Saving for retirement is sometimes not as easy as we would like it to be, especially for young renters with low income jobs. At least in my experience, after I’ve accounted for my rent, utility bills, car payments, and other monthly expenses, sometimes even buying groceries for the week seems a little extravagant.
Plus, putting away money for a retirement that’s decades away just isn’t my first priority at the moment. But retirement planning is so important, and starting to save earlier can mean you’ll end up with thousands, potentially even hundreds of thousands of dollars more when you retire than if you start saving 10 years later (thank you, compound interest!).
Here are five ways that you can start saving for retirement, even if you have a low income:
1. Pay Everything Off
It’s easy for people with a low income to start racking up credit card debt, but those monthly bills can really add up. First, stop yourself from adding to your debt by budgeting your actual income and trying not to make any big purchases for a while.
Then pay off the debt as fast as you can. Having less debt will actually raise your net worth, and you’ll be able to save the money that went toward your credit card bills – not to mention, you’ll get so much satisfaction when your credit card balance hits $0.00.
Student loan debt can feel overwhelming, but you’re not alone. Many people struggle with paying off the huge amounts of student debt that they owe after graduating college, so if you’re in that boat, just try to put aside as much as you can for right now, even if it’s just $10 a paycheck. Every little bit helps.
2. Educate Yourself
Learn from your company, your bank, your parents or other trustworthy sources about investments and saving for retirement. There are so many investment options out there that new investors can feel very overwhelmed, which sometimes makes it easier to put off saving because it’s too confusing.
Your parents will likely know your financial situation well enough to give you some good advice, but your bank and your job are two other resources that can help you get started.
3. Take Advantage of 401(k) Plans
If your employer offers retirement benefits, absolutely take advantage of them. Investing in a 401(k) is so different than just putting money in a savings account, because it can grow exponentially faster. And the earlier you invest, the more time your retirement funds have to increase.
Investing in your company’s 401(k) doesn’t have to be an immediate hit on your paycheck, either. Most financial planners will tell you to start slow by investing just 2-3% of your income at first, then increase the percentage by a couple points after a few months. Continue to do this until you’re investing 10% of your paycheck.
You’ll also notice that saving for retirement is a lot easier when it’s automatically deducted from your paycheck – who wants to think about putting 10% aside when you can so easily use it to buy yourself something nice?
4. Start an IRA Plan
If you don’t have access to a 401(k) plan, create your own individual retirement plan, or IRA. Most financial institutions, including banks, brokerage firms and mutual fund companies will be able to help you invest in a way that you’re comfortable with.
Talk to other people that you know are investing and ask what they invest in, whether it’s stocks, mutual funds, CDs, or other options. Your financial institution can help you decide whether to invest in riskier or more conservative options, although most financial planners tend to advise higher-risk investments if you’re going to have them for a long time.
You can also automate payments into an IRA plan so you don’t have to do it yourself each time you get paid, which makes saving for retirement a lot easier.
5. Save for a Rainy Day
Make sure you have enough saved up in the event of a job loss or health issue. Financial planners recommend having a savings account with enough money to cover six months’ worth of expenses, just in case of unforeseen circumstances.
Retirement plans allow you to access your money in the event of a major life event, like buying a home or paying for medical expenses, but having some money saved up may make it easier to not dip into your retirement fund until you’re actually retired.
Remember, it’s never too late to start saving for retirement. There are investments that people can make in their 30s and 40s that will help them increase their funds a little bit faster than those in their 20s, so look into those.
If you’re beginning your retirement plan later in life, consider investing 15% of your income, rather than 10% to save more in less time, and talk to a brokerage firm or mutual fund company about your best options to get started.