I have been doing a monthly series in my newsletter about getting control of your finances in 2008. This is the 5th installment in the series:
This month we're moving on to step 5 to get control of your finances. You've tracked your spending, created your budget, started your emergency fund, put a plan in place to get out of debt now you need to....
5. OPEN A RETIREMENT ACCOUNT.
If you don't already have a retirement account open-do it now! Many people, especially in their 20's, think that it is too early to even think about retirement, but they are wrong! No matter how old you are, you should have a retirement account and be contributing to it each year. A lot of us think that we'll be making more money as we get further along in our careers, and we'll be able to contribute more money then because we'll be making more money. Problem is, that we get comfortable with our income levels and lifestyle and never contribute those "big bucks" that we planned to in our youth. Ironically, because of compound interest, money saved in our 20's will grow so much more by the time we hit retirement age than money saved in our 40's-even if we do save higher dollar amounts later! I am not a banker or mathematician, but I have found a great website/blog called www.getrichslowly.org that has information and examples of how money saved in your 20's will turn into over a million by the time that you are 65. It is a great resource for financial information written in a way that's easy to understand-there are also lots of links to additional information that I found helpful.
Of course, the next question is-what kind of retirement account? I am not a financial advisor by any stretch of the imagination, so I would recommend talking to one to find out what is best for you at your age and the amount that you are able to contribute. The first thing that comes to mind for most people is usually some type of IRA account. The difference between a traditional IRA & a Roth IRA are the taxes-usually you can get a tax deduction for money you contribute money to a traditional IRA tax free today, but when you withdraw the money upon retirement, it is taxed at the then-current tax rate. When contributing money to a Roth IRA, you don't get a tax deduction now, but no taxes are assessed when you withdraw it in retirement. There are restrictions & requirements for most IRA accounts, so this is one topic that really should be discussed with a professional. Each person's situation is different, & the information on this topic is limitless, so a financial advisor can help you through all the intricacies. The most important thing is get started NOW! Up next month-spend less than you earn!
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