If you are under 30 years old, there is a good chance that saving in your retirement plan is low on your list of financial priorities. People in this age group are generally spending most of their money establishing their household, paying off student loans, and raising young children. For many, this does not leave a lot of money on the table for investing in a retirement plan.
What many fail to realize is that small steps taken towards saving for retirement before you reach the age of 30 can have big payoffs once you reach your retirement years. For example, earning through compounding interest is most effective long term. This means that the sooner you start saving in a retirement plan, the more your money will grow. Here are some tips for the under-30 crowd that will help you jump-start your retirement plan savings.
Start Saving Now
If you have not started saving for retirement, there is no better time than now. As soon as you begin saving, your money starts working for you by earning interest on the account. The longer you wait, the more interest payments you miss out on. There are many retirement plan accounts available that you can start with a minimal amount of money and you can tailor your contributions to the account to your current financial situation.
Make Saving A Priority
Many people make the mistake of waiting to save until after all of their other expenses have been paid. They adjust their saving amount to the amount they have left over, which is often less than they planned. To prevent unexpected expenses from eating into your saving amount, make saving a priority and have the money you intend to save deposited directly from your paycheck into your retirement plan or set up an automatic transfer with your bank to occur each payday.
Maximize Employer Matching Funds
Many employers offer matching funds for contributions into a workplace sponsored retirement plan. These funds are free money that can make the balance of the account grow much more quickly. Contribute enough to the retirement plan to get the full amount of the matching funds, typically a matching percentage of your contributions.
Use Your Raises To Boost Your Savings
Investing a portion of your raises in your retirement accounts is a good way to ramp up your savings without disrupting your quality of life. For example, if you receive a raise of 4 percent, increase your retirement plan contributions by 2 percent. This method allows you to save more each paycheck without seeing a dip in your take home pay. Over the years, these miniscule increases will add up to thousands of additional dollars in your retirement plan account.
Join our newsletter
Subscribe to get the latest "Engineer Your Finances" content via email.
Good advice, and really, it applies to anybody at any age! I’m 41 and I know I need to do some of these things better than I do today!