Babies crawl before they can walk. Their first step is the most important — it is the beginning of a lifetime journey.
If you know you should begin saving and investing for retirement, don’t worry about making a giant leap forward. Taking one small step toward retirement savings can lead to momentum.
“People don’t act if they don’t think their actions will improve their situations, so the whole concept of baby steps is a great idea,” says Dave Littell, retirement income program director at The American College.
Here are seven tips to march toward a rich retirement.
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Start with a learning experience
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You want to get psyched about retirement saving and investing. A baby step toward that goal is to educate yourself about the best ways to save and invest. “Learning something new can get you motivated,” Littell says.
He suggests novices take courses in retirement saving and investing through local adult education programs. Next, do your own research.
Make a point to learn the most appropriate saving rate for you. If you are saving for 30 years toward retirement, it is recommended you save 15 percent annually, including both employer and employee contributions, Littell says.
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Create a simple financial plan
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Take another baby step forward by creating a simple financial plan.
Recognize that creating a financial plan does not have to mean you’re saving for yachts and a retirement in the South of France, says Craig Bartlett, division consulting manager for U.S. Bancorp Investments.
A financial plan can be the blueprint for having X amount of dollars saved by age 30 or any other life stage. “By looking at a shorter time frame and a more modest goal, it becomes far less daunting,” Bartlett says. “That’s because you’re not focusing on 50 years, but on five years — or even less.”
Keep in mind the plan is simply a piece of paper. “It’s the process behind it, of regularly reviewing it to make sure you’re on track, that’s important,” Bartlett says.
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Equate saving to exercising
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Saving money is like working out, says Gina McKague, president and CEO McKague Financial.
Many say they skip exercise because they don’t have the time, but it’s likely they could find time if they tried. It’s the same thing with saving, McKague says.
Fitness experts advise taking an approach that will keep you exercising, whether it’s working out at a health club or at home. Good savers follow similar regimens that work for them. McKague clips coupons and uses the “24-hour rule” on large purchases, pondering a purchase for a full day before buying.
“These make an impact over time and create a frame of mind,” she says. “When you see growth, you’re eager to continue going that route. It’s like seeing progress from working out and wanting to get to the gym.”
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Let an app guide your finances
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If you don’t trust your saving discipline, you can enlist an ally in developing such self-control through a mobile phone app such as Digit or Level Money.
Because it is simple to use and links to a single bank account, Level Money is particularly well-suited to retirement savings newbies, McKague says.
“It has a basic algorithm,” she says, which reads your expenses and takes a portion out of your leftover funds. “It will automatically move a few dollars every few days into savings accounts. It’s not going to be really impactful, but it allows you to create a frame of mind to become a saver. We know we need to save, but we can’t always see where all the expenses come from. This puts it into perspective for us. It’s a very simplified tool.”
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Focus on the upsides
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Too many calls to save and invest emphasize the negatives, such as the fear of outliving your savings or having to work until you are 80. Those negatives deaden the will to get started.
But focusing on the positives, such as the enormous wealth you can generate by starting to save early, builds excitement and motivation, says Gene Natali Jr., co-author of “The Missing Semester,” a book designed to help young people take ownership of their financial futures.
College students he meets with “get excited seeing the opportunities if they save a dollar a day,” Natali says, adding that focusing on such positives can help beginning savers of any age. “Use the positives to conquer the negatives.”
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Open a myRA
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If your employer doesn’t offer a tax-advantaged retirement savings program, such as a 401(k), you can start one yourself. Take advantage of the U.S. government’s myRA program, expressly designed to get newcomers started toward tax-leveraged retirement savings.
“You can fund it with payroll deductions through your employer, you can fund it through a deduction from your own checking account, or you can use your (federal) tax refund to fund it,” Littell says.
The myRA “is intended to make it really easy for people to get started,” he says. “If you have never done any retirement saving and your employer doesn’t have a retirement plan, you should open a myRA. It’s incredibly easy.”
Once you’ve accumulated some funds, you can transfer or roll over your myRA to a Roth IRA. The maximum you can save in a myRA is $15,000.
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Replace ‘get it right’ with ‘get it started’
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Some would-be retirement savers and investors never get started because they assume they must have the perfect plan right from the start. That thinking is misguided, says Ken Sutherland, a registered investment adviser and founder of LifePlan Group.
“My take is, keep it simple,” he says. “Don’t try to get it right. Just get it started; build a habit of saving.”
Start by depositing 5 percent of your take-home pay into a savings account. If your paycheck is automatically deposited, transfer that money from checking to savings automatically. If you have a 401(k), save up to the level at which your employer matches your contribution — and beyond, if you can.
The younger you are, the more sense it makes to fund a Roth IRA, Sutherland says. “Once a year before doing your taxes, transfer your savings to a Roth,” he adds.