We are part of a messed up generation living in messed up times. The majority of kids born in the 80′s and 90′s (myself included) have grown up with the mentality that “I’m entitled to this” and that “everything should be handed to me.” Most of us are lazy, dependant on someone else (family, government, etc), and most importantly we are HORRIBLE with our money.
The money that people earn today is looked at as “money to spend now” and not “money to save” or “money to retire with.” Social Security will be completely gone by the time our generation (known as Generation Y or the “Echo Boomers”) gets ready to retire. That being said, do NOT count on the government, your family, or a gold egg laying chicken to take care of your retirement. There are people well into their retirement years that are still working because they did not plan for their retirement. Listen up and that won’t be you!
The biggest advantage of being young is time. Compound interest is an AMAZING thing that will help your nest egg (money saved for your future/retirement) grow and the more years you have to compound that money the more money you will enjoy during retirement. There are several outlets available to you to grow that retirement nest egg (some shown here).
1. The first retirement savings method I will discuss is the 401k. The 401k is a part of the tax code that allows you to put money from your paycheck into a tax deferred 401k plan. This allows you to not only save money on your taxes at the end of the year, but to let more of that 401k compound year after year. Most employers that offer 401k also offer employer matching. Employer matching is when the employer matches 100% of a certain percentage of the money that you put in to your 401k.
Example: If I put in 5% of my paycheck into my 401k (lets say that comes out to $100.00) and my employer matches 100% of 5%, that’s a free $100 every 2 weeks. Does this sound too good to be true? It is, so take advantage of it if your employer offers it.
2. The second retirement savings method I will discuss is the ROTH IRA. The Roth IRA allows you to put up to $5000 dollars every year ($6000 if you are over 50) into an account after tax. The great thing about the ROTH IRA is that when you reach retirement age (65 or 59 and a half if you are still working) you can take that money out TAX FREE, regardless of how much money you might make at the time.
3. The third method to grow your nest egg is to keep track of your finances. Mint.com is a great way to easily track your spending, but even a simple excel spreadsheet would suffice. Why is this important? I recently looked at my restaurant spending a few months ago and realized I was spending $700 a month on restaurants. YIKES! Obviously I rectified that in a quick hurry and have since been able to put more away for retirement. Know where your money is going and I guarantee you it will pay off (no pun intended).
This article was not intended to scare anyone but instead to get people thinking about their financial future. I wish you the best of luck in your financial endeavors!
Until next time,