Saving for Retirement in Your 20s
Putting Away a Few Dollars a Day Now Will Pay Big Dividends Later
It's never too early to begin planning for the golden years. Unless you want to work into your 70s, start putting money away now...Even as little as eight dollars a day.
Wasting $8 a day is easy. A half caf double espresso here, a good gossip magazine there. If you put that $8 into a savings plan every day starting at age 25, you might be a millionaire by age 65. And you only have to part with $200 a month.
Tips on how a little planning could put you into the six figures while you’re still young enough to enjoy it:
- 401k If your company offers one, you’re foolish not to take advantage of it. They’ll match your contribution every month up to a certain dollar amount. So if you put in only $200 dollars a month, at the current rate of return, you’ll likely be a millionaire by the time you retire at 65. If you can, max out your contribution. Why not? It’s like free money from your employer.
- Roth IRA The money in this type of account grows tax free. So take advantage of it right now. Instruct your bank to transfer $200 from your paycheck into your Roth IRA every month. You won’t even know it’s there. And if it’s not there, you can’t spend it.
- Mutual Funds There are a lot of funds out there. Talk to a qualified broker or financial adviser about the best one for you at your age and financial position.
How to Save $200 a Month on a Limited Income
You’ve heard the saying, "pay yourself first." So even if you don’t think you can spare $8 a day or $200 a month, you probably can. Start with the small expenses.
- Eat at home. Restaurant food is not only loaded with fat and calories, the foods often contain too much sodium. And by the time you factor in a tip and gas to get there, you’ve wasted a lot of money in just a couple hours.
- Limit Starbucks to once a week. You don’t have to give up your lattes, just cut down on them. If you only indulge once a week, the entire coffee experience will seem like more of a treat. In the meantime, make your own caffeinated drinks at home with Starbucks beans from a warehouse club.
- Eliminate unnecessary expenses. Do you belong to a gym you never use? Cancel the membership and start walking instead of driving. You’ll save gas and get fit. Even if you can’t walk to work, buying an inexpensive treadmill or elliptical for your home is a lot less expensive than travelling to a gym everyday. Just look for deals on slightly used or discontinued models. Stay away from rent-to-own stores.
- Get rid of your car payment. You don’t need to have the newest, most stylish ride in town. Vehicles depreciate. So pay cash for a used model, or pay off the car you have and keep driving it.
Follow these tips and you’ll be living large in your golden years, and maybe before!
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