Many millennials might have to work until they are 70 or even older.
This according to a report by AON that suggests that they are under-saving by more than four times their annual income.
During your late twenties and early thirties, retirement may seem like it’s a lifetime away. For many people at this stage, there’s no rush to start saving. However, there is no better time to start.
Stop Living From Hand to Mouth
The biggest mistake you can make when it comes to saving, as do most people, is to decide to wait until your income increases.
Odds are, you will find new ways to spend your money when you get a pay raise. Even if you are buried in debt, it is important to save consistently.
To begin, monitor how you spend your money. Begin by identifying all the areas you can make savings on. Once you standardize your spending, create a budget to guide you through it.
It is important to have a savings target for every month. Depositing that amount in your savings account should be the first thing you do when your paycheck comes in.
Automate these contributions if possible. With this approach, you will not be sidetracked from your savings goal. Anything that may arise will be catered for without affecting your future.
Take Advantage of the 401(k) or 403(b) Company Match
Given the opportunity, most people would not pass up a chance at free money. However, many people do this without realizing it.
Though it is not a requirement by the IRS, many employers match their employee’s contribution. This enables companies to enjoy some tax benefits as well as retain their talent pool.
Suppose your employer can contribute up to 5% of your salary and you earn $ 50,000 yearly, your savings account can benefit from an additional $2,500 from your employer.
However, you will lose out on that contribution if you do not commit an equal amount too.
If you factor in compound interest, the deal becomes even better. However, for you to truly enjoy the benefits of your employer’s contribution and the compound interest, you should start saving immediately.
Ensure that your contribution reaches the maximum amount your employer can match.
Set Up a Contingency Fund
Even as you plan for retirement, it is also important to plan for the near future. At times, something that can destabilize you may happen.
You might lose your job, or your business may go through some turbulent season. Even then, you will still need funds for food and utilities.
As you start saving, set up an emergency fund that you can fall back on as you find your feet again. The funds in this account should be able to adequately cater for your living expenses for six to nine months.
This will ensure you have ample time to secure another job or navigate whichever challenge you may be facing.
Supplement Your Income
Meeting your current needs and at the same time saving for retirement can be tricky, especially when you start a family. Additional responsibilities, such as school fees and mortgage, will only make your finances more strained.
To lighten that burden, it is important to find ways to increase your income. If you are employed, begin by working towards securing promotions at every opportunity.
Any additional income can go a long way in boosting your savings capabilities.
It is also a good idea to find another source of income to supplement the current one.
Identify an investment that you can make with your current work commitments. If you can manage, rental properties are a great source of regular income.
Alternatively, you can invest in the stock market, mutual funds, or Real Estate Investment Trusts (REITs). Try to diversify your portfolio as much as you can. This will protect you from losing everything if one investment does not work out.
Approach Improvements in Cash Flow cautiously
At some point, you will clear your student loan or finish paying the mortgage on your home.
This will free up additional funds at the end of every month. Such increases in the monthly disposable income can trigger a spending splurge which might set a bad precedent.
Ensure that you keep track of the number of repayments due for every loan. Start planning on how to use the funds that will be freed at least a couple of months beforehand.
Since those funds are not part of your monthly budget, you will have a great opportunity to make an investment and boost your savings. You can also redirect that money in order to repay another loan quicker.
Protect Your Family
As a millennial, your savings probably cannot cater to your needs for long, let alone your family’s needs. In case something happens to you and you are not around or able to provide for your family, you still need to ensure that they will be catered for to some extent.
Ensure that you take up life and health insurance policies to provide some form of financial security to your dependents.
Spending Only What You Can Afford Is One of the Most Important Retirement Planning Tips
One of the biggest mistakes that prevent people from saving enough for retirement is spending beyond their means. More often than not, such poor spending habits are triggered by social pressure.
Any financial choices that you make should not be influenced by the desire elevate yourself to the level of other people. This will only present you with major problems in the future.
Discipline Is the Key to Saving Successfully
It’s easy to start saving. However, sticking to your savings plan is a different kettle of fish.
You need to set your goals and have the discipline and commitment to stick to it. The retirement planning tips outlined in this article could guide you in the right direction.
Avalon Financial is a blog that has specialized in retirement planning and investments designed to minimize portfolio volatility and maximize income. Check out our services and signup for a free e-book on financial planning today.
Originally posted on https://www.theavalonfinancial.com/post/retirement-planning-tips