It’s never too early to start planning for retirement. Yes, even if you’re fresh out of college and barely have a career to wind down.
As any investment adviser will tell you, money grows over time. The earlier you begin saving, the more time your money has to grow. The law of compound interest is on early savers’ sides.
There’s no downside to putting together a retirement plan at your earliest convenience. Only upside. As you begin wrapping your head around your retirement planning, follow this cheat sheet carefully. See how many items you can cross off it before your 30th birthday.
Use Saving and Budgeting Apps
Does the world need another budgeting app?
The jury’s out. But that’s beside the point, anyway: There are already plenty to choose from. Look for mobile-friendly tools that link all your bank accounts, credit cards, and loans to a single dashboard, providing a complete, single-sign-on look at your financial profile. Use pre-set or customizable spending categories to quantify and organize your day-to-day spending and weekly or monthly budgets.
The goal here is to gain a clear, just-the-facts picture of your cash flow. Once that’s in hand, it’s much easier to create a sustainable household budget that includes a generous monthly savings allowance.
Automate Your Savings
Worried that you won’t remember to make manual checking-to-savings transfers after each paycheck? You’re in good company. Take the uncertainty out of saving by setting up recurring transfers. Most banks let you do this internally, or you can use a third-party app that automatically adjusts your transfers based on your cash flow.
Accelerate Debt Payments When Possible
If you have high-interest debts, such as student loans or persistent credit card balances, raise your monthly payment as high as you can bear. Making the bare minimum payment lengthens your loan term and raises your aggregate interest costs, effectively robbing your long-term savings. One caveat: Confirm that your loan doesn’t have a prepayment penalty before making your last payment.
Enroll in Your Employer’s Retirement Plan (and Take Advantage of the Match)
If your employer offers a tax-qualified retirement plan, such as a 401(k), enroll in it today. Take advantage of the employer match or boost, too: Many employers have dollar-for-dollar or dollar-for-two-dollar matches that magnify your saving and investing power.
Open an Individual Retirement Account
Virtually everyone is eligible for an individual retirement account (IRA), even those with access to tax-qualified employer plans. Traditional and Roth IRAs are the most common configurations, with Roths offering slightly more favorable tax treatment over long timespans. However, both plans have income limits and contribution limitations, so you’ll want to check with the IRS or your investment adviser to determine which is more suitable for your situation.
Avoid High-Interest Revolving Debt
Credit cards have their place, but it’s usually not a good idea to run month-to-month balances on them. Every dollar you pay in interest is a dollar you can’t put toward your retirement — a dollar that won’t grow with time. If you’re currently running monthly credit card balances, make a plan to pay them down, and another plan to avoid them in the future.
Create Separate Saving and Investing Buckets
If you haven’t already done so, set aside three to six months’ pay in an emergency fund. Then, set up additional savings and investing buckets with specific goals and time horizons: down payment on a mortgage, kids’ education, vacation budget, and so on. Even if you have no plans to start a family or buy a house, you’ll want time-organized savings for when you do make these major life decisions.
It’s Never Too Early to Start
Retirement is for old people, right? You’re not old. So why worry about something that’ll only happen when you are?
Because, if all goes according to plan, you’ll be old someday. (Let’s set aside questions about what qualifies as “old” for the moment.) You’ll be sick of punching in and punching out every day. You’ll want to do things at your own pace for what’s hopefully a long, healthy retirement.
And you’ll want to be prepared for whatever may come. Numbers don’t lie: the sooner you get started on your retirement plan, the more secure your future is likely to be.
If you’re still asking “why now,” you’re doing it wrong. It’s time for “why wait?”