A sound retirement strategy isn’t something that should be left until the night before your 60th birthday. As a matter of fact, if instead of waiting till the late stages of life, if you become well versed in the art of saving for retirement at 30 years of age, it can go a long way in helping you construct a great retirement strategy and provide you with a continuous source of income for years to come, even after you have stopped working.
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The obstacle most people in their 30s have when learning how to start saving for retirement is one of focus. What can they do to start saving for retirement? Where should they be directing their funds for maximum investment portfolio diversification? And how can they have fun in their 30s but still meet their retirement real estate investment goals?
In today’s post, we’ll discuss four unique tips that will help you with saving for retirement at 30 and help you reach all your wealth creation goals, without forcing you to live by the skin of your teeth.
Tips to Help You Save for Retirement at 30
Calculate how much wealth you want to create for retirement
It’s safe to say that if you don’t know where you are going, you will never reach where you want to go. And when it comes to retirement, it’s all about understanding how time and money can work together to create the financial security you desire when you retire, and then pinpointing the exact amount of money you hope to attain.
Now, there are many different kinds of retirement calculators out there. You can use the ones that suit your needs and desires the best. A lot of retirement calculators have attractive sliders and graphics which make them very easy to use.
For example, if you’re 30 years old today, making $50,000 a year, and wish to retire at the age of 68, then you’ll need to, assuming an 8% return on your investments, save at least $9500 from your annual income from now onwards (as you can clearly see, this is way more than the maximum $5,000 401k contribution allowed in a year).
Now, if you diversify your savings into different types of investments such as stocks, gold, 401k, real estate etc. your results will vary. However, the key to succeeding in this aspect is to come up with a distinct and concrete number to strive for, and then create a financial plan to achieve that goal. And the earlier you get started with it, the less you will have to save each year. So, you can go for that European holiday once in a while while still saving enough to reach your retirement goals.
Realize Not All Debt is Bad
One of the biggest decisions people in their 30s have, when it comes to saving for retirement, is deciding whether to pay off debt or build up their retirement nest egg. And this is understandable, since most of us are taught from an early age that debt is “bad.”
But not all debt is created equal. That unsecured maxed-out credit card at 18% is far different from that student loan at 5%, which can be eventually be consolidated.
The key is to look at the rate of return. Will you get a better rate of return on your investments earmarked for retirement than you will for the savings from the annual rate of your debts? If so, then retirement investing should be at the top of your list of priorities. But if you have escalating, unsecured debt, such as a car payment or a credit card or even a collection, then focus on paying that debt off first. After you have paid it off, you can start working towards building a sound retirement corpus.
Automate Your Savings
The real trick to saving for retirement, and not make it feel like a genuine hardship, is to set up systems in place that allow you to automate your savings. This allows the corpus to keep building up without you realizing it.
There are many apps and tools that allow you to do this, without giving it a second thought. These apps can “round up” any purchase you make to the closest dollar and then deposits that money into whatever type of account you choose. (Investment, savings, bond allocation, etc.)
Or you can simply set up automatic withdrawals that will take a specific amount of money out of your account, on a monthly basis, and deposit it into an account of your choosing.
And “savings” doesn’t just mean monthly income; some of the biggest saving for retirement benefits you’ can get are from “banking” larger proceeds: such as raises, tax refunds, any kind of large financial windfall.
Put Your Lifestyle on a Diet
Sure, those jet skis look fun and that daily five-dollar latte sounds nice, but the truth is most of us have much more room in our budget for retirement than we think. That’s because most of us have numerous (and extraneous) expenses which can, and should, be eliminated to build future wealth.
One of the easiest ways to do this is to simply look at your bank and credit card statements. Go through those statements very carefully and find out how you can cut your expenditures. Things like subscriptions, hidden charges, and memberships can eat into your savings, without you realizing it.
There are also certain things in life that we might consider to be necessities (cable television, high end luxury cars with all the bells and whistles). If you take a closer look at those things, you will realise that those aren’t really necessities and you can easily do without them. In case you use streaming services like Netflix, Prime Video or Hulu, you don’t really need a cable connection since every show or movie you might want to watch will probably be on those services. When it comes to high end luxury cars, they tend to have pointlessly expensive features like automatic windscreen wipers, headlamp washers and boot closing buttons. These are things you certainly don’t need. By opting for a cheaper alternative you can put more money in your retirement savings, and get you that much closer to the day you can finally say “I quit” to the rat race.
Conclusion: Saving for retirement at 30 begins with a single step
Saving for retirement at 30 doesn’t necessarily have to be about making major sacrifices and depriving yourself of every worldly pleasure. You don’t have to live by the skin of your teeth in order to achieve that goal. It’s about realizing that slow, consistent savings, over time can make a huge contribution to your retirement savings. And the more you can systematize your savings, and the less you have to consciously think about it, the quicker you’ll reach those retirement goals no matter how lofty they may be.