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No matter what age you are, you must begin to save now, and do it regularly. There is no excuse. You may think you can’t afford it, but, the truth is, you can not NOT afford it. If you are living paycheck to paycheck, if you have debt, if you are young, you still need to save. The best way to save is to do it automatically, that is, have a fixed amount taken out of your paycheck. You will not even see it. Put it in a retirement account. The amount should be at least one percent of your salary. Your savings is your insurance. You can adjust to your new net budget—yes, you will–, but you will not be able to adjust to having no retirement in the years ahead.
Not to harp on it, but if your have an employer who is matching any contribution you make to a retirement fund like a 401K, if you are not making your individual contribution, you have just reduced your salary. You have missed a golden opportunity to save more than you are able. You are losing growth that will accrue over the years. A $300 a month contribution can become over $70,000 in less than 20 years. Start saving on a regular basis NOW.
Also save by not going into debt. Learn about how to save on mortgages in another article at Pennypinchinghints.com. It is not true you should enter retirement with a mortgage on your house; you should pay your house off within a maximum of thirty years. Don’t go into debt on a car loan for more years than you are likely to drive the car. And, you should not use your credit cards, except when you can pay them off at the end of the month. If you are in credit card debt, put those cards in a drawer and start saving to pay them off, beginning with the card that has the highest interest rate. (You can learn more about getting out of credit card debt at Pennypinchinghints.com.) And, when paying down your debt, still save monthly!
Finally, know how to save. If you put your money into CDs and bonds, you can lose out to inflation and taxes as they rise over the years. If you put too much in stocks or equities, you are taking on too much risk as many found out in 2008. A rule of thumb is to subtract your age from 110. That is the percentage you should carry in stocks, and they should be Index Stocks, not stocks you choose individually. Last, consider Roth IRAs over regular IRAs. Yes, you will pay taxes on them up front, losing the tax credit, but when you go to pull those funds out in your later life, you will have paid the taxes—we hope at a lower rate—and you can avoid paying taxes on the accrued interest if you have a Roth for more than 5 years.
Saving is the new way to manage your finances. Borrowing is not the way to go. That does not mean never to borrow for a car or a house, but a car or a house is not an asset today. What you have in savings are the assets of your future.
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