Financial experts will all say that planning for retirement should start as early as possible. Starting the process may be difficult for many 20 somethings who don't have a clue where to start. Dedicating a set percentage of your monthly income to savings is not appealing to anyone, let alone younger people just entering the workforce; but the benefits of consistently doing so are exponential.
If you're struggling to get started, below you'll find 3 essential tips to help you start planning for retirement.
1. Know What You're Working Toward
The best part of planning for retirement is dreaming up all the things you want to do when you get there. However, equally important is knowing what that will cost. Figuring out how much money you will need might require some speculation, but you just need a ballpark figure.
Usually dreams are dashed when the costs are calculated out, but they shouldn't be, as smart investing and dedicated saving can often increase more than one might think. Also, just having an idea of what you want to do when you retire is important to keep you motivated to get there. Once you're motivated, you can seek out the help of a financial planner who can help you develop real numbers for your expected retirement costs.
2. Start Seriously Saving
When you're young and trying to make ends meet, it is easy to justify putting off saving money. Establishing good saving habits, however, is a skill that will help you throughout life and even more-so in retirement. If you have a steady income, budgeting and saving is just smart money management. If your employer offers incentives, absolutely take advantage of them.
Once your savings reaches an investable amount, usually at least $1,000, you can start using your money to make money. The important part with investing is to be aware of the risks, fees, interest rates, and potential penalties for withdrawing the money from an investment. Speaking with a financial expert can help you identify safe investment strategies that can develop over the long-term, as well as specific retirement investments that are popular such as a 401(k) or IRA account.
3. Invest in You
Go beyond simply saving. Investing for retirement and figuring out a plan doesn't have to solely focus on the long-term future. For instance, buying a home and starting to build equity rather than paying rent is a way to invest for the future while also taking care of your present needs.
Taking a class, even a free online course, in personal finance is an excellent way to learn about creating a financially stable and secure future.
Bonus Tip: 4. Compound Interest
Starting to save early for retirement is important enough to justify a extra tip. The reason that starting early is so important boils down to one reason: Compound Interest. As I cited in a previous FindLaw article, Investopedia explains that investing $100 per month for 30 years at 7% results in $117,000, but the same investment for 40 years earns $248,000. Those last ten years of compounded interest really pay off and can more than double the investment. So if you have dreams of retiring early, the trick is to start consistently saving as early as possible.