retirement savings

Saving for Retirement (and Other Habits to Start While You’re Young)

It’s good to start many things while you’re young, but perhaps none as important or beneficial as planning for retirement.

When you’re in your 20s, retirement may feel so far off that it’s almost unreal, but you’ll be surprised how quickly the years go by. It’s common knowledge that seniors get a lot of benefits that younger people don’t, such as reverse mortgages, senior discounts, and healthcare coverage. But there are also many financial advantages when you’re young – perhaps you don’t realize it.

Now more than ever, it’s important to be knowledgeable on finances and what you can do to maximize them. Here are some tips for building your nest egg as early as now.

Learn to be financially literate

Many Americans are financially illiterate, and it shows. Forty-seven percent of U.S. adults have credit card debt, and only 23 percent have emergency funds to last for six months. Financial literacy doesn’t just mean understanding how you make and spend your money, but also how you save it. It also means you’ll be smarter about what to invest your money on and end up wasting less cash on things you don’t need or things that aren’t worth it. Financial literacy will also give you a better grasp of your debt situation. Financially literate people generally have less debt than those who are not.

Saving up in your 20s is also likely to be easier than it would be when you’re older. Chances are that you don’t have your own family to support and that your only debt may be your student loans.

Keep track of your finances

finances

No matter what line of work you’re in, personal bookkeeping is an essential life skill. Thanks to cloud-based accounting software such as QuickBooks, this is also much easier now. These allow you to access your records wherever and whenever you want. If you have a more complicated financial situation – with your taxes, for instance – you may want to hire professional help, such as an accountant or tax specialist. Take note that you won’t need to consult them regularly but only as needed.

If you’re self-employed, you might also need the help of an accountant, as keeping track of finances is a little trickier. When you’re working for a company, your taxes are already deducted from your paycheck. But when you’re self-employed, you have to take care of them yourself. Therefore, it’s even more important to have a firm grasp on your finances when you’re self-employed.

If you’re a small business owner or are planning to start a small business, you can also benefit from an accountant’s counsel. An accountant can advise you on your best business structure, help you secure licenses and permits, and plan for the short-term and long-term growth of your company.

Have more than one bank account

The number of bank accounts you need depends on your form of employment. Everyone needs at least 2 bank accounts – one for savings and one for checking. If you’re a business owner, make sure to have a separate account for your business. This makes bookkeeping easier as you won’t get your personal expenses confused with your professional ones. It also makes you appear more professional to your clients and customers. If you engage in international businesses, you should open a foreign currency account.

You can put your emergency fund in a separate bank account from your savings, or you can opt to put it elsewhere, perhaps in a Money Market account or in a Roth Individual Retirement Account.

Take advantage of compound interest

Time is the biggest advantage that you have while you’re young, and compounding interest pays you back over time. Experts recommend building up a sizable investment portfolio as early as your 20s. Investments are better to start on while you’re young, as you’ll have time to recover even if the stocks plunge. You should also sign up for your company’s 401(k). This investment account will compound throughout your career and is sponsored by your company. Both you and your employer can contribute to your 401(k) account.

When the future is more uncertain than ever, give yourself some security by planning for your future. Financial retirement plans are some of the most important seeds you will ever plant. While you still have a lot of time, make sure to get an early start on things that take years to come to full fruition.

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