Financial professionals can assist in developing good savings habits by teaching you the fundamentals and helping to invest your funds. In addition, they may suggest life insurance or retirement investment strategies which might prove helpful to you.
Time will work in your favor if you start saving for retirement in your 20s; otherwise, waiting 10 years could mean foregoing many opportunities of money doubling over the years.
Set a Budget
Be it a recent college graduate or working professional, now is always the time to create a budget and begin saving for retirement without even thinking about it. Set up automatic deposits into your 401(k) plan or other retirement account from each paycheck so that saving is done automatically without even thinking about it!
Create your budget by tallying up all of your monthly expenses. Use a spreadsheet program on your computer or simply write everything out on lined paper – from rent and utilities, debt payments and food costs, to mortgage, car insurance and utility payments that may change month to month.
Once your budget is in place, evaluate its progress against your goals. If it falls behind, increase savings rates by one percent every quarter to expedite progress more quickly.
Contribute to Your Employer’s Retirement Plan
If your employer offers a retirement plan, consider having some money automatically deducted from each paycheck and put into the plan. This can be an excellent way to start saving, particularly if they offer matching contributions.
If you have additional sources of income, consider contributing some of those funds directly into your retirement account as well. It can help boost savings while taking advantage of compound interest.
Diversify Your Investment Portfolio
Diversifying your assets across various asset classes is an effective way to reduce risk and enhance performance, depending on your goals and risk tolerance. Your mix might include stocks and mutual funds, exchange-traded funds (ETFs), real estate, corporate bonds or other forms of assets.
Assuming you invest $100 each month at an average return of 1% annually for 40 years, your savings would total $41,000+ by then versus $50 if only investing every other month.
Target-date funds provide retirement accounts with funds designed to offer more growth in their early career years, then gradually shift toward more moderate stock allocation and increased bond allocation as you near retirement. Your financial professional can assist in selecting a portfolio tailored specifically for your situation.
Build an Emergency Fund
Establishing an emergency savings account can help keep you on the path towards reaching your retirement savings goals. Aim to have enough savings saved in this account to cover three to six months’ of expenses.
Consider saving in an account with high yield savings or money market returns and no minimum balance requirement; bonuses or tax refunds could help build your emergency fund as well.
Establishing an emergency savings account can prevent you from withdrawing from retirement investments to cover unexpected expenses, which could reduce returns on those investments and cost taxes or penalties in the future. An emergency savings account also can help avoid placing credit card applications on hold or taking out personal loans as a solution for unexpected costs; for professional advice if necessary, choose a fiduciary who will do what’s best for you.
Make One Different Choice Per Week
Increased contributions to retirement over time are a straightforward and efficient strategy to grow your nest egg. Utilizing an employer-matched 401(k) is a proven solution.
Saved money should also be invested in broad market index funds to diversify your investments and benefit from compound interest’s long-term power.
If you find yourself with extra funds due to tax refunds or inheritance, investing them instead of spending it lavishly is one easy way to jump-start your savings plan.