Investing & Saving for Retirement on a Budget

Yes, it really is possible to stash away a bit of cash for your future – even when you feel as if you’re living paycheck to paycheck. The sad reality is that the payday-to-payday syndrome is now the norm, but there really are ways to break free without compromising your budget.

If you are under 30, reaching retirement age is almost unfathomable. And if you have a family, retirement seems not only some vague concept that applies to others but also an impossibility. The reality is 20 or 30 years can go by faster than you think, so it just makes sense to plan as much as possible for that day.

A Winning Concept: Pay Yourself First!

This is really what investing and saving for your retirement is all about. Putting money into savings, retirement, and/or investments (before you do anything else with it) makes it easy, automatic, and budget-friendly. Even if all you can allocate is $5 a week, that amounts to $260 a year before factoring in interest earned.

Let’s say you can save $15 a week for 25 years: at an 8% annualized return, you’ll have $62,183. Save $30 a week for the same 25 years with the same rate of return and your nest egg becomes $124,365.

How to Start

The trick is to form a weekly habit that pays you back. The safest way is to first build up a contingency fund that is accessible if you have an emergency. This is best done with a savings account. Granted, the interest rates on savings accounts is low, but you have 24/7 access to that money if you need it.

This is the time to get out from under all those school loans and credit card bills.  Pay down and then pay off the card with the highest interest rate. Keep working through all your credit cards in this order. Your focus is on putting an end to paying interest on anything other than your car loan and mortgage if you have one.

Interest Rates You Pay

Renegotiate fees as they take a big bite from your budget. At least once a year, review all your monthly payments such as mortgage, insurance policies and credit cards to see if you can find a better deal elsewhere. Bankrate.com is a free and user-friendly online tool that lets you compare rates.

Retirement Accounts Through Your Workplace 

Employee programs are the easiest way to start saving today. Does your employer offer a 401(k) (offered by for profit employers) or a 403(b) (offered by not-for-profit employers)? Does your employer offer Roth IRA and/or Roth 401(k) plans? If so, enroll ASAP. Most employers match a percentage of contributions, up to certain limits, but generally only if you chip in. So contribute enough to qualify for all of the free money available to you.

Retirement Account Options if Your Company Doesn’t Offer One

There are a number of retirement plan options available to give you flexibility in terms of how you invest in your retirement. Do you want more flexibility regarding when you can spend the money? Investigate a Roth IRA. Like standard IRAs, Roth IRAs are funded with after-tax dollars and offer tax-free income in retirement. As a potential first home buyer, Roth IRAs offer an added bonus. Once your Roth IRA has been open for 5 years, you can withdraw some of the investment gains you’ve made penalty-free based on certain requirements. Using part of your money to pay for your first home is one of these requirements. As a side note, anyone can open an IRA or Roth IRA.

Other Possible Investments

Index funds and mutual funds can increase your investments incrementally each month, but it is necessary to watch out for and understand fees associated with these investments. An ETF (Exchange-Traded Fund) is a marketable security that tracks an index, commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold whereas mutual funds trade only at the end of the day at the net asset value (NAV) price.

If you are considering investing in these, look into the various investment apps, often referred to as Roboadvisors, to 1) help you make decisions and 2) keep your costs down. Acorns and Stash let people get started with contributions as small as $5. Wealthfront requires a minimum of $500. Betterment does not have a minimum balance, but if you have less than $10,000 in your account, you must contribute at least $100 per month to avoid higher fees. 

Remember, the lower the fees you pay, the more cash in your pocket or account!

Read and ask questions so you thoroughly understand your various options to invest in your future. Start small; build a nest egg for emergencies; pay off high interest rate debts and set yourself up with a savings habit for years to come. When you find yourself sitting on the beach on that long-imagined island, you’ll be glad you did.