“If you would be wealthy, think of saving as well as getting.”
– Ben Franklin
Most 20-somethings are considering the future, but aren’t necessarily planning for retirement. Young people are preoccupied with the now, because there’s a lot of pressing matters. Figuring out where to live and what can be afforded takes precedence over retirement planning. But, if a 20-something plans on being wealthy, it’s important to follow Ben Franklin’s rule of thumb. “…think of saving as well as getting.”
Below are some easy strategies for retirement planning and saving, but first you’re probably wondering what the benefits of early retirement planning are.
- ~Investing young means you’ll be rich in retirement, because of compound interest. By saving young, you can double the amount you save.
- ~You don’t need to save a lot when you’re young. Instead, you can invest only a small amount and reap huge rewards. Bankrate asks you to consider this scenario:
“If you begin saving for retirement at 25, putting away $2,000 a year for just 40 years, you’ll have around $560,000, assuming earnings grow at 8 percent annually. Now, let’s say you wait until you’re 35 to start saving. You put away the same $2,000 a year, but for three decades instead, and earnings grow at 8 percent a year. When you’re 65 you’ll wind up with around $245,000 — less than half the money.”
Save a Little Every Week
A routine is going to help break the habit of living paycheck-to-paycheck. It’s called “paying yourself first” and it’s the strategy that makes young people richer.
Your savings can also work as an emergency fund. In your 20s, you haven’t spent a lot of time on the work force, but that doesn’t mean an accident won’t occur. Attorney Tim Pope warns that 70% of all Social Security disability applications are denied. If you have a nest egg saved, you’ll have the money to get by while you work with an attorney to appeal the disability claim.
Explore Workplace Retirement Benefits
Even if you’re not in your career yet, you can still benefit from employer offered retirement plans. 401(k) plans can be moved from one job to another, so if you start one at a diner, before moving into your more permanent sous chef career, you can roll over your savings into your new employer’s 401(k).
Most employers match their employee’s contributions up to 3%, so a 401(k) also means free money.
Avoid Debt and Build Your Credit Rating
Avoiding debt is going to ensure you have good credit later in life. Good credit helps you save, because it guarantees lower interest rates on things like mortgages, car loans and credit cards. In order to ensure good credit for the future, you’re going to want to avoid debt right now.
As soon as you turn 18, the credit card companies get busy sending you pre-approval offers. Because you’ve yet to establish credit, the interest rates are usually higher than they should be. The result is a higher cost of living earlier in life. Not having these debts will ensure you’re able to sock away more money for your retirement.
The Bottom Line
Young people are encouraged to begin saving as early as possible. It’s important to recognize the benefits of early saving. Because of compound interest, a young person can double or even triple their retirement fund. Get ahead of the game by planning for your retirement now.