While a lot of people are dreaming of the day when they can finally retire, not everyone prepares for the financial challenges that come when transitioning from earning money to having to live off of savings. Eventually, this lack of preparation turns around and bites them, resulting in having to retire late in life just to make enough money. Take control of your finances and make sure you’re ready to leave it all behind when you want to. Here’s four tips on how to start saving:
Pay Yourself First Every Paycheck
Figure out a fixed percentage that you can slash off your biweekly paycheck and redirect to your savings account without affecting your lifestyle. Preferably, at least 10 percent should go into your fund every time you receive your paycheck. Start off with a smaller amount if you don’t have enough leftover for expenses. The key point here is to save money on a regular basis, regardless of how small the amount of money saved is.
Repay your debt asap. You don’t want to be incurring interest or late payment fees on your debt. Before you can start saving money, make sure your line of credit is a-okay. Make a debt repayment plan that prioritizes the largest debt amount with the highest interest rate first and then moves on to the smaller accounts. Whether it’s student loans or credit card bill, a debt repayment plan makes it easier to follow through and successfully write off your outstanding balances.
Max Out Your IRAs
Your retirement accounts including 401(k) and Roth IRA have an annual contribution cap. Make the most of it, especially if you’re 401(k) is being sponsored and matched by your employer. To simplify the process, automate contributions from your paycheck every month. Your company’s HR representative will be able to help you set up your 401(k) plan as well as answer any questions you may have regarding specifics.
Invest on Your Own
With modern technological advances, budding investors can now take matters into their own hands. Open a trading account with at least $1,000 and start loading up on shares of companies that have potential. As the old investing adage goes – avoid putting all your eggs in one basket. Diversify by buying small shares of different companies. Try to balance safety with growth. Don’t aim for some crazy number and try to get rich quick.
Saving enough money to retire isn’t rocket science. It’s all about starting early and using the power of compounding to help leverage your current cash flow. Aside from the things listed above, you should also try to boost your source of income by aiming for a raise or job promotion.