Finance gurus like Dave Ramsey say that you should put off saving for retirement until you have all of your debts paid off. I followed this advice, but in my case it was detrimental. Lately I've been wondering about the wisdom of that advice.
Consider my case. I was raised in a household where neither of my parents saved for retirement because they were living paycheck to paycheck. When my dad died at 38, the only “retirement” he had was Social Security. My mom had to scramble to find a job and start saving for retirement.
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Saving For Retirement While In Debt
In my own case, I graduated with my bachelor's degree when I was 24. I worked for two and a half years after that, but all my extra money (and there wasn't much because my job paid so little) went on my student loans. I couldn't pay them all off before I went to graduate school. I graduated from grad school when I was 29, and I've just now finished paying off my student loans.
I never set aside money on my own for retirement because I thought I never had the money because I had to focus on paying down debt first. I would be in serious financial trouble right now had my employer not mandated that all employees have 8% of their pay taken out and contributed to their retirement fund. Because I worked for the company for more than five years, when I quit, I walked away with my retirement contributions plus the company's match.
Does this story of not having money to save for retirement sound familiar? It should because studies show that 80% of people, even those close to retirement, have less than $100,000 saved for retirement.
If you, too, think you have no money to save for retirement, first realize that even if you can't save as much as you want for retirement, saving something is better than saving nothing. The earlier you can start the better because you'll have compound interest on your side.
Whether you're a broke college student or a family juggling expenses and trying to make ends meet, you can use these strategies to find money to save for retirement:
1. Use Your Tax Refund.
If you're one of the Americans who gets a tax refund every year, consider using it to fund your retirement account. Many people tend to think of tax refund money as blow money. They use it to treat themselves, to take a vacation, or to buy something they've wanted but didn't have the money for. Why not instead use it to invest in your retirement fund? Year after year that money will multiply and grow, securing your future.
2. Automatically Deposit A Small Amount.
Part of the trouble with retirement funding is that it takes discipline. Take the discipline out by making the deposits automatic.
Have a small amount automatically deposited every paycheck or every month. Even if you can only afford $10 or $20 per paycheck, that can be a $40 to $80 deposited a month depending on how frequently you're paid. That doesn't sound like a lot, but over time it adds up.
If you prefer there are tools that will help you to save automatically with no input from you like Qapital.
3. Use “Found” Money.
Another strategy is to use found money. For instance, keep your excess change in a jar. Every three months or so, cash it out and put that money in your retirement account. That could add up to about $150 to $200 a year depending on how frequently you pay in cash. Another idea is to put any money you get from rebates into your retirement account.
Even if you feel like you have no extra money, these strategies can help you build your retirement fund little by little.
When you're more financially stable, you can always add more. The important thing is to get started now with whatever money you can find.
What strategies do you use to make saving for retirement easier?