Thursday, May 10, 2018

How to Start Saving for Retirement Early

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There is no one correct way to start saving for retirement. The only thing that is imperative is that you do it and do it as soon as possible.

Compounding interest allows your money to grow exponentially over time meaning that the longer you can save money, the more you will have in the long run.

Below are a few options you can engage in to start saving for retirement now so that you will be able to live the life you want when the time comes for your retirement.

1.      Roth IRA (Individual Retirement Account)

Roth IRA’s are a great option for young people who don’t make a huge income yet. This type of account allows users to deposit a percentage of their income after they have already paid taxes on it. When the user takes the money out of the account upon retirement they can do so tax free.

Traditional IRA’s work inversely. Taxes are not paid initially but rather when the money is taken out. The reason Roth IRA’s are so great for young people is that young people generally don’t need a tax break now because they don’t make too much, but this account lets them have a tax break after the money accrues interest.

These accounts also usually don’t require an enormously large initial investment, making them doable for young adults with limited unused capital.

2.      Apps

There are many apps on the market today that are specifically geared toward encouraging young people to begin investing. Some simply round up transactions and move the extra cents into your savings account while others do much more and engage directly with stocks.

One particularly interesting program is known as Stash. This app gives you access to Exchange-Traded Funds right from the convenience of your phone. While it is remarkably convenient, it does require you to give significant amounts of personal information up front such as your social security number and address.

More information about the pros and cons of this app can be found at AAA Credit Guide. If you are always on your phone anyway, then it may not be a bad idea to turn it into a money saving machine as well. Today there are many technological advances that make just about anything possible. Don’t be afraid to explore these new options when it comes to investing for your future.

3.      ETF (Exchange-Traded Fund)

If the thought of using an app to do your investing makes you a little nervous, then you may want to consider directly investing in an ETF.

ETF’s are similar to index funds in the fact that they track an index, yet they are marketable securities that trade like a stock. Often, they have a higher daily liquidity and much fewer fees than mutual funds. These funds also aren’t terribly risky because they are highly diversified.

Selling short and buying on margin are also options for this type of fund. ETF’s are a popular option for many young people who may not have built up huge amounts of capital to invest yet.

4.      Manage Your Spending

The most important thing to consider when trying to figure out how to save money for retirement is to realize that you must have money that you can save or invest.

If you are currently living paycheck to paycheck then you can’t put any money away for your future. You need to make sure that you make enough money to support your current lifestyle with some left over to save and invest. If that is not the case right now, then you may want to reevaluate some of your life choices.

Can you get a higher paying job? Do you need more education to get a job that will support your lifestyle? Do you live in a city with too high of a cost of living? Do you spend too frivolously? Asking yourself these questions is a great start that will hopefully lead you down the road to financial security both now and throughout your life.

Though for many people in their twenties retirement feels like it is still a lifetime away, it is never too early to begin preparing for it. You don’t want to leave yourself in the position of outliving your funds and placing an unnecessary burden on your family and friends. Start planning for your future today so that your retirement can be one filled with relaxation, laughter, and joy instead of fear, insecurity, and worry.


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