3 Things That Can Help Your Retirement Savings
You've started the long journey of saving up for your retirement. It's great that you're already making headway! To make your journey a little easier, you should follow these simple financial tips:
1. Prepare for Emergencies
When it comes to retirement savings, the number one rule is to not touch it until you need it. If you make a habit of pulling money out of the fund, you'll ruin your savings goals and leave yourself with a much smaller nest egg by the time you retire. You need to leave it alone and let it grow.
This is easier said than done since people often turn to their retirement savings as a solution when they have to deal with an emergency expense. When things go wrong in the present, it's tempting to use your future funds to recover.
There are three things wrong with doing this:
- You're sabotaging your future savings for your retirement years.
- You're going to face early withdrawal penalties. There are some exceptions for this, like with the CARES Act passed for the purpose of pandemic relief.
- You're setting a precedent to use this improper solution once again.
You can avoid these problems entirely by setting up an emergency fund. These are savings that you can safely use to cover an urgent expense without disrupting your budget — or your retirement savings.
It will take time to put together a reliable emergency fund. In the meantime, you can set up another safety net like a personal line of credit to help you manage urgent expenses outside of your budget. If you're curious about this option, click here to get answers about what exactly is a line of credit and how does it work. It might be the solution for you.
2. Take Advantage of Employer-Matching
If you have an employer-sponsored retirement plan, you should see what 401(k) matching your workplace offers for your annual contributions. This should give your savings a significant boost without much effort on your part.
Take a careful look at your employer's plan. Your employer will have certain limitations for the contribution amount that they match. They might also require certain qualifications for employees to access this opportunity. For instance, you might have to be an employee for a certain number of years before they allow matching. So, if you're a fairly new employee, you might not get to try this investment strategy just yet.
3. Tackle Your Debts
Think of what you want your retirement savings to cover when the time is right. You want to use them for housing, utilities, food costs and other essentials — you don't want to use them to whittle down your debts. And you certainly don't want to have your debts grow when you don't have the energy or the income to tackle them. The slippery slope could lead to some serious financial trouble in your golden years.
That's why you should prioritize paying your debts down now! Focus on high-interest, non-mortgage debts that you would like to have off of your plate by the time you retire, like your student loans, auto loans or your mountain of credit card debt.
How do you start? You can try the snowball method to slowly tackle your debts and gain momentum over time. The longer that you stick to this method, the smaller and smaller your debt-load could get.
Your retirement isn't as far away as it seems. It will be here before you know it! That's why you should follow these tips and take care of your finances now.