The article helps readers understand how they can begin saving for their retirement from a very young age. It tells them about some important steps that when taken will allow them to make bigger savings from a younger age itself.
The future is always of utmost importance and therefore saving for retirement should always be kept in mind at all ages. However, it has been observed that a majority of us begin to undertake serious money management responsibilities after leaving our parents homes and starting out on our own.
This is a very crucial period in making saving plans for young adults because their spending and savings habits will help determine the financial foundation for their retirement years. Some financial habits always affect a young adult’s ability to save for retirement. The first habit that we shall discuss is-(a) credit and credit repairing
Using credit may not be seen as saving for retirement by many, but it does impact an individual’s ability to contribute to a retirement account and/or to take other steps toward a financially secured retirement.
Individuals who abuse credit are unable to save and may also result in a higher cost of living than that which would apply to someone with good credit. In general, having a good credit history, or credit rating implies that one is able to pay their bills on time, does not exceed the credit limit on their credit accounts (such as credit cards) and their debt to income ratio is low.
A good credit history is like the foundation for negotiating interest rates on loans and can result in significant savings on interest paid over time. These savings help to increase a young person’s amount of disposable income and, therefore, the amounts available to save in a retirement account.
One can start saving as early as when they are in college. College students are usually at the receiving end of tons of offers for credit cards from credit card companies. Some inexperienced credit-card holders may see this as an easy way to buy what’s in fashion or even to pay for simple necessities.
However, while having a credit card can be of great convenience, college students must consider the pros and cons when presented with offers to apply for new credit cards or offers to increase spending limits for existing credit cards.
As has been mentioned earlier, one’s credit card rating affects their ability to obtain credit and may even determine the interest rate at which credit can be obtained. As such, improper use of credit cards can result in lower credit ratings, which can eventually translate into either inability to obtain additional credit or higher interest rates charged on loans.
Improper use includes making late payments or exceeding the credit limit established by the credit card. In order to properly manage credit card debts, college students should employ proper debt management strategies, which include the following:
- Credit card offers should always be compared. Usually, the credit card with the lowest Annual Percentage Rate (APR) is the least costly to maintain, as it accrues the least interest and therefore this is the best choice one can make.
- One has to find out for sure if offers of low APR are actually just to lure in individuals, and will increase after a certain period, incase the credit limit is exceeded and/or if a payment is made after the due date.
- One has to sit down and compare fees, if any, and consider whether a lower APR may be a better choice even for a credit card with higher fees.
- Use credit cards only for necessities, and avoid charging everyday items like groceries or gas on your credit card.
- Its also a wise choice to pay more than the minimum payment required when possible. Consider that interest is usually not charged on charges that are paid off by the due date.
The new college graduate or other young adult always have three options before them when it come to living- renting, buying and even moving back with his or her parents. All of these options will have some impact on the individual’s finances, and ultimately, the amount the individual is able to save for retirement.
Living with parents for a year or two after graduation and/or when the individual first starts working may mean losing out on independence, but could pay off from a financial perspective. This option reduces an individual’s overall living expenses, and allows him or her to save up for bigger investments such as a down payment on a mortgage, a wedding or establishing an emergency fund for when that person decides to strike out on his or her own.
Of course, this plan will work out only if an individual is very focused from the start and designs a budget, saves as much a possible, reduces frivolous spending and keeps track of the deadline that is established for moving out.
Even if they decide to live at home, certain factors must be discussed such as will rent be a part of the conditions of moving back home, and will he or she be required to contribute toward other living expenses?
The age old decision to make between buying and renting is one of the most important financial decisions a person will make. Options for renting can include sharing or subletting an apartment, which allows an individual to save more by sharing of resources and expenses. Clever individuals always whether the amount paid for rent is the same or close to the amount that would be paid for a mortgage.
However, one must always remember that mortgage payments are not the only house-related expenses a homeowner will incur. Other expense includes homeowner’s insurance, property tax, repairs and general upkeep of the property – expenses that usually do not apply to rented property. Also, water, power and other utilities may be included in the price of rent – if so, these costs will need to be added to the cost of owning your own home.
On the upside, while not guaranteed, it is very likely that the value of the purchased property will increase over time.
Taking proper decisions about the management of debt as well as about living arrangements are positive steps to increasing disposable income and the amount available to save for retirement. As a young adult, you want to make saving part of your regular financial behavior as soon as you start earning. Your retirement savings should be treated as a recurring expense, so that it is included in your budget. This will help to ensure that you save on a regular basis, and that your savings do not put a strain on your finances.