Photo by Towfiqu barbhuiya on Unsplash
Retirement can either be something to look forward to, or it can be a cause for anxiety. Fortunately, we do have some control over the outcome here. If you save up and invest strategically, it is possible for almost anyone to create better financial security for their post-retirement life. Here are five quick tips that will help you get started on the right path.
Start Early
We have all received this piece of golden advice from our parents and elders, but so few of us actually make an effort to save while we are still young. It’s a glaringly obvious, simple, and mathematically sound piece of advice. The earlier you start saving, the more you will save by the time you are ready to retire. In fact, a meagre few who do start saving from a very early age actually have the luxury to retire a lot earlier than most people.
Take Advantage of Compound Interest Rates
Compound interest (CI) is a common yet powerful concept in investments that people often fail to take into account while making long-term investments. You earn compound interest on your simple interest (SI), provided that the simple interest stays invested, or it is reinvested back for the predetermined time period.
If you start adding more money to your initial investment every month, that too will be taken into account while calculating your SI and CI at the end of each financial year. Of course, both the idea and the manual calculations can become very complicated. Use an online compound interest calculator to instantly find out just how powerful compound interest is as a tool for maximizing cash investments in the long term.
See If Your Employer Offers a 401(k) Account
Prety much everyone knows about 401(k) plans, but just in case you don’t, here’s the link to help yourself get acquainted. It’s the classic employee retirement scheme offered by most employers in the US. It’s as sound and reliable as anything can be in the financial world, provided that you are working under a reliable establishment of course.
The right 401(k) plan can help you find considerable tax relief from the IRS, so do check out the page linked above for more information. Depending on the employee’s eligibility criteria, it can help you save even more through government sanctioned medical plans (Medicare and Medicaid).
Don’t be Obsessive About It
Everything from financial professionals and random web articles will advise you to start saving a fixed minimum amount every month at any cost. However, that is not sound advice for everyone, especially for those with an insufficient income or huge, unavoidable expenses every month. In people with obsessive tendencies, this can lead to more harm than good. They often fail to prioritize even the essentials over saving what they feel they have to.
On the other hand, regular failures lead to additional anxiety, depression, and it dents your confidence. Most importantly, they lead to negative associations. Negative associations are negative emotions that we unconsciously attribute to an action every time we fail in achieving success through it. Over time, too many failures make it increasingly difficult for us to even make a conscious attempt.
When you are running on a tight budget, failure to save enough money some months is to be expected. Don’t set up an unrealistic target to begin with. Do your calculations at the beginning of every month, consider the incoming expenses ahead of time, and set forth an achievable, realistic number. Note that the core idea is to create a better future for your future self. Don’t turn that process into one more problem that your present self must deal with.
