When you’re living paycheck to paycheck like many Americans, the thought of having to save for retirement sounds difficult, if not impossible. What if there was a way to live well and save for your Golden Years? Would you be willing to give it a try? This guide gives you meaningful advice on ways to stretch your earnings even further to live comfortably as a retired person.
You see, there are many people under the misconception that they have to save a bunch of money at once to be able to afford retirement, and that’s not true. It’s a numbers game, and if you get good at it, you, too, can have a comfortable lifestyle to live in your older years. It will require some sacrifice from you now, though.
What in the World is Compound Interest?
The key to your success is through compound interest. Simply put, it’s the terminology used for interest that compounds or continues to grow as your original sum of money invested grows. It’s the interest that the money you’ve earned interest on earns. As you continue to put money away in a retirement account, you’ll see a substantial return on your investment once you’ve reached retirement age.
A simple interest calculator like the one available at Compound Daily helps you better understand how compound interest works. It makes it easier for you to see how your money grows with each year that you have it invested. For someone with a very tight budget at the moment, it makes sense to see how well it will take care of you in the future. If you have an employer match program like a 401K, it lets you max it out efficiently to get to your retirement goals faster.
Ways to Make Your Income Stretch So You Can Continue to Save for Retirement
If saving for unexpected expenses stresses you out because your paycheck is stretched too thin, this section is for you. It gives you a better idea of what you can do to make the most of what money you have access to without causing you to break out in a sweat in the middle of the night. There are ways to maximize every dollar that you earn and spend, particularly those you choose to invest in a retirement fund.
Here are some ideas that can help you stretch your paychecks so you have the opportunity to save for retirement no matter what your income may be currently:
Start now while you still have time to save.
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The younger you are, the easier it will be to start small and see a significant amount of retirement savings. If you’re in your 20s, you have 40+ years to save. If you’re in your 30s, you have 30+ years to build your retirement account. Think about ways to make saving and investing in your future a part of your today. It may take some skill and extra effort, but you’ll get a high return on your investments.
Max out employer contributions.
You can double what you have available to invest by maximizing what your company matches in a 401K account. For example, if you make $50,000 a year and the employer matches 100 percent of your contributions on 3 percent of your salary, you’ll have an extra $1,500 a year to invest. As the interest compounds at a rate of 7 percent, you’ll have $280,000 in 30 years when investing in stocks or stock-based mutual funds.
Invest your raises and tax returns.
Take the money you get in raises and tax refunds and invest it in an IRA. It’s money you weren’t counting on receiving and can easily be used to make your future brighter. With a 401K and an IRA, you’re doing your part to maximize every dollar that you’ve put away and invested. You’ll have a much easier time reaching retirement age with a good amount of money to live on. If you make saving money the norm, it won’t feel as uncomfortable cutting back your budget further.
Create a budget that allows you to count retirement as part of your monthly expenses.
It may be hard to squeeze one more expense onto your budget but do it when it’s the right time for you. Once you start to invest for retirement automatically, it’ll become second nature for you. You’ll have what you need available to pay your bills because you sat down and accounted for every dollar that you earn. It’s called zero-based budgeting and something that financial guru Dave Ramsey writes and speaks about frequently.
Find ways to generate income that doesn’t require much effort on your part so you can invest more of your paycheck.
Passive income streams can help bolster your retirement savings by freeing up the money you earn from your full-time job. Look into the things you can do with very little effort. You’ll be surprised at how many opportunities exist that you can do online without much time or money involved. Affiliate marketing, selling digital products online, and even creating content that can be recorded once and viewed by subscribers on YouTube or educational platforms such as Skillshare, Coursera, or Udemy can bring in extra funds for you. You can rely on that money to take the burden off your living expenses and invest more of your regular paycheck.
Not everything listed is something you’ll be able to do reasonably. Still, it’s important that you know that financing your retirement isn’t an impossible dream. It’s about prioritizing your future. If you start saving now and putting away money every year, you can easily have a good-sized nest egg to rely on when you retire.
Start Small and Continue to Build Your Retirement Fund as Your Income Increases
Your circumstances may change, and you could very well have access to more money to invest soon. Learning to tighten your belt even more now makes it possible for you to save more of your future earnings. Rather than spend them on things you don’t necessarily need or can easily afford, you put the money into a retirement account that grows substantially throughout the years. It’s a better way to spend what you’ve made and prepare for the future, whatever it brings for you and your family.
