For far too many young professionals, saving up for retirement is the last thing on their minds. However, this careless mentality can lead to dire financial situations later on in life when retirement finally rolls around. Here are four valuable money tips to practice now to ensure a cushy retirement of leisure and travel later on in life.
1. Sign Up for Your Employer’s 401(k)
One of the easiest and most convenient ways to start saving for the future is taking advantage of your employer’s 401(k) benefits. You may cringe at the fact that money will be taken out of your paychecks every month, however, the sooner you start investing, the more compound interest you’ll be accruing.
One of the greatest perks about a 401(k) plan is that some companies even match 100 percent of your contributions, up to a certain percentage of your salary (e.g. 3 percent of your total salary). For example, say you make $100,000 a year and contribute 3 percent to your 401(k) that year, you will have invested a total of $3,000 to your retirement. Additionally, your company will match 100 percent of your $3,000 contribution, so now you have a grand total of $6,000 (aside from any gains) in your 401(k) retirement account. Now wasn’t that fun?
Even if your employer doesn’t match your contributions, it’s still very wise to have money taken out of your paycheck and deposited into a retirement account – and this is key – before it hits your bank account.
2. Learn How to Budget and Stick to It
If budgeting to you means hopefully not going negative in your bank account this month, then it’s time to reevaluate your tactics. First, jot down every single expense you must pay in order to live and keep a roof over your head: rent/mortgage, utilities, car payment, gasoline, food, credit card payments, etc.
Then, jot down all of the “luxuries” you spent money on last month (e.g. coffee runs, dining out, shopping sprees, monthly subscriptions, etc.), because this is where all of your money is being wasted, month after month. Now that you have your needs and wants jotted down with their respective dollar amounts, subtract those totals from your gross monthly income to see if you’re spending more than what you earn.
Chances are, even if you aren’t overspending, you can probably trim off or even eliminate some of the “wants” in your monthly budget. For instance, do you really need to eat out for lunch five times a week, or could you save roughly $50 to $60 per week (assuming each lunch is around $10) and pack a lunch instead? If you think about it, you’d be saving anywhere from $200 to $240 per month by not eating out for lunch, when that money could be allocated to paying down debt or towards your savings.
3. Pay Down Debt ASAP
If you’re like nearly every other American, you’re carrying some sort of school loan or credit card debt after graduating college. In fact, the average credit card debt for Americans was $7,697 in 2015, according to Value Penguin.
It’s easy to fall into the trap of buying everything with your credit cards and only paying the minimum payment when the bill comes, but this creates a vicious and dangerous cycle that puts far too many careless spenders in financial predicaments they can’t escape.
The best way to start paying down credit card debt is to start with the credit card that has the highest interest rate and allot as much money toward each monthly payment as you possibly can (but don’t forget to make the minimum payment on your other credit cards, too). When the highest-interest card is paid off, move on to the card that has the next highest interest and do the same.
Whatever you do, don’t skip a payment or pay your credit card bill late because your FICO credit score will suffer greatly.
“A single late payment on a credit card or other loan could ding your score by as much as 110 points if you already had a great score and 80 points for someone with an average score,” warns CNN Money.
In fact, Barry Paperno, consumer operations manager at FICO, explains that “if you’re late on a payment, it’s going to continue to appear on your credit report for about seven years.” It’s not worth it, kids.
4. Build an Emergency Fund
Life happens, and you’re going to want to be financially prepared when it does. If you have zero in your savings, now’s the time to start contributing whatever you can – even if it’s $5 per month – toward your emergency fund.
Don’t believe me? If you saved $5 a day for a month (assuming a 30-day month), you’d have $150. If you continued this $5-a-day savings habit for another month, you’d have a savings of $300.
Of course, $300 doesn’t seem like a huge deal, but what’s $5 a day to you? Say you continue saving $5 a day for a year; you will have a grand total of $1,825 by the end of the year. Now imagine if you put $10 per day into savings. You’d double your money and your confidence to save a little more each day, month, and year.
It really doesn’t take much out of your everyday life to save a little a day, but it does make a huge difference when you need that money for an expense that arises unexpectedly and it’s there waiting for you.
It may be amazing to keep up with the Joneses when you’re young and don’t have a family to afford, but what’s not so amazing is when you have nothing to fall back on when “stuff” hits the fan in life. The millions of people whose finances and lives were devastated by The Great Recession thought it could never happen to them. Make sure you have a nice, cushy safety net to catch you, if you fall.
Tell Us What You Think
What other money tips have helped you gain financial stability in your life? Do you have a budgeting trick that you’d like to share with our community? If so, head over to Twitter and enlighten us all, or leave your pearls of wisdom below in the comments section.