How To Start Saving For Retirement In Your 20’s
I remember when I was in college, thinking about retirement.
(yes, I thought about retirement in college. I was an accounting major….what did you expect?)
How can I start saving for retirement in my 20s? Doesn’t that sound awful? Will I be wasting my 20s away so that I have money when I’m old? That doesn’t sound like much fun….. And so on and so forth is how my thoughts went.
To me, saving for retirement in your 20s sounded so boring. It sounded like every month, or every time I got paid I would have to take money from my checking account, not spend it, and put it in savings and let it sit there.
And then, magically, when I retired, there would be enough to live on.
I’m not THAT much older now, but in a short amount of time I’ve learned some valuable lessons about saving money for retirement that have made the whole process, easier, more enjoyable, and *gasp* fulfilling:
- Diversification is good: just like income, diversifying your retirement savings is a good thing. It protects you, your money, and keeps life interesting.
- Automation is your friend: When the money comes out automatically, after the first couple of months you won’t even miss it.
- Saving can be fun: Sure, when you’re broke it’s hard, but when you get to a place where you have surplus income, watching those account balances grow is actually pretty awesome.
By embracing the above points and being strategic with my diversification, I found out when I sat down to write this article just how much I was saving, and it was eye opening to say the least.
I thought we were saving about $1,800/month but in reality we’re saving much more than that.
Here’s the breakdown + how you can copy our methods….
Start Saving For Retirement In Your 20s (Our Tips):
In Our 401(k)s:
Using employer-sponsored 401(k)s are one of the easiest and most lucrative ways to bank extra cash.
They’re simple to set up (usually you do this when you complete on-boarding paperwork) and once you’ve set it up, the deductions come out of your paycheck automatically. It’s like you never had the the money, so you can’t miss it!
The cherry on top of an employer-sponsored 401(k) is the possibility of a company match. An example of this is a 4% match: if you put in 4%, the company will contribute another 4%. If you contribute 2% of your salary, your employer will match that with an extra 2%. And if you contribute 6%, your employer will still contribute an extra 4%.
Basically, an employer match is free money and you can’t afford to miss out on that!
Currently, we’re saving $537.51/month in our 401(k)’s
Look into you employer’s 401k(k). If they have one, start small with, say, 1% of your paycheck deducted and deposited in the account. Also look into if they offer a match. If they do and you can swing it, maximize the amount of free money (employer match) that you get!
Savings Amount: $537.51
Currently, we’re in a busy season of life.
You’re probably in a busy season of life too.
Which is why I’m loving how much money Digit is helping us save. Digit automatically analyzes our spending patterns and then withdraws money in amounts and at times that we won’t notice/miss the money. It then sits in our Digit account and can be withdrawn at any time, as often as we’d like.
To date, Digit has saved us more than $2,400, and we just recently told it to “save more” so while our monthly Digit savings vary, we can expect an average of $350/month to be automatically set aside for us.
And did I mention that Digit is free? Check out Digit here.
Savings Amount: $350
Did you have a change jar growing up?
How about now, here at home.
I have to be honest, we don’t have a change jar because there’s no point. All we use are cards anymore! When we were first married (and broke!) we had a change jar because we used cash frequently and I was a server.
And even though that change jar wasn’t a ton of money, the $80-$90 that were in it when it was full saved our butts more than few times.
Today, my digital equivalent of a change jar is Acorns. Basically what Acorns does it round up transactions on your debit card, and deposit the “change” into an investment account. It’s not a ton, but it’s free, automatic, and is a nice way to round out our savings.
Savings Amount: $50
As our lives get busier and busier, you’ll start to see a theme: automation of our savings is completely necessary. I don’t have time to think about how much we’re saving each month, when we’re saving, or even maintaining an investment account.
So we’ve turned to Betterment.com to automate both extra savings and how they’re invested.
Three reasons why this is awesome: First, within Betterment you can set up “Savings Goals” that are named whatever you want them to be. On each and every Savings goal you can change how it’s invested easily with a dial that adjusts the allocation between stocks and bonds. If you’re a newbie to investing, Betterment will help you determine how you money should be invested based on your risk tolerance, goal, and the amount of money in each Savings Goal. They aim to make investing easy and accessible for everyone, and I think they’ve succeeded.
Even better, Betterment allows me to schedule automatic, monthly transfers into every one of our Savings Goals, if I wish. I don’t have to, but I find that this feature is one of the things that propels me to save more than I normally would.
Check out Betterment.com for yourself at their website.
Savings Amount: $450
With Strategic Mortgage Payments:
We recently bought a new home, and although the payment on it is considerably more than on old house (INSERT LINK) in the beginning of mortgage processing we were given a high estimate of the monthly payment + escrow, which I then based our projected budget on, just to be safe.
Now that we’ve closed and started making payments, I have still kept the higher payment…sort of.
Here’s what I do:
Each month, our mortgage payment comes out of an account that is different from our main checking account automatically. About a week before the payment comes out, I transfer the old (higher) payment amount to the account that will be debited for the mortgage. Then, the bank automatically withdraws the new (lower) payment, and I’m left with a balance in the account.
Savings Amount: $274.55
By Banking Our Side Hustle Income(s):
The nice thing about having a really diversified income sources is the ability to pick and choose the ones you want to live one.
Just for a snapshot, here are our income sources:
- Rental Property
- Selling on Amazon
- My Paychecks
- The Hubs’ Paychecks
- The Hubs’ ARNG Paychecks
What we’ve chosen to do is live on our paychecks and put the rest of this income straight into savings.
So, the rental income, blogging income, and Amazon income are all directly deposited into different savings account. The rental property income is so that we can develop a bigger financial cushion for repairs, vacancy, etc, but the rest isn’t alotted for anything except retirement.
Savings Amount: $2,200
That’s the amount we’re currently banking, and I can’t believe that I didn’t even know that….although I suppose not knowing that you’re saving more than you are is a really, really good problem to have.
When I did my first Budget Update 3 (!) years ago, we were struggling to save even $100/month.
Granted, since then our incomes have gone up significantly, diversified, and we’ve gotten much smarter about our spending.
But we’re still the same people, and it just goes to show you the difference 3 years can make.
If you’re struggling to save, find even a bit of extra money, or are wanting to do more, check out these resources:
- 33 Ways To Cut Your Spending, Make Extra Money, and Save Your Budget
- Help Your Baby & Budget Get Along: How To Save on Kids’ Winter Clothes
- 3 Free Tools To Manage Your Budget
- Hate Using Coupons? Here are 6 Great Ways To Save Money on Groceries Without Them
- Real Food On a Budget: Why I’m Choosing Thrive Market (+ 12 Ways To Save Even More at Thrive Market)
- The Power of Small Victories (That Add Up To Big Wins)
- How I’m Earning $1,753 in Passive Income Every Single Month
- How I Earned a Free $125 Sam’s Club Gift Card
- How To Make $1,205/Year With Swagbucks
What is your favorite way to save? Share your tips in the comments!