You don’t need to have a high income to start saving for retirement. There are effective ways for people with little money to begin to build wealth for the future.
Here’s how to invest for retirement with little money:
— Pay yourself first.
— Automate the process.
— Get a company match.
— Analyze your budget.
— Start saving something.
— Increase your income.
— Leverage windfalls.
— Learn how to invest.
Pay Yourself First
People with low funds looking to save money for retirement can build their net worth by paying themselves first. “The first skill most people must learn is how to save, even if it is a small amount at first, but everyone should learn to save,” says Mark Williams, chief executive officer at Brokers International in Atlanta. Paying yourself first is a key strategy to start building up a retirement fund on a low income.
[Read: How Much Should You Contribute to a 401(k)?]
Automate the Process
You can elect to have your retirement savings withheld from your paychecks so you are not tempted to spend it now. “It’s critically important to invest at least 10% of your current income for the future,” says Craig Kirsner, president of retirement planning services at Kirsner Wealth Management in Coconut Creek, Florida. “Over time that has the potential to grow substantially with the power of compound interest.”
Get a Company Match
Your company might offer to match the funds you contribute to the company 401(k) plan. A typical 401(k) match is 50 cents for each dollar you save in the 401(k) plan, and some employers provide a dollar-for-dollar 401(k) match up to a certain amount. “This means that you could instantly get up to a 100% return on your money on day one with that company match,” Kirsner says. If your employer has a 401(k) or retirement plan that matches your financial contribution, make sure to take advantage of this valuable program.
[SEE: The Most Affordable Places to Retire.]
Analyze Your Budget
Figure out where you stand financially. Understand where your money is being spent and what you’re buying. “Once we understand where and what we are spending on, we can look for possible places to stop the spend and start the save,” Williams says. “Often we find that eating out or buying a coffee from a coffee shop are easy things to do without, and we can start saving that money. Cutting out one $5 coffee a week saves over $20 a month.”
Once you’ve started saving, steer it directly into your retirement account. Many retirement account providers allow you to add funds via the company website or mobile app.
Start Saving Something
Get used to the idea of saving money. You can start gradually and keep building assets. “Even $2 per week or $20 a month helps get you going,” Williams says. “It doesn’t matter how much you save at first, at least. Learn to be a saver. Understand that money has the ability to earn money, so start learning about compound interest and the power of using pretax dollars like a 401(k) or IRA to help build wealth and lower taxes at the same time.”
Increase Your Income
If you don’t want to cut back, you could also take steps to improve your income. As you get raises and move up in your career, remember to put aside some of those funds for retirement. “Increasing income can never hurt, but it’s less important than you think,” says Brennan Schlagbaum, founder of Budgetdog, a financial consulting firm in Cincinnati. “Anyone can build wealth. It really comes down to having a good financial plan.”
[See: 9 Ways to Avoid the 401(k) Early Withdrawal Penalty and Other Fees.]
Leverage Windfalls
Another manageable savings method is to consider saving part of an inheritance or a tax refund. Each time you receive a significant lump sum, consider depositing a portion of it in a retirement account.
Learn How to Invest
You don’t need to become a financial expert before you start saving for retirement, but learning more about personal finance can help you to become a better retirement investor. “That investment may come in taking classes, apprenticeships, retirement and investment boot camps or meeting with a trusted financial advisor,” says Jay Zigmont, a certified financial planner in Water Valley, Mississippi. “Check with your local department of labor, unemployment office or similar workplace development program. They often have educational programs that are free of charge.”
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How to Start Investing and Saving for Retirement With Little Money originally appeared on usnews.com
