The following is a guest post from freelance writer, Ainsley Lawrence.
Money management is hard, especially if you’re a young adult coming into independence for the first time in your life. Even if you had jobs through high school and college, experiencing newfound independence and no responsibility from school can be an exciting yet daunting experience.
You’re young, so why not just buy the things you want now and worry about your post-career future later? This may be the line of thinking you have, but it’s as unwise as it is freeing. After all, you don’t want to end up retired with an inadequate amount of money and having to get a side job in your golden years.
This doesn’t mean you can’t have fun, but you need to be smart and understand what saving for retirement really means. It’s more than just squirrelling away a small amount into your bank account every paycheck. It’s important to begin preparing for retirement now, and there is so much more to it than just “saving money.”
Don’t think of the process as merely “saving for retirement.” In order to maximize the amount of money you’ll have for your retirement, you’ll want to either invest money or put it into accounts that will appreciate over the years. The best investment for you will depend on your individual circumstances.
Where you spend and invest your money now is going to make a world of difference for you in the future, and compound interest will only increase it. Using wise investments and what’s available to you will prevent you from ending up old and miserable — unable to enjoy your elderly years.
Personal, On-the-Side Investing
Not to point fingers, but statistically, millennials tend to struggle with the concept of logical investing. They put their money into things that they are emotionally drawn to but that don’t necessarily have a return. While this may seem like a normal “young person” thing to do, studies show that financial illiteracy is higher among millennials than generations before them.
Investing is a relative term for where you put your energy, but it’s worth noting that actually investing in things financially isn’t far fetched for anyone. For instance, some people choose to do things like invest in real estate as a way of becoming financially independent. Meanwhile, others invest in small amounts of stock. They become shareholders for a company that they think will make a good return on investment (though that doesn’t always happen — do your homework!).
If you want to get into investing, start out small. For example, use M1 Finance as a way to start your investing early and cautiously, and then later move into bigger endeavors as you become more experienced. Additionally, talking with other investors about how to make smart investments may be worth your time as well. Over time, these investments will help you be stable after retiring from your career.
Taking Advantage of Options Around You
There are only benefits to paying debt off before retirement. Mortgages, credit cards, auto loans, student loans, medical debts — these things add up and could not only postpone your retirement but hurt your livelihood once you do retire. These are things that constantly impact you, and though you’re probably used to paying them off little by little, there’s more value in cutting back your social spending now so you can take care of them.
Creating a budget in order to pay off your debt is a very smart idea. The sooner you do so, the sooner you can go back to eating out and partying regularly anyway. And it’ll stop that compound interest from working against you with your debt.
Additionally, if your work offers you a 401K, put as much into it as possible. Some companies have a minimum of 4%, but you should try to put in a higher amount. Make sure you can pay your bills of course, but doing these smart things is going to help you a lot in the long run.
Meeting With a Professional
Still think you might have trouble saving? Are you bad at money management in general and worried about how that might affect your personal finances post-career? You’re not alone in that.
If you’re struggling to make or meet your own financial goals, it may be wise to look into consulting with a financial advisor. Not only are they finance experts, but they often they have some sort of tax background that could help you prepare better in ways that will stop the IRS from breathing down your back. When you talk to a consultant about your financial goals, make sure to include those that relate to retirement.
Knowing the different kinds of retirement funds that you might be able to invest in is important as well. If there’s a different plan your company does not offer you and you’re able to work something out independently, that’s highly recommended. The benefits coordinator at your place of employment will have information for you about that, or you can look up tips for building your own retirement plan. For the record, however, here are a few different types of retirement plans:
- 401(k) or 403(b) (through your employer)
- Solo 401(k)
- SEP IRA
- Simple IRA
- Roth IRA
- Health savings account
Note that some retirement plans can later be leveraged in future investments. For example, you can trade on the foreign exchange market through your traditional IRA or Roth IRA. This is an excellent way of continuing to grow your finances later in life.
Retirement planning isn’t easy, but it is important. Making wise investments, putting money into a retirement plan and paying off your debt early — these things aren’t so hard to do, but they need to become habitual. If you’re having trouble with that, a financial advisor may be a good place to get some help. Ultimately, why do tomorrow what you could do today?
Do you have any investment advice for retirement you’d like to share with other readers? Please let us know in the comments below!