Continued Continued

The TFD Book is Here, Hooray! Order It Now!

Click here! Click here to get your copy!
Image of TFD Book
·

How I’m Starting To Take Care Of My Future, Even Without Benefits From An Employer

I remember when a stats teacher in my senior year of high school gave us a blunt lesson in personal finance.

“Start saving for retirement as soon as you can,” he said. “Compound interest is your most powerful tool.” And sure enough, when he ran the equations on how much we would have to save if we started saving for retirement at 20 or if we started at 40, the difference was astoundingly in favor of starting at 20. He also admonished us to max out our 401(k) contributions every month, especially if our employers offered retirement-fund matching.

I still think about those graphs and equations and preach the beauty of compounding interest as I make my way in the world of my own personal finances, so kudos to him for making an impact.

But here at the ripe old age of 25, starting that retirement savings has yet to be an easily accomplished priority for me. And as a freelance writer, it seems unlikely that a company-contributed 401(k) is on the horizon.

This is where I would typically start berating myself. Why didn’t you start this when you were still in college? Why didn’t you build up a healthy emergency savings fund already so you could focus more on this? But why can’t it just wait a few more years? You’re only 25. But I have to tell my inner monolog to shut up and sit down. Because sure, I’m only 25, but I’m also already 25. I figured it was time to get cracking.

So it was up to me to start my retirement savings and to make it a priority. I needed to take charge of my own future.

How I’m saving

In a word: slowly. As a freelancer, my income can vary dramatically from month to month. And in these early stages of my career, some months I struggle to make ends meet at all. Plus, I understand the importance of other spending and saving areas, from building my emergency savings to having fun. But I’m not going to let those roadblocks keep me from getting a start on my retirement savings.

I’m not putting pressure on myself to save a consistent percentage of my income for retirement each month like I do with my other savings. But I strive for consistency in that I do put something, anything away every month. In the feast months, it might be $200, while in the lean ones that savings might look more like $25. But all of that gets tucked away and starts to add up over time.

I think of this type of savings as more of a piggy bank approach than a systematic, spreadsheet-ed effort. When I have a little extra, I tuck it away — change from the couch cushions, a little side hustle income, an unexpected refund check.

Put the money in a separate (high-security) account

Now when I say high-security, I don’t mean an account hidden from hackers or identity thieves (although obviously I sure hope that’s the case), but from myself. It’s funny how having a little chunk of extra money can become absurdly tempting in the middle of a Montana winter when I want to book a flight somewhere warm or need new tires for my car. That’s what my emergency fund is for, and I need to keep my priorities tightly in line — with some carefully engineered self-control help.

Unlike with my personal emergency savings, this money doesn’t need to be easily accessible in the case of, well…an emergency. So I tuck it away in an account that is difficult to access to keep me from being tempted by the money sitting there. I use a credit union not connected to my primary bank, so I make deposits via mobile checking. Also, I’m not even sure what the PIN for that debit card is. Whoops.

The account balance is still small — we’re talking in the low hundreds, and to be honest, I’m scared to check it to know for sure — but it’s slowly growing. When I hit $1,000, I’ll look into a Roth or Traditional IRA or something similar. (Can you tell I haven’t done much research yet?)

Some days, it seems ridiculous to me to be thinking that far in the future when I have to consciously think about how I’m making my rent on any given day. And the amount most people want in the bank at retirement is mind-boggling (millions?!), but I have to remind myself that the key isn’t to have already saved millions. It’s to just begin today.

So for now, I’m proud of myself for finally making a start.

Julia is a freelance writer and editor hard on the path to passive income. If she isn’t crawling in a cave or writing about it, she’s probably hunting down her next cup of coffee. Find her at NounConformist.

Image via Unsplash

  • Hell yes! Way to kick off the habit – we all have to start somewhere, and you’ll be surprised at how quickly this will grow without much thought.

    As for the Roth vs. Traditional option, it really boils down to two things: what are you earning now, vs. what do you intend to have as retirement “income”? The difference between the two is when your contributions are taxed. With Roth, you pay income tax upfront. With Traditional, you’ll avoid paying taxes until you start to withdraw, in retirement.

    If you think you’re at a lower income now than you will be at retirement, a Roth is the way to go. If you think you’re earning more now than you’ll need at retirement, go with Traditional.

    I guess the other question, long-term, is whether you believe the tax rules will even be the same by the point we retire… but that’s a much trickier question.

  • Rebecca Ann

    Since you’re already saving after taxes, you could (should) probably transfer all your savings into a Roth now. Since it’s an actual retirement account, that would help with your “high security” requirement, since there are ramifications to early withdrawals. And I believe these accounts also have better earnings over a regular savings account, which generally has a very low interest rate. I’m not sure if it tracks the market, like a 401(k), which is what I currently have, but I think so? Either way, get into it now, no need to wait! You can always decide to open a Traditional later.

    • Julia Smit

      I absolutely agree! That’s what I’m aiming for, but most accounts I am interested in (okay, okay, I did a little research, haha) require a minimum balance of $1000 to open, or a $100 monthly deposit. I’m not quite to that level yet, so any start is a good start!