Financial planning is a task that can make people shudder at the very thought. People have goals (going to college, saving for a wedding, a house, having a family, starting a business) that can sometimes get in the way of planning for retirement. Similarly, when someone is in their 20s, 30s, or even their 40s, they may not be thinking that far ahead into the future. Getting started is sometimes the hardest part, however, at least being aware of your savings or retirement account may give you some perspective. If you are thinking of jumping into financial planning and saving for retirement, here are some tips to get you started.
Whether you just graduated college and landed a job with a 401(k) plan or have been in a steady career for years, start saving now; it’s never too late. Someone who has saved $200 every year for 40 years with a 5 percent interest rate may be in a better place than someone who has saved for 10 years, but this shouldn’t discourage you from getting started. As time goes on, it will become easier to make up those lost savings.
Your Savings Are an Expense
Monthly expenses can include student loans, car payments, rent, mortgages, or if you get sucked into consumer goods that need a monthly payment. Now, even though this can be painful, add a savings account into your monthly expenses. When you have a disposable income, it can be tempting to spend money on items that aren’t necessary. Keeping a tight budget and moving any extra money into an automatic savings account will make it easier to save.
Money that is added to a tax-deferred account will prevent you from purchasing impulse buys. When money is taken out of these accounts, there are tax penalties for the withdrawal, unless you are over the age of 59-½. Consider whether or not opening an IRA account is a good option for you. This could be a Roth IRA (no tax break for contributions, however, earnings and withdrawals are tax-free) or a Traditional IRA (contributions are tax deductible and withdrawals during retirement are subject to normal tax rates).
Having one single retirement savings account could put you at risk for losing the investment. Properly allocating your savings and assets could put you in a better situation depending on your age and the risks involved.
Planning for retirement isn’t all about saving for month-long vacations or hobbies that you have always wanted to try. It’s also about preparing for medical expenses, dental costs, long-term care, and income taxes. Adding these things into your cost projection plan will give you a better idea of how much you need to save now.
Create a Budget
Creating a budget is generally a simple task, however, looking closely at the details gives you an idea of what is involved. When creating a budget, start with your overall income and subtract living expenses and monthly payments. What you do with the remaining money determines how successful your retirement saving will be. This disposable income can be used for vacations, entertainment, a shopping spree, or you can put this money into a savings account that will give you a return on your investment.
There is such a thing as healthy debt, such as a mortgage or a car loan. Damaging debt, on the other hand, is money left sitting on a credit card, student loans, or medical bills. These types of harmful debt should be paid off as soon as possible. Benefits of paying off debts quickly include increasing your credit score and giving you additional income to work toward paying off larger debts, such as the car loan or mortgage. Keep in mind, though, that even healthy debt can be dangerous if held onto for too long. Making mortgage payments during retirement can take away from savings that were dedicated for other needs.
Tips for saving and planning for retirement are great, but can still leave those who are new to financial planning feeling lost. If you want to get a grasp on your finances, a financial advisor can guide you through any stressful situation. Not only can a financial consultant help with retirement advice, but with investment strategies and social security retirement benefits. Get all of this and more when you call a financial planner at KNR Consulting.