Set new goals when you complete your short-term objectives. Setting and attaining short-term goals on a regular basis will guarantee that you reach your long-term objectives. If you want to be worth a million dollars by the age of 40, you must first achieve lesser objectives such as $10,000, $50,000, and $500,000. 5. Retirement Planning: Forgetaboutit? This is one goal that many people don't even think about but should. You need to set up a retirement plan so that you can afford to keep working after you stop paying the bills. If you don't have a plan, then now is the time to make one.
Your retirement plan should include any employer contributions to a pension or savings plan, any investments with a guaranteed rate of return such as an IRA or 401(k) account, and any other sources of income you expect to use when you retire like Social Security. Of course, you can also consider saving for future medical expenses. The more you save, the better off you will be when you stop working.
The key to achieving financial security before age 40 is to start saving early in life. Even if you don't have much money now, it's not too late to start planning for your future. In fact, doing so will give you greater freedom and flexibility in making other plans if/when you get a job offer or come into some extra cash.
Savings Goals by Age
|Age Group||Retirement Savings||Emergency Savings|
|20s-30s||1x your current salary, or $22,000-$40,000||1 month of expenses|
|30s-40s||3x your current salary, or $126,000-$253,000||3-6 months|
|40s-50s||6x your current salary, or $300,000-$330,000||3-6 months|
|50s-60s||8x your current salary, or $330,000-$432,000||3-6 months|
If you don't think you can accomplish it at your present savings rate and rate of return, you might have to wait until you're 70 or 75 to retire in order to reach the $2 million threshold. The first place you should seek to start saving for retirement is through tax-advantaged programs. If you don't have access to a company retirement plan, consider establishing an individual account that can be contributed to annually.
The second place you should look is if your employer offers a retirement program. If they do, ask yourself how much you need to save in order to participate in the program. If you can't afford to save enough now, then you'll have to wait until later in life to retire with $2 million.
Finally, you should contribute any amount that you can from your current income. There are many strategies for reducing your cost of living during these early years of retirement. You could move in with your children and take advantage of their housing allowance. You could also reduce your lifestyle by renting out your home or moving into more affordable housing.
As long as you're making contributions and your investments are growing enough, you shouldn't have a problem building up enough money to live on once you stop working.
A basic rule of thumb is to save one time your income by the age of 30, double your income by the age of 35, three times your income by the age of 40, and so on. Aim to save 15% of your pay for retirement—or start with a percentage that works for your budget and increase by 1% each year until you reach 15%. Then, if you want to be able to live comfortably in retirement, move up to 20%, etc.
The more you can sock away now, the better off you'll be when you retire. If you don't have any savings yet, make it a priority to set yourself up for success. Put some extra cash into a savings account every month, and before you know it, you'll have enough money to cover your needs when you're older.
Of course, there are many other factors that go into deciding how much you should save, such as your spending habits, the amount you expect to earn in your career, how long you plan to work, and whether you want to rely on investments or not. But this formula gives you an idea of what might be needed for retirement.
And don't forget to factor in inflation. Over time, the value of your savings will decrease because prices always rise when you buy things with money you've saved. To keep your stash growing effectively, try to put away 10-20% more than you think you'll need. That way you won't even notice any change when prices rise.
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