Do I Need to Save for Retirement in My 20s
Financial planning is one of the most valuable habits to form. Believe it or not, this is especially true the younger you are. Some people believe the myth that financial planning is for your 30s, but the sooner you start, the more stable and secure you will be as your life, goals, and dreams change. If you are one of the millions of Americans just starting out on your own — from graduating college to making your first career move to — here are a few helpful tips to build your credit score, create a stable bank account and bulk up your savings.
Building Your Credit
You may be one of the 70 percent of college graduates with substantial student loan debt. It is serious and something to be proactive about, but it’s also something that you should try not to stress about. Focus on other, more impactful ways to build your credit.
Your bill payment history is crucial here. You don’t need credit cards to have credit, but in order to have good credit, you’ll want a reliable payment history. Start paying down as much debt as you can to lower your debt level score and increase your credit history.
Planning for Major Expenses
Bulk your savings early on is a great way to create a travel fund, purchase a car or save for a down payment on a home. Real estate is a powerful investment and credit-building option for many first-time homeowners. Having a down payment is crucial to get the most out of your finances. Start adding 7 to 10 percent of your income into a savings account. Pick up a side hustle or start a part-time job where you only funnel the money into savings. Be patient; saving for a down payment takes time. You can move time faster by reassessing your spending and adjusting your savings plan from time to time.
Saving for Retirement Now
Your golden years are a long way off, true, but the recommended retirement savings should be no less than four times your annual income. If you start adding to your 401k now, especially if your employer matches, you can get to that difficult number much more quickly.
Try to start by putting 15 percent of your salary into retirement. If that seems too challenging right now, avoid giving anything less than 7 percent. Once you hit your 30s, try to work that percentage up to 23 to 25 percent and you’ll have smooth sailing well into retirement.
Budgeting for the Present and the Future
Learning how to budget now will be a lifesaver and a game-changer at every crossroads in your professional and personal life. A budget can not only help you keep track of your finances now, but it can also help you set and achieve your goals for the future.
For instance, a strict budget now that accommodates for savings and spending can help you decide how much salary to ask for when you’re offered a promotion. Following a budget helps you understand how much time you need to save up for the things you want. What’s more, it also teaches you what is most important to achieve in life.
When you’re young, it can seem like financial planning and credit scores are far off in the future. However, that is part of the reason why our data is at risk — we have to take it seriously from the moment we have some credit attached to our identity. Be proactive with your credit and wise with your finances to protect your money and keep it safe.