,000 financial advisors in the United States, and for good reason. Finances are a tricky sea to navigate, and, without the proper tools, you could capsize your retirement fund before it even sets sail. Don’t be afraid to seek the advice of someone who deals with money every day. Building wealth takes time but is well worth it in the end!
Stay out of debt
This sounds like a no-brainer. Unfortunately, more and more young adults are burying themselves in debt each year – running up credit cards, moving into homes they can’t afford, buying fancy cars, etc. It might seem unavoidable, but the less debt you incur now, the more money you’ll have in the future. Make a point to avoid any unnecessary expenses – those you are likely to put on a credit card. Pay cash, if possible, for your furniture, rent, vehicle, and the like. You will be glad to enter your 30s debt free and ahead of the curb with your very own growing nest egg to nurture.
Even though retirement is years away, by taking steps now you can ensure financial peace in the future. It doesn’t take much to get started, and by lining up a budget and considering new ways to save, you’ll lay the foundation for a better life.