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Create your Saving Strategy

The earlier you start, the more advantages you'll have.

When you regularly put aside even a little money at a time, you could find yourself sitting on a significant sum decades down the road to retirement.

First, budget to save

Rule #1 of retirement planning is "pay yourself first." In other words, put money away for the future before you can spend it elsewhere. However. You still have living expenses-groceries, housing, gas, insurance, entertainment, etc.-to deal with. That's where a monthly personal budget can really help you.

It shouldn't take too much time to draw up a personal budget. When you do, you'll see on paper how much money you make each month, how much you spend each month, and what you spend it on. With this knowledge, you can make smarter financial decisions-and get better financial planning advice.

Next, manage your debt

Many people feel so burdened by high-interest debt (usually credit card debt) that the idea of regularly "paying themselves" even a small amount seems impossible. 

You probably can't get rid of big debt quickly, but you CAN knock down those big interest rates fast. Look into credit cards that will, for a limited time (say, 12 months) offer a very low interest rate or no interest at all when you transfer your other card balances to them. Some people choose  to pay themselves by putting away the money they save on interest charges. Others use it to pay down their debt. (Note: These credit cards will usually charge you a fee of between 3% and 5% to transfer your balance)

Understand risk and reward

So where should you invest your retirement savings? The answer is different for every individual-so it's a good idea to discuss your situation with a credentialed financial professional before you make any investment commitments.

Keep in mind the idea of "risk and reward." While no one can predict the future, history shows that the investments that carry the highest risk also deliver the biggest returns (when they are successful). Lower-risk investments will more likely yield smaller returns.

Higher-risk investments are especially appealing if you're a younger investor. With your money locked away in your retirement plan for decades to come, you can "ride out" fluctuations in the market.

As you get closer to retirement, you'll  want to consider switching to less risky investments. This allows you to preserve the funds in your portfolio and experience consistent, if lower, rates of growth.

Take advantage of automatic investing

Here's the easiest way to "pay yourself first": If your company offers a defined-contribution plan such as a pension or 401(k) plan, enroll in it as soon as you're eligible. You'll benefit in several valuable ways:

  • The money you invest (your contribution) is withdrawn from every paycheck automatically. You never have to worry about putting money aside.
  • Your contributions come out of your paycheck pre-tax. That means the government withholds less tax from every paycheck (another way to save money!). Chances are, your paycheck won't even feel that much smaller.
  • You can contribute the amount that's most comfortable for you, up to a limit.
  • Your retirement fund grows two ways: through your regular contributions and through compounding.

Plus, your employer may offer one more very generous benefit….

When free money is on the table, take it.

Some companies (especially larger ones) will match some or all of the money you contribute to your retirement plan up to certain limits. As a result, your retirement savings can grow even faster.

Related Links

- Retirement Calculators

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