When you’re in your 20’s retirement seems like a dim and distant entity and not something you need to worry about. It is therefore easy to hold off on saving money for your retirement, and perhaps this continues into your 30’s, 40’s, 50’s …
There are several reasons people frequently give for not starting to save early on:
- “It’s not a priority”
- “I can’t afford it”
- “I don’t get a retirement plan at work”
- “I have to pay off debts first”
While these are all valid reasons, they can become mental obstacles standing in the way of getting an early start. In George S. Clason’s The Richest Man in Babylon, he recommends saving 10% of what you earn for yourself, rather than giving it to other people (i.e. spending it!) Start by investing a small amount each month to help overcome this mental block, rather than feeling that you need to save a large chunk all at once.
A study by CNN Money shows that if you start saving for your retirement at 25, you’re considerably more likely to have sufficient funds when you retire than if you begin when you’re 35. Don’t put it off for later; one third of the US workforce never save for retirement at all! Whether you are 25 or 55, it’s worth starting now.
How to find the money?
Unless you have a stash of money in the bank to invest in your retirement fund (and you will be in the minority if you do), there are basically two ways to find the money:
- Spend less – estimate what you spend on average each month, as it’s often the smaller expenses that mount up. Depending on your lifestyle, you may find that eating out less, or going on one less holiday a year could save a lot of money in the long run. This may seem like a sacrifice, but having savings is an incredibly awarding experience and gives you peace of mind for many years.
If you have debts with a high interest rate, then it’s also important to pay them off quickly, or look for an alternative loan. If they have a lower interest rate than your savings or retirement plan will give you, prioritize both equally. Many successful business owners have debts, however they will pay the lowest interest rate possible, rather than have large overdrafts or credit card debts, as these tend to be very costly.
- Earn more – consider asking for a pay rise, or changing jobs if you feel you are underpaid. Keep thinking long term here – some jobs are incredible learning opportunities that will equip you better for the future, so keep this in mind. There may also be hidden costs such as transport to and from work.
Another way to earn more is to invest wisely. How long did you spend learning your current profession? How long have you spent learning how to save money? Read books, watch some finance videos, in short educate yourself. The beauty of compound interest is that a small investment now will become a much larger investment over time. This is the reason investing in a retirement plan sooner rather than later is more likely to give you a stress free and fun retirement.
If you work for yourself, then education is also key. I recommend The Entrepreneur Revolution by Daniel Priestley for any small business owner. Since the birth of the internet, the business world has changed completely and this book helps you learn how to become a successful entrepreneur in the current climate.
Once you’ve found the money, it’s important to do what you can to keep it safe. A retirement plan is one of these steps, but other steps include:
- Create a buffer zone – Keep some savings in your personal account, or an account that you can access readily. This also helps you feel abundant.
- Save for future expenses – If you have children, start a college fund for them, saving a little each month. If you want to buy a new home, save as much as possible beforehand and if the house comes with a more expensive mortgage, only make the move when you can continue to save money and live there.
- Don’t make investments where the capital is at risk unless you can afford to lose it – gambling, or risky investments where you might lose all or most of what you invested should not be counted as part of your core savings. Only invest what you can afford to lose if it’s a risky investment, or avoid it altogether.
In summary: If you save a little every month, you can invest in savings and a retirement plan now and be prepared for the future.