As thousands of Baby Boomers postpone retirement plans, it may be time for America’s younger generations to step back and learn some valuable lessons. The Boomers’ depleted savings and plummeting 401Ks represent only a fraction of why retiring at age 80 is gradually becoming the norm. If you are new to the working world, now is the time to plan for your future. Read on to learn more about how to adopt smart strategies.
- Create a budgeted lifestyle. Sounds simple, right? Although living on a budget is certainly not a new concept, many people struggle to find an ideal balance between income and expenses. Living with compounding debt (like credit card balances) can make it difficult to fix credit issues, build a savings account, and generally feel secure in your everyday life. If this sounds familiar, start implementing positive habits to carry throughout your life. Examine your net monthly income, and compare it to the essential costs in your life, such as:
- Student loans
- Property taxes
Calculate the total and subtract it from your income. Now take a look at your entertainment and miscellaneous expenses, including:
- Cell phone
- Dining out
Subtract this total from your remaining income. How did you do? Are you left with $500 to invest each month, or has excess spending put you in the red zone? Identifying where you spend will help you change how you spend. While you cannot change fixed expenses like your mortgage payment or water bill, there are plenty of ways to cut back in favor of a better lifestyle. Practice some discipline while you’re young—it will help your decision-making skills down the road.
- Start saving for retirement. If you are thinking, “…but I’m only 27,” think again. It’s never too soon to start thinking about long-term financial security, especially when time is on your side. The average retiree will require roughly 80 percent of their last year’s pre-retirement income to live comfortably each year thereafter without being employed. That means if you retire at age 65 and make $100,000 per year, you’ll need at least $1.6 million to make it to age 85 — no small sum under any circumstances. Get a jump start by:
- Paying down debt. Not only will this act fix your credit problems, it will allow you to put more money toward your savings each month.
- Feeding your 401K or IRA. If you are fortunate enough to work for a company that matches 401K contributions, take advantage of the free money while you can. If you opt for an IRA, contribute the max allowed by law each year. Compounding interest will only help you on the journey to achieving early retirement.
- Making a plan. Speaking of early retirement, when do you plan to begin your golden years? 55? 65? Developing a strategy will help you understand how much you need to save in order to enjoy your retirement. Do the math, as described in the example above, and build a realistic retirement plan. If you are 28 and plan to retire at 60 on an income of $65,000, you’ll need to save at least $1.3 million to pay for the last 25 years of your life. The longer you wait to save, the more difficult it will be.
- Cash in on education. Long-term savings are important, so why not maximize your earning potential while you can? Furthering your education is a great way to strengthen your resume and position yourself for a raise. If you didn’t finish college, think about doing so. If you did, consider seeking a master’s degree or Ph.D. to become an expert in your field. If tuition is out of your price range, look into simple certification classes to build your skills list. For example, graphic designers may choose to become Adobe Certified while project managers may seek certifications from the Project Management Institute. Gaining the upper hand in industry is about polishing your abilities. Your efforts to improve are bound to pay off in the long run.
Time is a luxury many people don’t have, so take advantage of money-savvy strategies in your 20’s. Fixing credit, savings, and investments are the building blocks of a stable future.