Dear Young People,
It’s time to make an awesome plan that will lead you through a financially stress free life and a comfortable retirement. Imagine that, stress free, worry free and without a lot of pain. Sure your’re going to be responsible and pay all of your bills and taxes, but you’re also going to save.
Your plan should consider all of your needs and some of your wants (notice the word some). It is difficult to save. But once you start, it’s hard to stop. And starting needs to happen as soon as possible. Yeah, yeah, yeah, student loans, everything’s expensive, low paying jobs, I get it, but once you create the spreadsheet I recommended in my last post, and you see where your money goes, I bet there are a couple of expense categories that can be pared back; for instance – fluids (wine, coffee, tea, beer, bottled water). I get carried away with fluids myself.
What else? Walk or bike to your destinations (versus driving or taking public transportation). Investigate fun things to do that are free: lectures, free days at your local museums, find a trail and go hiking, join a meetup.com group that shares an interest of yours, go to the movies instead of going out to dinner or going to a bar for cocktails. There are so many fun and healthy things to do that are free or relatively inexpensive. Don’t get sucked into the U.S. culture that dictates status through consumerism and brand association. Don’t be a Hypebeast! It’s a losing battle that lures you onto a spending treadmill that takes you nowhere.
Figuring out how much to save is important and there are a lot of calculators online that can help you determine the amount of money you’ll accumulate given various savings amounts and rates of return. I think it’s easier to save a percentage of your earnings versus a set amount each month for the rest of your working life. Saving $1,000 month right now may be impossible, but saving 12% of your salary ($40,000 x .12 = $4,800 a year or $400 a month), may be realistic. And, we can assume your salary will go up, so 12% will turn into larger and larger amounts. Assuming a salary increase of 3% per year and a return on your invested savings of 5% per year, after 40 years you will have roughly $950,000. If you increase your saving rate to 15% after 10 years of saving, you will have $1.1 million dollars after 40 years.
And….. If the company you work for offers 401k matching, then you will be able to contribute less than 12% to get to the $400 amount. If your company matches up to 3%, you will only have to contribute $300 and your company will pitch in the other $100 (thanks Boss!). Take advantage of your company matching program to the fullest extent – it’s free money.
So, let’s say you do this and get to $1.1 million after 40 years (time flies – don’t let the number 40 stand in the way of getting busy with a savings plan). Of this you actually contributed less than half of that amount. How cool is compounding interest coupled with time? Answer: very cool.
Good luck with your budget and your savings plan. You can do this if you focus on your future (which starts in one minute).
Your one friend who cares about your future,
Connie
Investgeny.com
Follow me on Twitter @cmchristian17
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Invest Gen Y 