Here’s a little something you probably didn’t know about me. BK (before kids) I worked for a financial company. Specifically, I was the senior editor of a national financial magazine. I was surrounded by experts who taught people everyday how to be smart with their money and prepare for the future. One job perk was that I was surrounded by great information, and I learned a lot about handling my own finances.
I’m not perfect by any means, and I still struggle to work toward retirement like everyone else. But I have a plan. A six-step plan that will help me get there. So here it is.
6 Steps To Retirement To Take Today
Create a Goal
You won’t know how much you need to save until you know how much you want to have. Seems obvious when you think about it, but most of us just kind of wing it when it comes to retirement investing. People just put away XXX amount without really thinking about how much that will add up to later. Don’t get me wrong, if XXX amount is all you can put away, it’s better than nothing. But knowing what you will need to get where you want to be will help you see things more clearly.
How old are you? That’s a rhetorical question. It doesn’t really matter how old you are, you are neither too young to get started nor too old. Youth is the number one asset held by the young in retirement planning. The sooner you get started, even $10 a week, the closer you are to those goals and the less you will have to save in the future. When I worked for the magazine, the big guys were always encouraging young employees to get started — even with tiny amount. By getting started young, not only can you take advantage of compound interest, but you also get started with a great habit.
On the flip side. If you didn’t start when you were young, don’t fret, just start. The sooner the better — like today! Go now, find $1, $10, $100 – whatever you can afford – and open a retirement savings account. Start today.
Set a Budget
It’s hard to take money out of your daily living expenses to save for your future – I know, I get it. But it is even harder to do without a clear picture of where your money is going. By taking stock of how much money you have and where it all goes, it will likely become clear that there is money going to things it should not be like too many meals out or a crazy cable bill. Those smart guys I used to work with taught me to start with my nugget: bills that had to be paid to keep my house running (i.e. mortgage, power, water, gas, groceries, phone, etc.) – things we couldn’t live without. Next calculate things you need to maintain your standard of living (i.e. cable, extra curricular activities, gym memberships, etc.). Finally, determine how much you are (and should be) spending on extras (clothing, entertainment, meals out, etc.). What’s left? And after looking at how you are spending, what can be cut?
Pay Off and Avoid Debt
We all know there is good debt, and there is bad debt. Mortgage = good debt. Credit card debt = bad. Before you can realistically start saving for the future, you need to get solid ground beneath you. After setting a budget, use at least part of your left over money to pay down bad debt. For every dollar extra that you put toward a credit card bill that is racking up interest, you are saving that interest for your future. That doesn’t mean don’t save (see ‘Start Today’), that just means put a good chunk toward the debt.
Build an Emergency Fund
Yes, I know. You’re already strapped, and I just told you to save, pay off debt and now build an emergency fund, but you never know what the future holds. When my husband was laid off we relied on our emergency fund, and it got us through without wiping out our nest egg. We dipped into the nest, but we didn’t wipe it out thanks to our emergency fund. The good news is that once your emergency fund is established, you can take this out of your budget and use that money toward debt and savings. (Learn more about how to build and emergency fund.)
Retirement planning is more than just stashing your savings under your mattress. Saving your money isn’t enough, you need to invest your money to reap the rewards of its growth in your future. But how to invest? Where to invest? These are the questions that you must seek our answers. There are three ways to find the answers: do the research yourself and become an expert, ask an expert or a combination of both. Me? I am a combo girl. I want to talk to an expert to get their opinion, but I am also going to read and research on my own (it’s my money after all).