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Business Week recently ran a spread on how to retire. Within the section, it listed what to do at various life stages if you want to retire well/early. I thought I'd share some of these thoughts with you and give my comments on them. Today, we'll be covering what they recommend you do in your 20's:
- Tighten up on spending, ratchet up savings.
- Put savings on autopilot.
- Live beneath your means.
- Start an "Escape Fund."
- Revel in the Roth.
- Watch the fees.
My thoughts on these:
1. The key to this -- having a budget and sticking to it.
2. I didn't put my savings on autopilot until I was in my 30's. Wish I'd done it earlier.
3. Spending less than you earn is the best financial advice I could give.
4. I started a "retire early" fund in my late 30s. But it will take a TON of money to get me to where I'm ready to pull the plug on work life.
5. Yes, the Roth is a great way to save. Just remember to save for retirement in the right order.
6. Costs matter if you want to maximize your investment returns.
7. The best advice for people in your 20's: start saving/investing now and let compounding work for you for a few decades.
Thanks for the great blog and finance advice. I just read the article in BW last week and thought it was great. I'm actually in my 20's (26 to be exact) and have been contributing to both 401k, up to the match, and a fully funded Roth IRA for a year now as well as getting out of student loan debt which had a variable rate (I still have $15k but it's locked in at 2.875%). I'm wondering what your idea would be in starting an escape fund? Should I ratchet up my 401k above the match before I do this or should I go ahead and start the fund? Thanks for the help.
Posted by: Matt G. | July 24, 2007 at 02:48 PM
Personally, I'd fully fund the 401k first. That's what I did/am doing and while it will take you longer to get your escape fund up to where you want/need it to be, you'll be a TON better off at retirement.
What's everyone else think?
Posted by: FMF | July 24, 2007 at 03:22 PM
I wish I had started when I was in my 20’s. Now that I am older and somewhat wiser I have learned to save for my retirement. I put away 35% of my paycheck towards 401k and company stocks. I also transfer $400 from checking to savings each month. Many people in their 20’s don’t believe that they make enough to save, and generally that is not true. When I look back I could have skipped the movie theatre a few times a month, shopped at a discount store instead of going to a department store, and ate at home more often. Saving $5-$20 a week can add up over time. The best advice I can give to those in their 20’s is to stay out of debt.
Posted by: The Wallet Saver | July 24, 2007 at 10:05 PM
I'm at my 20's and I concentrate more on business and investing. To me, since I'm still young and single, it is a good time to start building a business and invest my money as I can take more risks than others. For security, I also have a budget to control my money and save up my emergency account. So I can pay more attention to fight for my future(business and investment).
Posted by: Harrison | July 25, 2007 at 09:06 PM
I also in my 20s and just graduated from college, but I work for a nonprofit so its a 403b with no matching.
What else can I do besides that and IRAs ( can i get both Roth and Trad or only one)
also this may sound dumb but, how do i go about and starting to invest in stocks. thanks
Posted by: noob | July 26, 2007 at 12:41 AM
It would be impossible for me to contribute the maximum allowed to retirement savings (over here you can contribute your entire earned income).
I've set it up so that my retirement contribution should see me through at retirement ok, and then I've started my freedom fund with the minimum monthly amount for that account. I then more or less ratchet them up evenly (by the same £ amount) with pay rises and so on.
Posted by: plonkee | July 26, 2007 at 04:00 AM
If you're already investing in stock funds through a Roth IRA and 403b (or other tax-deffered account), then I would recommend starting to save towards buying a house if that is in your future plans.
Posted by: Skott | July 26, 2007 at 08:13 AM
wel im a girl so im hoping to get married within the next 5+ yrs and let my hubby worry bot that lol
Posted by: noob | July 26, 2007 at 06:27 PM