I read The Money Book for the Young Fabulous and Broke by Suze Orman a couple years ago, and actually really enjoyed it. Most of her books kind of bug me because they're a bit obvious: "If you stop buying your daily latte, you'll save money!" but this one had some truly practical advice and I would recommend it to anyone of any age. I noticed that the audio book was on the shelf at work (library) the other day, and decided to give it a listen on my commute.
That's another tip (from me), listening to books about personal finance while driving makes me spend less. Think about it, when you leave the house to go to work or whatever, it's awfully easy to just pop by Target and pick up one (twelve) thing(s), if you're thinking about money issues and how you should be saving for retirement, it makes it easier to skip that trip and go back to Target with a list of practical items. Likewise, when I was listening to the Confessions of a Shopaholic series in the car, I spent like a maniac. Perhaps my readers have more self-control, but it's worth trying anyway.
Suze stresses the importance of starting saving for retirement early even though you feel like you have no money and can't possibly sock any away. The logic is, the longer your money sits and earns interest, the less you actually need to invest. For example: if you invest $300 per month from age 25 to 40, you will have invested $54,000 of your money, but your total investment will be worth $104,504... by the time you turn 70, that investment is worth $1.05 million even if you stop adding to the investment at age 40. If you start investing at age 30, at the same rate, and keep investing for more than the 15 years previously mentioned, your investment is only worth $450, 089 even if you have the same interest rate (YF&B 180). Man, that's depressing.
Of course before I decided to start saving for retirement, I read up a bit about the different types of retirement accounts.
401(k): This is typically set up through your employer. How the 401(k) works is that you select a plan and have the money that you contribute to the plan deducted from your paycheck. Often your employer will also offer to match the amount of money you elect to invest. Basically, that's free money so you should always take it. The important thing to know is that 401(k) money is taken out pre-tax, so before you can spend it, you will have to pay taxes on it. Never withdraw early from a 401(k) because you can either end up paying tax on the money that you take out more than once.
IRA: Stands for Individual Retirement Account--can also be called Traditional IRA, and that's exactly what this is. It's an account that you start as an individual, and contribute to on your own. This is also typically the account that you cal roll your 401(k) into if you leave one job for another. The upside of the IRA is that you can contribute up to $4000 per year if you are an individual under age 50. The downside of the Traditional IRA is that when you withdraw your money from the fund, you have to pay tax on it.
Roth IRA: The Roth IRA is similar to the Traditional IRA except for one huge difference. With a Roth, you pay taxes on the money before it's invested, so when you withdraw it 40 years later--it's kind of like free money. You may invest up to $5000 per year in a Roth IRA (if you're below age 49), and you're eligible to withdraw that money at age 59 1/2.
I started a Roth IRA a little while ago, but to be honest, I'm still figuring out how it works--stay tuned!
Of course before I decided to start saving for retirement, I read up a bit about the different types of retirement accounts.
401(k): This is typically set up through your employer. How the 401(k) works is that you select a plan and have the money that you contribute to the plan deducted from your paycheck. Often your employer will also offer to match the amount of money you elect to invest. Basically, that's free money so you should always take it. The important thing to know is that 401(k) money is taken out pre-tax, so before you can spend it, you will have to pay taxes on it. Never withdraw early from a 401(k) because you can either end up paying tax on the money that you take out more than once.
IRA: Stands for Individual Retirement Account--can also be called Traditional IRA, and that's exactly what this is. It's an account that you start as an individual, and contribute to on your own. This is also typically the account that you cal roll your 401(k) into if you leave one job for another. The upside of the IRA is that you can contribute up to $4000 per year if you are an individual under age 50. The downside of the Traditional IRA is that when you withdraw your money from the fund, you have to pay tax on it.
Roth IRA: The Roth IRA is similar to the Traditional IRA except for one huge difference. With a Roth, you pay taxes on the money before it's invested, so when you withdraw it 40 years later--it's kind of like free money. You may invest up to $5000 per year in a Roth IRA (if you're below age 49), and you're eligible to withdraw that money at age 59 1/2.
I started a Roth IRA a little while ago, but to be honest, I'm still figuring out how it works--stay tuned!
THANK YOU for this post! Opening a retirement account is on my list of things to do, because I don't think I'll ever have a "full time" job despite how much I work...ahhh, the joys of adjuncting! I can't just rely on my man in our golden years.
ReplyDeleteNo problem! Hopefully as I figure things, I'll have more information to share.
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