A quick recap: I graduated college with a degree in finance at age 21. My first job was working for a mortgage company, but I was unfortunately laid off after only just a few months there (the company went under). My next job was working for Careerbuilder.com for 8 months followed by a 3-year stint in waitressing (can I just say that this what my favorite job ever, other than freelancing). I then went on to work for a university as a financial counselor before becoming a mom and breaking into freelancing.
As you can see, my employment was pretty random during my 20s. During this next decade of life, I fully intend on sticking with freelancing and growing my blog. My husband and I are also getting our real estate licenses this year and will both work on that as a side business together.
How to prepare for retirement in your 20s
I’ll be honest – I really wish I did more as far as retirement is concerned back when I had just graduated. While I did always take advantage of employer matches with my 401Ks, I never worked anywhere long enough for it to amount to anything. When I left the university I worked for once I had our daughter, I had roughly $1,700 in my retirement account. I only worked there a little over a year and left when I was 25. Had I been contributing consistently for the four years I was working after college, I’m sure I would have had $15K +.
The one thing I did do right was open a Roth IRA at age 19. I had saved up a good chunk of money from living at home while attending a community college the first two years, so I was able to get a head start on retirement through that.
My first tip to all college students or new grads would be to open a Roth IRA. A Roth IRA is different than a traditional IRA because the money you put in has already been taxed. When you go to withdraw the money in your later years, you will not pay taxes on it since you already did.
That being said, your 20s are an exciting, yet difficult time in your life. You’re probably more concerned about getting married, buying a house and going out on the weekends then you are about retirement (I know I was). However, this is a mistake. I wish more than anything that I regularly contributed to a retirement account when I was younger and, quite frankly, had much more miscellaneous income.
4 Ways to prepare for retirement in your 20s
As I said above, open a Roth IRA and always sign up for your employer’s retirement plan. At a very minimum, contribute the percentage that your employer will match. If you can contribute more, do it! Saving for your future is never a bad thing and you’ll never notice not having the extra money since it’s taken out of your paycheck immediately. Other important financial tips in your 20s include:
Stay out of debt. This is pretty much just as important as saving for retirement. If you have loads of debt, you’re not going to have much leftover to put toward retirement. Not only that, but you’re setting yourself up for financial hardships down the road. Do you really want to get married and have a baby with student loan debt, car debt and credit card debt? By getting into debt early, you’re trapping yourself into a life you might not want in 5 or 10 years. If you think you might want to be a stay-at-home parent one day, for example, avoid debt like the plague. It is MUCH easier to live off of one income when you have no debt!
Establish a good credit score. Your credit is what will qualify you for a mortgage, it’s what will allow you to purchase a second home and it’s even looked at when applying for rental homes and apartments. Keeping your credit score high and your debt-to-income ratio low will give you the best interest rates possible when applying for necessary loans, such as a mortgage.
Get in the habit of saving. Even if you’re contributing to retirement through your company, you still need to get in the habit of setting aside your own money from each paycheck. You can save as little as $10 or as much as $1,000, depending on your situation. The important thing is to save. For the most part, I’ve always been a saver. Not only is this good for my own life, but it’s a habit I fully intend on passing down to my daughters.
Track your net worth. Net worth is your assets minus your liabilities. As a new grad, your net worth is most likely in the negatives assuming you took out student loans. To me, net worth is more important than how much money I make. You can make $100,000 a year but have a negative net worth, or you could make $40,000 a year and have a net worth of $500,000. It’s not how much you make that matters, it’s what you do with your money. Free calculators like this one for net worth are one of the ways to track how much money you have. They allow you to link up all your bank accounts, retirement accounts, credit cards, debts, mortgages, etc.
How I’m preparing for retirement now
Even though I didn’t make the most of my 20s as far as retirement goes, I did somehow manage to escape my 20s nearly debt-free and with a good chunk of money in savings. While I wish I had more in retirement, I can only move forward from here.
As most of you know, John and I are currently both self-employed. We contribute monthly to two mutual fund accounts through USAA. While these accounts are not specifically for retirement, that is what we intend on using them for. We also hope to be able to max out our 401K contributions (you can currently contribute $18,000 in the 2015 year to your 401K plan) within a few years.
Other, more non-traditional ways that we’re planning on funding our retirement include being completely debt-free within 15 years (this includes our mortgage), always saving and living below our means, and purchasing rental properties.
Another thing I would like to add is to create a life that you don’t necessarily want to retire from. New grads – discover what you’re good at and do what you love. You do not have to succumb to a regular 9-5 office job if that’s not what suits you. I never in a million years thought I would be a freelancer, even though I always had the desire to work from home and set my own schedule. If someone asked me if I’d like to retire now, the answer would be a huge NO! I love what I do now – I’m kept busy, I’m constantly being challenged and I enjoy researching and writing. If I want to get lunch with a friend, take an afternoon off or sleep in in the mornings, I’m free to do so.
Of course, one day I will most likely not be able to work anymore, and that is where saving for retirement comes in. My best advice to new grads is to prepare for the future the best you can while living your dream life today.
What did you do to prepare for retirement in your 20s? What do you wish you would have done differently?