We all know that we should be saving for retirement, but where do YOU start?

June 5, 2023

It’s never too early to start saving for retirement, but many of us don’t really know where to begin. The key to developing a financial plan includes:

• Saving
• Investing
• Budgeting

These are the three basic tenets of planning. They are a great place to start for a young professional or anyone else wanting to take their financial future into their own hands. Saving provides the funds you will need for emergency expenses and leads to investing. Investing allows you to grow your money over time which will be used in retirement. Budgeting allows you to allocate your money towards your goals and keeps you accountable.

There are many different ways to save for retirement, what matters most is that you start sooner rather than later. The most valuable asset you have when you are young is time! Take advantage of this through compounding interest. Also, saving allows you to cover emergency or unexpected expenses. It is crucial that you not take from your investment accounts.

After you have developed savings of 3-6 months of expenses you should start investing. A great way to begin investing is to set up a regular contribution to an IRA/Roth or your 401(k). This can be done through your employer or through a financial institution. Contributing on a regular basis creates a habit that will make saving/investing a part of your budget that cannot be cut out! You can also make a lump sum contribution to investment accounts if that is more comfortable.

One way to invest is to buy stocks. Stocks are a good investment because they have the potential to grow over time more than other asset classes. However, stocks are also a riskier investment because their value can fluctuate. Another way to invest is to buy bonds. Bonds are a good investment because they are less risky than stocks. However, bonds tend to grow more slowly than stocks. The percentage of a portfolio that should be invested in either stocks or bonds is based on an investor’s goals and risk tolerance. While investing, you need to make sure you know who is managing your account, how they are managing your account, and what you are paying for these services. Most crucial is to make sure you are investing based on your goals/objectives and your risk tolerance. Investing should be a long-term game, so if your portfolio is too risky, making you think short term, you need to establish a lower risk portfolio. If you don’t know how risky you are, take a risk assessment questionnaire and it will tell you how much you should be investing in either stocks or bonds.

Finally, a very important step to take when preparing your financial future is to create a budget. Budgeting allows you to allocate your money towards your goals and allows for tracking of these goals. A budget is not set in stone, it will be changing as life does, but you should have a general idea of how much of your paycheck goes where. Lay out your maximum spending for every category of spending and divide that number by the total monthly income you receive to find the percentage you are spending on that category. You should have an ideal budget (a budget based on perfect spending habits in each category) and a real budget (which is a monthly budget report that shows how well you are following your ideal budget). There are many ways to budget, but the most important thing is to find a method that works for you. A good way to budget is to create a budget excel worksheet, this worksheet can be used to track your income, expenses, and progress towards goals. Another way to budget is to use a budgeting app. These apps work in a similar way to an excel worksheet but can sometimes be confusing for users to use plus some do cost money.

Now that you have taken steps to begin your financial journey you need to track your progress! You can track your progress in a number of ways, but the most important thing is to find a system that works for you. One way to track your progress is to set up an excel spreadsheet. Another way to track your progress is to use financial tracking software through an app on your phone. The most important thing to remember when setting up your financial future is to start early and to find a system that works for you. By starting early, you give yourself more time to save and invest.