Things You'll Need:
- Patience
- A plan
- Goals
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Step 1
With fewer and fewer employers offering pension plans, it is up to you to save for your retirement and take advantage of the options you have to grow your retirement nest egg. This "How To" will give you some basic tips and hopefully give you a perspective on how a little saved today can add up to a lot tomorrow.
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Step 2
The first step is to realize that it is never too late to start saving for your retirement. Obviously, the sooner you start the better, but do not give up just because you have seen your fair share of sunrises and sunsets. Let the power of compound interest (Google it!) work for you and start saving today.
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Step 3
Once you have decided to save for your retirement, it is time to figure out the lifestyle you can afford to live today in order to live the lifestyle you desire during retirement. Really, it is a simple equation. All of us have a limited amount of money we will make in our lives. That is a fact. So, consider that each time you spend a dollar, you will likely NEVER get that dollar back UNLESS you have saved or invested that dollar.
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Step 4
Figure out how much you would like to save each month and then begin the process of building your lifestyle around that goal. Subtract from your monthly take-home pay the amount you want to save. The amount left over is what you have left to pay for expenses. Even a person with a modest income can save enough to build a sizable nest egg. For example, say you take home $1800 month. If you can save $250 each month in a investment such as a mutual fund that grows 8% each year, after 30 years your savings will have grown to almost $375,000! So, you saved $90,000 over 30 years and you get back $375,000. That's a deal.
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Step 5
Continuing, $1800 - $250 = $1550. This $1550 is the amount of money you have left over to pay for housing, food, insurance and the expenses of life. This is where perspective and delayed gratification play a role. Keep your eye on the prize at the end of the tunnel and you will have an easier time saving each month.
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Step 6
There are several places where you can save. If your job offers you a 401k, take advantage of it and invest in it so you can get the contribution match many companies offer. That is free money but you only get it IF you save into your company's 401k. Plus, do not forget that your 401k contributions reduce your taxable income. Also consider a Roth IRA. While Roth IRAs do not shelter you from tax today, when you retire they do offer tax advantages that will save you money. Consider 529 plans if you want to save money for college. Finally, educate yourself about what are called mutual funds. Ultimately, it is YOUR responsibility to understand your saving options and the benefits/risks associated with each.
