Retirement might seem far away when you are in your 20s and 30s, but these five steps will help you retire well off when the time comes. All of them are easy; it’s just a matter of putting them in place.
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[3:48] – Save 10 Percent Of What You Make
- It doesn’t matter if you start at 10 percent of your net or gross income, but as you get your next raise, begin to increase your saving. If you have a 401(k), put away ten percent of your household earnings regardless of whether you get a company match. When it’s time for you to retire, you’ll be glad you saved.
[6:04] – Only Incur “Good Debt”
- An example of good debt would be a mortgage because a mortgage appreciates over time. Hopefully, you have a fixed rate mortgage. Auto debt is somewhere in between good and bad debt if you get a low interest rate on a five-year auto loan. Bad debt includes credit card debt, personal loans, and borrowing from your 401(k). Never hold a credit card balance for more than a month, and don’t live above your means. Once you start living below your means, saving becomes easy.
[10:50] – Have An Emergency Fund
- Usually, this is money sitting in a bank, but it’s important when you need a new transmission or a new furnace. You should have six months of living expenses that you build over time. If you lose your job, having a liquid emergency fund to bridge you through the unexpected gap is lifesaving.
[12:22] – Cover Your Catastrophic Risks: Death And Disability
- In addition to your emergency fund, you should have life insurance and disability insurance. Buy term life insurance because it’s cheap, and you can get a lot of it. Typically, it’s more cost effective to buy outside of your company plan, so get the cheapest life insurance you can from a reputable company. As for disability insurance, you are more likely to become disabled than you are to die, but if you’re disabled, you’ll be stuck with some large bills. In this case, your company plan is probably your best option.
[16:36] – Annually Create A Statement Of Net Worth
- Every year, create a balance sheet for yourself. List all of your assets: cars, 401(k)s, houses, bank accounts, etc. and the dollar amount for each of them. On the other side, list your liabilities: mortgage, auto loan, credit card debt. Find the difference between the two, and you have your net worth. This creates a record and allows you to set goals by measuring your history. Seeing your net worth grow will create momentum.