The younger you are the more saving your money for retirement sounds like advice from your dentist, “Brush your teeth 3 times a day and floss after every meal”. Yeah right, the only people who do that are sadomasochist. But seriously, putting your money away for the future does not have to be a painful experience. One tactic that I have taken to recently was to take a fixed percentage of my paycheck and put it into my IRA every week, week in and week out, no matter what.
But if you are like me the mere thought of having your money locked away forever might give you heartburn. Thoughts like, “what if I need this money sooner rather than later” might pop into your head every time you go to set up a retirement account. I think everyone on some level experiences this type of thought as they lock away money for up to 45 years in some cases. But if your are hesitant to take the plunge and put the money away for the future you, I will share with you a few tricks that I use on myself.
Step #1 – Keep Some Cash Hanging Around
Before I ever tried to put money into my retirement account, I saved up 6 months worth of expenses in cash and put it into my savings account. To do this just write out every recurring monthly expense you have and multiply it by 6. This allows you to have a very cozy buffer between you and the inevitable unforeseen circumstances that life will throw your way. If you are the type that is extremely paranoid about job loss or if your career is not to stable then by all means save 9 maybe even 12 months of expenses. Some of you out there might be saying, “C’mon that is impossible, I’ll never save that much”. This means either one of two things: you have an income problem, or you are living life like M.C. Hammer and need to check yourself before you wreck yourself.
Step #2 – With Full Savings Account Open Up The IRA or 401K
Depending on your situation you will end up creating a traditional individual retirement account (IRA), ROTH IRA, or a 401K. The traditional IRA contributions are tax deductible at the time you make them, but you will pay taxes on the money as you withdraw it in retirement. The ROTH IRA, which seems to be the more popular choice, allows you pay taxes on contributions to your retirement account in the year you make them, but pay NO TAXES on the money in your retirement. The 401K is something that will be offered by your employer and is similar in structure to the traditional IRA.
Step #3 – If You Had $1 Could You Part Ways With 7 Or 8 Pennies?
Sounds stupid I know, but it is true. If you had a dollar and suddenly your future self appeared like a scene out of the movie ‘Back to the Future’ and said, “Quick give me 8 pennies or I’ll starve to death in 2053!”. You most likely would part ways with the few measly pennies. But if the sum was $5,500 a year, you might let your future self go on the boiled lawn clippings diet. But guess what, it is pretty much the same thing. Let’s say that you are making $60k a year and your save 8 percent of your gross income. This would be $4,800.00 annually and that is pretty close to the maximum contribution allowed in an IRA.
This is where being frugal elsewhere in your life allows you to splurge on yourself by saving money and having peace of mind. If you have read some of the other articles on this site you will know that you can definitely find slack in your budget and put the cash to good use. Honestly, I have been able to do the things that I outlined above and then some. If you want the super aggressive version of this system open up a personal brokerage account with your broker of choice and put 7.5% in your IRA and 7.5% in your individual investment account. This is exactly what I do with my money.
I really hope you enjoyed reading this as much as I enjoyed writing it for you. If you have any questions or comments feel free to contact me via the email address provided. Also If you would like to have more money savings tips like the one you just read be sure to join my mailing list by clicking here. Thanks for reading!