The basic rules of personal finance are simple to understand: Spend less than you earn, save for the future, and repeat the process. In principle, it sounds easy. But there is more to retirement planning than just saving whatever you have left over at the end of the month. Here are several other important ways to prepare for retirement.
Pay yourself first. If you don’t make saving a priority, you probably won’t save enough to finance a comfortable retirement. Treat investing like a bill and set up an automatic contribution plan through your employer or investment firm. If you don’t make saving automatic, you risk not having any money left over at the end of the month to save.
Set up an investment plan. Simply shoveling money into a savings account won’t give you the growth you need to keep up with inflation. Part of your investment plan should include a well balanced investment portfolio that is designed to cope with the highs and lows of the economy and keep pace with inflation.
Leverage the investment tools available to you. Many Americans have access to an employer-sponsored retirement plan, such as a 401(k), 403(b), the Thrift Savings Plan, or a variety of small business retirement plans. These retirement accounts offer tax advantages now, give you the benefit of investment growth without the drag of taxes, and often come with a matching employer contribution, which is essentially free money for your retirement. You should make it your goal to maximize any available matching contributions. If you don’t have an employer-sponsored retirement plan, consider opening an IRA, which also offers great tax benefits and flexible investment opportunities.
Invest outside of retirement accounts. You don’t have to limit your investments strictly to retirement accounts. Investing for cash flow is a great way to enhance your standard of living now or prepare for retirement in the future. You could invest with dividend stocks, Real Estate Investment Trusts (REITs), or bonds at discount brokerage firms. Alternatively, you could purchase real estate and collect rent. Both of these options require work, but they could also help you retire earlier and with a higher standard of living than you may otherwise experience.
Control debt. You won't be able to save for the future if you have more going out every month than you have coming in. Debt is a tool which can be leveraged for useful purposes, but left unchecked, it can bring financial ruin. Work on eliminating any debt you may have. Once it is gone, do your best to prevent it from returning and becoming a part of your lifestyle. If you’re looking to cut some debt, go for the big wins first, such as lowering your mortgage payments. Also, consider transferring your credit card balance to a 0 percent balance transfer credit card, which will eliminate your credit card interest for a set time frame. These money moves can free up hundreds of dollars each month, which can be used to accelerate your debt repayment and then to increase your standard of living or savings plan.