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The following is a guest post on behalf of Debt Advisory Centre. Enjoy!
How to Start Planning for Your Retirement Early
Planning for retirement – it might be tempting to put it off, waiting until our finances are ‘more settled’. Unfortunately, like so much in life, that doesn’t always happen as swiftly as expected, if at all.
The Importance of Budgeting
How Much Can You Afford?
As with any kind of financial commitment, it’s important not to be too ambitious. There’s no point committing yourself to payments which you can’t realistically hope to maintain.
How Are Your Debts Looking?
How about you all? What method do you use to save for retirement that you find easiest to stick to / is the most effective? What % of your income do you generally target to save for retirement each month?
For you, is paying off debt or saving for retirement a higher priority goal?
Share your experiences by commenting below!
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.
- @ Putting off/delaying planning for retirement –
- Being in my early-mid 20’s, I’ve seen my fair share of young people who find excuses to put off saving for retirement.
- In my experiences, the most common reasons that people put this off is because 1) they have a significant amount of debt (credit card and/or student loans) to pay off, or 2) they simply don’t understand investing enough to save money intelligently. This turns them off to the idea of putting away money for use a long time down the road.
- @ Saving for retirement consistently each month –
- In my opinion, saving for retirement is simply too important to put off until the last minute. Furthermore, there are numerous tax-privileged account options that make the avoidance of saving for retirement almost a foolish notion.
- The best way I’ve found to save for retirement and not miss contributions is to do the following: 1) Decide what % of your monthly salary you can save for retirement, and then 2) set up an AUTOMATIC, recurring, monthly deduction of that amount from your paycheck (either on a pre-tax basis or post tax if you are using a Roth IRA). The transfer has to be automatic so that you trick yourself in to thinking that you don’t actually have that money in your possession.
- @ Account hierarchy / monetary needs priority order –
- Analyzing the priority at which different accounts (debt, retirement, emergency funds, insurance, etc) need to be funded is a very interesting topic.
- To address this issue in a general sense, I’ve developed the My Personal Finance Journey Account Hierarchy, which details the order I personally use to prioritize my funding of different needs in life.
- One question in particular that is rather difficult to address is if it is a higher priority to pay off debt (especially credit card debt) or save for retirement? On one hand, it’s tempting to recommend tackling the debt payoff first since it would represent an immediate monetary savings on the interest charges. However, it would be rather demoralizing to spend your entire 20’s paying off student and/or credit card debt and not have anything to show for it in retirement savings.
- Because of the complexities surrounding this question, I’ve decided to put together an upcoming post analyzing this topic. It should be on the way soon! Stay tuned!
- @ How much to save for retirement each month –
- The answer to the question of “how much should I save for retirement?” is about as variable from person to person as answers can get.
- In an effort to help people find an answer to this question, I developed a Google Docs Spreadsheet-based calculator, which can be accessed by clicking here. The various inputs that go in to figuring out this amount are as follows: current age, current salary, years to retirement, and your expected standard of living during retirement.
- However, as a general guideline, if you are saving 10% of your income each month for retirement, you are doing pretty well. On the other hand, if you can save 30% of your income, you are considered to be “on the road to wealth.”
***Photo courtesy of http://www.flickr.com/photos/jcapaldi/4918597810/sizes/l/in/photostream/