I’m not sure what it was about the first few years of my
adulthood that made me realize I had to start planning for retirement, but I’m
so glad I did. Money comes and
goes but once time passes, it’s gone forever. When planning for retirement, time is an invabluable
tool.
On my list of priorities, retirement planning comes right
after my basic needs and emergency savings. It comes before cable, internet, social spending, etc. Yes, you read that correctly, it’s more important than cable.
I find a lot of young people these days haven’t even thought
about starting a retirement fund, and those who have, don’t have a clue where
to begin. Retirement seems so
distant, so we put it off, throwing away all that priceless time.
I decided that with my income being as small as it is I
didn’t have any time to lose so I went and got myself a copy of “Investing for
Dummies” by Eric Tyson. Starting
with a basic guide with language and structure specifically geared toward the
beginner or “dummy” is remarkably helpful. After laying a foundation I started building upon my
knowledge with more and more finance books, websites, and magazines. The wealth of information- a lot of it
completely free- is astounding.
There’s absolutely no excuse not to self educate and start your
retirement portfolio.
In the last few years, through self education and seriously
minimal income, I’ve been able to put a number of basic accounts into place. What I’ve realized is that it isn’t
just about retirement, it’s about managing your finances with the present AND
the big picture in mind. So here’s a quick overview of what I
started with.
Checking Account: I’m
sure everyone has one of these. I
shopped around for the best interest rate I could find on checking. I also made sure I had a debit card
that wouldn’t cost me anything in ATM fees. I set up direct deposit to this account. As soon as that account starts building
up (if it builds up) I like to move that money either into a higher yield
savings account or my retirement account.
Credit Card Account: I
use my credit card often, but I don’t spend money I know I don’t have. Every two weeks I pay off the entire
balance. Not the minimum, the
total balance.
Savings Account: My
savings account acts as my emergency fund. I’ve been able to save up about 3 months worth of living
expenses. My goal is to get to 9
months. Because this is money I
don’t need immediate access to, I’ve chosen an online bank rather than a brick
and mortar. They have fewer costs
and offer higher interest rates.
ROTH IRA: This is
a tax free retirement account meaning you fund the account with after tax
dollars, but your earnings grow tax free as long as you wait till your 59 ½ to
withdraw the money. Within my ROTH
I invest in two major funds (for now).
Because I’m still young and have the time to weather rises and falls in
the market I have a fairly aggressive portfolio. Most of my money is in stock funds.
Individual Stocks: I’ve
allocated a small amount of money to invest in some individual stocks. These are the riskiest investments I
have. Until I have a firmer grasp
of the market, my investments in individual stocks will be minimal. They do, however, offer tremendous
growth potential.
[401k: My
employer does not offer a match so I invest more in my ROTH instead. I do, however, recommend contributing
to a 401k if your company offers you a match- it’s free money].
Each of these accounts will likely resurface in more detail as
future blog topics, but don’t wait to get started. Grab a book or do a google search today. The way I’ve set things up isn’t
necessarily right, but it’s a start, and something I feel I can rely on both
now and as I continue to think about my retirement and general financial planning.
The more you self educate, the less intimidating and more
practical it all becomes. The
crazy thing to do would be to let all your income sit in a checking account
earning pennies in interest until you get your act together. Even if you can’t max out your 401k or
ROTH. Even if you can only
contribute $50 a month, you’ll be in a great position. With compounding interest, time is just
as important as money, so don’t delay.
Ps. If there are any specific topics either from this post or others that you'd like me to blog on please comment below.
You are absolutely right -- the returns from money that you invest as a young adult can be quite impressive as you get older. And while you thin you will be young forever, your 50s and 60s will creep up on you without you ever noticing and you'll be happy you put away some money all these years. Smart thinking!
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