It is easy to get caught up in the moment and lose sight of the future. This is particularly true when it people start talking about preparing for retirement. It seems like (and let’s be honest, it probably is) a really long ways off, so it’s tough to get too invested in it. The beauty of retirement planning, however, is a thing called compound interest. In a nutshell, compound interest means that getting started on your retirement savings early will pay off in a big, big way. This means that even (and especially) as a young adult, it is important to keep an eye on that future in order to enjoy your Golden Years. Here are five financial tips you can work with today that will help you out a lot down the road.
Maintain an Emergency Fund
You may have heard about the importance of an emergency fund. Many experts recommend having one in place so that you have money on hand when you need it the most. Without such a fund, an unexpected event can cause you to dip into your long term savings. If you are one of the many Americans without significant savings set aside, the it could hit you even harder. Being forced to take out loans or sell your possessions to manage surprise debt is no-ones idea of a good time. Either of these situations would obviously set you back in the future, so keeping an emergency fund is definitely a good idea. Here’s how to get started: pick a fixed dollar amount and set it aside after every paycheck. It doesn’t need to be a huge amount of money, since this fund will only be used in an emergency. Even putting $20 per paycheck away will get you pretty close to $500 in just a year. Having an extra $500 on hand could be the difference between being able to pay the deductible on your car insurance, or losing your vehicle after an accident.
Diversify Your Portfolio
Many younger people who do get involved in investing can be tempted to shoot for a glamorous investment with the promise of large returns. While you can accept more risk when you are young, it is important to temper that risk with some more stable (albeit lower return) investments. This is what it means to have a diversified portfolio. Essentially, if you put all of your eggs in one basket you risk losing everything if that basket falls. Spreading out your investments significantly reduces the long-term impacts of one of them failing. In the world of finances and investments, nothing is truly a guarantee. Having a diversified portfolio from an early age is, therefore, the key to building a healthy retirement account.
Work with a Financial Planner
Many young adults fail to start retirement savings not because they don’t want to, but because they’re not sure how. While it will require a small amount of payment to set it up, working with some a professional can go a long way towards getting you started on the right track. A financial planner like Fogel Capital Management, Inc., or a similar firm you recognize and trust, can help provide you with some advice that you might not have thought about on your own. They can help you see the big picture related to your financial future, as well as provide you with the tools and resources to get there. Remember that as with all investments, working with a financial planner early in life will dramatically increase the pay off in your later years.
Contribute To Your Company 401K Plan
It is important to be saving for retirement within your company plan if one is offered possible. Nowadays most full-time positions come with the possibility to contribute to a savings plan like a 401K. Many employers will even match some of your contributions, meaning that if you pay $40 a month to your retirement account they will pay another $40 on top of that. This essentially boils down to the free money. Failing to take advantage of an opportunity like that would be a big mistake in the long run. Even if your employer does not offer a 401K plan, there are other options out there.
Many retirement accounts allow you to put money from your paycheck directly into them before taxes are taken out. Typically this means that you feel the impact of your donation even less. If you choose to contribute $40 a month, you may well only see your paycheck be reduced by $20 or $30. A traditional or ROTH IRA are two common options for non-employer sponsored retirement savings accounts.
Always Live within Your Means
When the money starts flowing in, it can be seriously tempting to spend it immediately. While buying some big ticket items is ok from time to time, do not make a habit out of it. Many young adults fall into the trap of living paycheck-to-paycheck not because they can’t afford to save money, but because they enjoy spending it too much. Living within your means boils down to making a budget and sticking with it.
Budgeting doesn’t mean you have to never spend money on things you want to do, but rather that you keep track of where you are spending money so you can make sure you’re holding yourself to a reasonable amount. For example, if you go out to lunch every day you may be surprised to find that you are spending hundreds of dollars a month on fast food. If that describes you, than even simply making yourself a sandwich two or three days a week you will free up quite a lot of money each month. It will also still allow you to get your favorite fast-food at least twice a week, which is definitely reasonable.
These five tips will not guarantee financial success, but they certainly will go a long way towards helping you enjoy your retirement. Financial freedom can improve so many different areas of your life, so use these five tips to get you started in the right direction as early in life as possible. Enjoy the journey and invest wisely.
Another ways to save you money on this post about your bills. Please read it here!
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