Saving for retirement right after college is usually not a top priority for most college grads. But focusing on building your retirement savings earlier in life rather than starting later on gives you a major advantage in jump-starting your retirement savings fund and can pay off significantly in your later years in life when you won’t have the income you have now to help you purchase the things you need. So, we have put together a few tips that will help you start saving for retirement in your early twenties:
Open A Retirement Account
At the beginning stages of setting up a retirement savings, you need to start by opening an actual retirement account of some sort. There are many options available for retirement savings accounts from 401(k) employer sponsored plans to individual IRA accounts. If your employer doesn’t offer a retirement savings account, you can work with a certified financial planner to determine the type of retirement account that is best for you. Unfortunately, many young people don’t begin to think about this until they are in their 30’s, when they have already established a family and taken on larger debts such as a home mortgage, leaving less room in their budget for contributing to a retirement account. Putting off opening a retirement account is one of the biggest mistakes you can make in your early twenties as this cycle tends to repeat itself and many people find themselves reaching retirement with nothing to rely on other than their monthly social security checks.
Create A Budget
The first step in any savings plan is to create a solid budget. By setting up a budget that includes all of your expenses such as food, rent, utilities, transportation, etc., you will be able to add a space in your budgeting plan for the ever important “retirement savings”. When setting up your budget, it is important to begin with your income and then set realistic spending limits for each necessary space in your budget. At this stage of your life, it is extremely important to actually be contributing to your retirement account each month. Getting in the habit of contributing to your retirement accounts now will help you continue to include this section in your budget moving forward, creating a plan that continously remains active in saving for retirement.
In your early twenties, it is very easy to subcumb to the pressures of society and spend any extra money you have leftover after paying bills to purchase the latest technology, clothes, purses, etc. However, following a budget that makes retirement savings a priority over splurging now will set you up for financial security well into your future. While it is certainly ok to include some leisure activities and items such as movies, shopping, and eating out into your budget, these things should be added in to your budget only after you have included a space for your retirement savings. Instead of buying the newest i-phone that will be out of date in just a few months, you could be contributing to an IRA or 401(k) that will add positive growth to your retirement savings and protect you in your future.
Prioritize Paying Off Debt
Many college graduates leave college with extensive student loan debt. Making it a priority to pay off this debt now will also help you save for your retirement in the future. The sooner you are able to pay off your student loan debt, the less you will spend on interest charges, allowing you to allocate more of your money towards your retirement savings in the long run.