A lot of people don’t like to talk about it, heck a lot of people don’t even like to think about it. Retirement! Planning for retirement by stuffing money away should be a big part of everyone’s lives but many people either find it impossible to save for the long term or short term for that matter. There are many types of retirement plans and it’s kind of a guessing game figuring out which one is right for you. I am going to cover the types that most people can get which are Traditional IRA, Roth IRA, and 401Ks.
Today, though I am going to address how much you should really be putting away. Do you have any guesses? There are tons of numbers floating around out there with most of them being “as much as possible answers” which can hardly be considered wrong. Here are a few assumptions I have:
- You never touch this money until you are retired. NEVER!
- You need to add to this in the Aesop’s fable manner that the ants did. Diligently and consistently.
- High on your priority list. Higher than a house, a dog, or a new car.
So how are you to figure out what you can save? Or what you should be saving? These suggestions may not work for everyone, but I believe they should work for most people. The first thing is realizing how you indeed spend your money. This part of the task involves sitting down and adding up how much money you spend on housing, owning/driving a car, maintaining your life style (eating out, drinking, general merriment). I suggest doing this over a few months or a year or looking back over the previous year then compare that to your take home pay, if you get direct deposit this number should be how much your bank account rises by every 2 weeks, 15 days, or month…… or every Friday. At a bare minimum, I suggest that you sock away at least 10% (up to 15%) of your take home pay into one of the above mention retirement accounts consistently over your entire career. This shouldn’t be looked at as reducing your paycheck, but a necessary evil that you don’t have any say in like taxes or wearing a seat belt.
What if you can’t seem to make 10% work? Odds are you are not trying hard enough. Sit down and figure out what the REAL costs are in your budget whether it’s driving your car more than you should, eating at expensive places, heck even home repairs can affect what you think you can afford. If you do find a point when you think you can’t cut anything else but still can’t meet a 10% goal, I would talk to somebody you trust to see if they think you are simply living out of your means (I think this would be a rare instance).
If you are a friend to poor money management sometimes there needs to be a priority to get rid of debt such as a car purchase, credit card debt, or anything else that can harm or negate any savings. And like everyone else says keep a slush fund of a few months cash in case something happens and you need to pay your bills while your leg heals from falling out of a tree.
A few disclaimers for everyone. Don’t take advice from me and expect to make money, be wiser, or more successful.