Here’s How to Plan for Retirement in Your 20s and 30s
By guest contributor Tina Martin
Did you know that only one in four Americans have taken the necessary steps for retirement planning? Most individuals aren’t preoccupied with estate planning when they’re young and living life. We argue that youth is precisely why it is better to start planning for the future. You never know what may happen, but you do want to be prepared for the worst of it. To enjoy a stress-free retirement with no worries about money, it is imperative to start planning today. In this article, Inspire Wealth shows you how.
Start an Emergency Fund
Experts suggest saving five to six months of your living expenses in a liquid fund to be withdrawn without incurring debt. Focus on building your emergency fund before tackling other investments and debt payments. If you’re struggling with building up your fund, don’t forget to count investments and assets you already have. Calculate your existing assets accurately to consider how you can use them for your savings. For example, if you’re a homeowner, you can gauge your home equity by subtracting the money owed from the market value of your home.
Save Save Save
When you’re young, it is normal to have many demands on your modest paycheck. According to Forbes, 66% of Americans have student loans to pay off after graduation. You may also be struggling to make a down payment to transition to a more stable home life. Childcare costs mount the first few years of starting a family as well.
All these expenses add up, and so it is understandable that you’re struggling to save. Our advice is to chip away at it, however slowly that may be. Realistically, you may not make much headway in saving for retirement at this point, but the simple act of putting money away and letting it compound over time certainly helps. Financial gurus swear by the 50-20-30 rule. Keep 50% of your income for living expenses and necessities, 30% of your desires and ‘fun’ things, and 20% for savings.
Make Wise Investments
Investments are prudent financial decisions that can be a massive step in the right direction. For example, a lot of young Americans choose to get a college education. This can lead to higher-paying jobs down the line that can increase your saving capacity. You can also invest in stocks, bonds, and annuities. Once you’re in your mid 30’s is when you can begin focusing on diversifying your portfolio - investing in multiple securities will ensure that you reduce the risk of incurring significant losses with one rotten egg.
The key with any kind of investment or savings at this age is to reap the full benefits of compound interest. If you’re unable to make investments, then start contributing to a 401(k). Start with depositing small amounts and increase it slowly till you can max out your yearly quota. This alone will generate a large nest egg for your golden years.
Avoid Incurring Debt
You must inculcate good money practices in your 20s and 30s to set the tone for middle age. Try to pay off as much of your debt as early as you can. Be sure to repay your credit card balances - not only to save on interest payments but also to build up your credit score, AAG reports. If you’re taking out a car or mortgage loan, then ensure you have the funds to make the payments over time. Try not to incur more debt to pay off existing debt - this creates a debt cycle that can be impossible to break out of!
While estate planning often conjures images of lavish mansions and sprawling properties, it is a process that everyone should undertake, irrespective of financial background. And the earlier you begin working on your estate plan and scheduling that dream retirement, the closer you will be to your goal when the time rolls around.
Looking for a wealth management tool to work towards your retirement dream? At Inspire Wealth, we pride ourselves on our personalized and advanced wealth management services. Click here to schedule a complimentary consultation or give us a call at 810-226-0477.