Retirement planning is the process of setting your retirement income goals, along with the actions and decisions needed to achieve them. It may seem like it’s a way off, but the steps you should take now will go a long way in preparing you for retirement. Your plans may change over time as you continue to grow throughout your career, but starting to build your financial cushion as early as possible will stress you less in the long run.
Before you dive into specifics such as what type of retirement account to use or how much you should invest, it’s important that you have a basic knowledge of your finances – from your current spending habits to the habits you should be investing in. Where are you going and how to maximize your financial potential. Follow these three steps to get your money right now to ensure financial peace of mind in retirement.
understand your money
Retirement planning starts with thinking about your retirement goals and how long you have to meet them, but you can’t plan for the future without understanding where you are with your finances right now. Understanding your money is about knowing how much you’re coming in each month, what bills and debts you need to pay, and your spending habits affecting your financial capacity.
Maybe you just opened your first credit card or recently started your first “real world” job and received your first paycheck. Having money on hand you aren’t using, which makes it easier to spend money on things you don’t need. Falling into the trap of getting Starbucks every morning or going out to lunch with your coworkers every day can be a slippery slope that you may not have known is hurting your potential for a successful retirement.
For example, let’s say you buy $5 coffee every morning. This adds up to $35 per week and over $1,800 per year. If you save $5 each day instead of buying coffee, you’ll have $36,000 for your retirement in 20 years — and that doesn’t take into account how much you’ll spend if you invest those funds in a retirement account. can earn. check us out retirement savings calculator To determine how much more you’ll have at retirement by starting your savings plan today rather than waiting.
take control of your money
Now that you understand where your money is going, you can better control how you spend it. Do you anticipate buying a car, buying a home or making a big investment in the near future? A big factor when starting retirement planning is knowing how much debt you are carrying with you. It is very important that you try to take on as little debt as possible.
That means paying off expensive credit card debt or those pesky student loans can make all the difference when you finally reach the point of retirement. Paying off your debt and getting out of the way, while borrowing as little as possible down the road, will be a huge burden off your shoulders in the long run.
Apart from controlling your debt, it is important that you create a budget and stick to it. It’s all about self-control. While you may love those daily lunch runs, cutting back to once a week, or so, can make a big difference over time. When creating a budget it is important to make sure that every dollar has a purpose. Once all expenses are covered, where do those extra funds go? Whether it’s for savings, retirement, or even your “fun money,” allocating each dollar to a specific category each month will help you go over budget from month to month.
Bonus Tip: To make sure you’re getting the most out of your money, check your budget frequently, especially if income changes or bills shift, which brings us to our next point.
maximize your money
After you have a basic understanding of your money and how to control your spending, it’s time to think about specific ways you can put your money to use. On the savings side, we’ve discussed how small savings on everyday items can definitely add up. It’s worth revisiting your large monthly expenses to find out if you can reduce Rate of interest Or lower monthly payments on costs like loans and insurance.
On the investment and retirement side, remember that it’s okay to start small. Some beginner tips will be the first where you can start. Even if you can start by putting only 2% of your paycheck into an IRA or other retirement account, that’s something. You can then gradually increase your contribution each year as you increase your savings, progress in your career, and (hopefully) earn. On the other hand, if you’re able to, you should definitely take advantage of your employer’s 401(k) match, which will match the maximum amount. This is free money your employer is giving you for your retirement.
Bonus Tip: If possible, don’t pull from your 401(k). It’s easy to pull away from what you’ve built up to pay for big expenses, but it can hurt you in the long run.
“Let’s Talk Money” is operated by CommunityAmerica Credit Union and this week’s feature comes from Wealth Advisor Scott Adams. Have questions about retirement planning or your financial future in general? Schedule an appointment to see one of our wealth advisor,