Retirement seems far off for people in their 30s; it’s easy for individuals in this age group to think that they don’t need to start saving. The daily pressure of providing for a growing family can also place the financial focus on the here and now. However, money will multiply, if invested wisely over a long period of time. By setting aside a small amount of money in your 30s, you can build a suitable retirement savings by the time you reach your 60s.
1.Create a budget and control your spending. Use a spreadsheet to list your expenses and bills. Things such as your mortgage payment, phone, cable, electricity, utilities, and grocery expenses go on this list. Include your debt (credit card, auto payments and student loans). Determine your net income, or how much you have left over each paycheck after taxes. Subtract your expenses from your gross income to see how much money you have left over. This is where your retirement savings will come from.
2.Determine your risk preference. Decide how comfortable you are with the higher risk associated with higher returns. Historically, the stock market, and specifically the S&P 500 Index returns about a 9 percent rate of growth over time. This growth rate is high enough to outpace inflation. Consider investing in a mix of stocks, mutual funds and bonds. Bonds are more conservative than stocks. Mutual funds are collections of stocks that help expose you to more of the stock market, which may decrease your risk of loss. If you are uncomfortable with the stock market, there are other, more conservative options available to you in annuities and money market funds. Be aware that, in general, the less risky or aggressive a product is, the less growth it offers.
3.Contribute towards your employer’s 401(k) or retirement plan. If your employer matches employee contributions, contribute the required amount to receive the maximum match. Think of this as free money and take advantage of it. Consider investing your retirement funds in a tax advantaged vehicle such as a Roth or Traditional IRA account.
4.Practice diversification and reallocation, two investment strategies that will help your retirement savings grow over time. Invest in a variety of financial products rather than just one or two stocks to reduce your risk. Every six months, review the performance of your retirement saving accounts and transfer money from over-performing funds into under-performing ones to reset your investments to their original allocation.
5.Increase your savings over time. As you pay down debt and receive income promotions or increases, allocate all extra money towards retirement savings rather than spending it on frivolous items today. This will help you maintain your current standard of living during your retirement years.