The younger you start saving for retirement, the more likely you will have accumulated enough money to live comfortably when you reach retirement age. The challenge is to save enough each year until then. The trick is to set aside small amounts of money regularly rather than trying to alter your lifestyle so you can put away large chunks of cash. To do this, first list all your monthly income and expenses to see how much money flows through your fingers each month. Then, create a budget that is not too restrictive.
Add up all your fixed expenses -- rent, utilities, car payments and insurance -- and estimate your other important expenditures, such as gasoline, medical and dental bills, food, clothing and entertainment. Subtract your total monthly expenses from your total monthly income to get your total disposable cash.
Determine how much of your disposable cash you can afford to put aside out of each paycheck.
Accumulate enough money in a savings account to fund at least three months of your basic expenses. This gives you an emergency fund to access rather than being tempted to spend the money set aside for your retirement.
Use your online banking services to set up small automatic transfers from your checking account to your savings account.
Change your automatic transfers to move money into a mutual fund after you have accumulated enough emergency money in your savings account. Choose a mutual fund that either pays interest or dividends and have that income automatically reinvested. This compounds your return on investment and can, over years, result in a significant accumulation of money.
Remember that your goal is to set aside small amounts of money that will not cause you to feel a pinch. Impulse spending is your budget's biggest enemy. A good way to control your impulse spending is to withdraw a certain amount of cash from each paycheck to cover impulse purchases. This gives you a better feel for how much you are spending than just putting purchases on your debit card.
- If you find your budget is too restrictive, reduce your money transfers slightly, but do not omit them entirely. If your mutual fund won't accept small deposits, make use of your broker's cash sweep account to accumulate money in a money market fund until you have enough to deposit to your investment mutual fund.
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.