When I first joined the team at Babb, Inc. saving for my retirement wasn’t even a blip on my radar. I was concerned with paying off my school loans, my car, my credit card, having reliable healthcare, and being able to go out like every twenty-something is apt to after graduating from college. Nothing else mattered. I thought I had figured out what was most important for my future, get all my loans and bills paid off so I can really start saving for the rest of my life.
Fortunately, I started to work for a company that stresses being financially aware and competent. I was introduced to the 401k and, I will admit, was completely baffled by the whole concept. However, I signed up for my company’s 401k and began to deposit a percentage of each paycheck into it with the hopes that I would be able to increase that contribution yearly. Below, I have compiled a list of “Do’s” when it comes to saving for your future.
- Start saving as soon as you can: We all have excuses as to why we shouldn’t or cannot save for our retirement in our early twenties. There are school loans, credit cards, rent, etc. that are foremost on our minds. The sooner you begin to put money away into a 401k, the longer your money has time to mature. You have to remember that when your investment makes gains, those gains will also grow the next year, so by saving earlier, you will have a bigger nest egg to draw from when you are finally able to retire.
- Sign up for your company’s 401k: When offered, check out the 401k plan your company offers and decide if that is the right plan for you. You don’t have to sign up with your company, but being aware of what is offered will allow you some insight in choosing another investment vehicle outside of your employment. Let’s say you do sign up for your company’s 401K plan, when you sign up many employers will match your contribution up to a designated target percentage.
- Educate yourself: Financial talk is definitely confusing so don’t be embarrassed to ask questions from and expert, either at work or somewhere else. Find a financial advisor, whether company sponsored or not, that will sit down with you and explain why you should invest and in what to invest in. Don’t be afraid to read books, articles, financial sites, etc. for more detailed information, because the more you know about your plan, the better you will be able to make important life decisions.
- Avoid debt: We all worry about saving for retirement because we all have of other responsibilities that can take precedence. But, if you are struggling from paycheck to paycheck and don’t believe you are fiscally able to set aside money for your retirement, it is time for you to overhaul your budget. A budget helps you to create a payment schedule and plan for all of your bills, necessities, and extras. Maybe you stop eating out at restaurants multiple times a week, cut that subscription you don’t really use, or stop purchasing the things that are not necessities. This little bit of savings can turn into your monthly contribution to your 401k and any inheritance, bonuses, or money gifts can be added to your retirement instead of using it on frivolous items. Anything you can put away will eventually grow into a bigger contribution.
- Do not take money out before your retirement: Times are tough, you are low on funds and have bills to pay and the only way you think to be able to do so is to take money out of your 401k. DO NOT DO THIS! Every time you withdraw money, you have to pay an income tax on the amount you withdrew. Also, if you are under 59 and withdraw early from your 401k, you may be charged a 10% early withdraw penalty. Avoid early withdrawals and your money will be able to grow faster and you will be able to defer paying the taxes on it until you retire. If you change jobs, do not cash out your 401k, enroll in your new employers plan or in an IRA. If you fear needing cash quickly for emergencies, create an emergency fund so you do not have to touch your retirement savings.