Top o’ the Mornin’ to Ya!
When’s the best time to start investing for retirement? As the saying goes, 10 years ago – but the next best time is today! Baby Step Four is investing 15% of your income into retirement accounts.
I didn’t start this step until I was 40, which felt late, but it’s never too late to begin. In fact, while you’re in Baby Steps 1-3, you should pause all retirement saving to focus on your emergency funds and getting out of debt. Then, once you’ve knocked those out, restart your retirement investing with a vengeance!
A Roth IRA is a great place to start, since you pay taxes on the money now, but it grows and can be withdrawn tax-free in retirement. And if your company offers a 401(k) match, make sure you’re contributing enough to get that full match – it’s free money!
To illustrate the power of compound interest, consider this example. Ben starts investing $2,000 a year from age 18 to 26, then stops. His brother Arthur starts at 26 and invests $2,000 a year until age 65. But because of Ben’s 8-year head start, at 65 he has $2.3 million, while Arthur has $1.5 million! Time is a huge factor.
As you’re working the debt snowball in Baby Step 2, try to put as much towards debt as possible – hopefully 15% or more of your income. Then when you hit Baby Step 4, that 15% can smoothly transition into your retirement savings. And anything above 15% will give you a jump start on Baby Step 5, saving for your kids’ college.
Remember, in the airplane of life, you need to put on your own oxygen mask before assisting others. Make sure you’re taking care of your own retirement before saving for college. Your kids can get scholarships and work to fund for school, but no one else is going to fund your retirement!
If you follow these steps and invest consistently over time, you’ll be amazed at how your wealth will grow. Don’t put it off – start today and let compound interest work its magic!
Here’s a quick overview of the seven baby steps:
1. Save $1,000 for a starter emergency fund
2. Pay off all debt (except the house) using the debt snowball method
3. Save 3-6 months of expenses in a full emergency fund
4. Invest 15% of household income into retirement
5. Fund kids’ college education
6. Pay off the home mortgage
7. Build wealth and give generously
You be blessed!