KNOXVILLE (WATE) – If you’re just starting your first job; retirement isn’t even a blip on your radar screen, but it will never be easier to start saving than right now in your 20s.
By putting money away you maximize the near magical phenomenon of compound interest. Start saving small amounts now, rather than starting to save lots of money later in life. If you do that, you have the potential to turn 100 dollar deposits now into million dollar withdrawals later.
So, how do you put money aside?
1. If you employer offers a 401k, invest in it
Your employer may offer you a 401k, which is the easiest way to save. The money comes right out of your paycheck, so you’ll never miss it.
Plus, many employers will match your contribution up to a certain percentage. That’s free money you don’t want to pass up.
2. Invest in a Roth IRA
If a 401(k) isn’t available through your job, start a Roth IRA instead.
3. Set goals
Once you have your savings set up, start writing down your goals. Map out your life and ask yourself what you want to achieve. You’re free to change your plan at any time, but have goals.
Having an idea of where you want to go in life will make it easier for you to make smart decisions with your money. Then, you won’t end up at 40, feeling sorry for yourself that you can’t afford to buy anything.
So, with that in mind, write down how you envision yourself living in one year, five years, 10 years or 20 years. Your goals can be anything you want, but here are some topics to contemplate:
- Your Career Path
4. Avoid debt
The next wise money move is to avoid debt. Being able to pay cash for everything is life-changing.
Those of you who have been up to your eyeballs in debt and had the embarrassing experience of your card being declined know what I’m talking about. That doesn’t mean you won’t ever take out a loan. The key is to ensure your budget supports your goals.
5. Set aside emergency savings
Your budget also needs to include a line-item for emergency savings. This money needs to be separate from your retirement fund, so don’t think your 401k or IRA counts as a piggy bank.
The emergency fund is your, “I lost my job” money and your insurance against unexpected expenses. Depending on whom you talk to, you should have enough money in your emergency fund to cover three to six months’ worth of expenses.
Remember, this is money to cover your expenses, not necessarily to replace your income.