Many know, on some level, about the importance of saving for retirement. Unless you want to work until you drop, you will need to support yourself during retirement years. However, many don’t save for retirement for one reason or another.
Whether it be lack of knowledge, thinking they can wait or something else many put off retirement planning. One of the main reasons many put off saving for retirement is having little money. This can either be genuine or mis-perception that you need a lot of money to start investing. Regardless of the reason, I believe you can save for retirement with little money with the right mindset.
Start With Your Employer
The best place to start saving for retirement is through a company sponsored 401(k) plan. Don’t believe me? Consider some of the following benefits of investing in your 401(k) plan:
- Free money through an employer match
- It comes straight out of your paycheck
- You can take your money with you, through a 401(k) rollover, when you leave your employer
I know what you’re thinking. You can’t afford to put money in your 401(k). You have student loans to pay or other obligations tying up your money. I get that. Don’t get yourself caught in that short-term mindset, rather take the free money being offered and let it work for you. Since it comes straight out your paycheck not only will you feel the loss much less but it also helps lower the amount of taxes for the year. Free money and saving on taxes – it’s a no-brainer.
Find an Online Broker
What happens if your employer does not offer a 401(k) plan? You can still save for retirement with little money through an online broker. In fact, there are many options to consider if this is the route you need to take.
Some of the online brokerages in the space do require a high minimum balance to start investing, though some of the best discount brokerages allow you to start investing with $500 going on down to no minimum balance at all. Many offer free courses or educational materials to help get you started if you’re new to investing.
As you choose a discount broker make sure to look beyond the price they charge for trades. I know several dollars difference per trade may seem like a lot. Yes, fees can be bad though the point is to get started. If you don’t trade that often anyway, the impact will be minimal.
Set A Goal
Investing with little money is a challenge. There is no doubt about that. What should you do if you have no money to start? In these cases, I recommend to people they set a goal to hit then devise a plan to accomplish it.
Take a look at your budget to determine what you can either afford on a monthly basis or cut. Whatever that amount is, set it aside each month. For example, if you want to start investing with $500 but only have an extra $50 per month you can put away – open a savings account and stick the $50 in it each month. In less than a year, you’ll have $500 you can invest. Your amount may be different. That’s ok. The point is to set a quantifiable goal that works for you.
Don’t Put it Off
If you’re in your 20s, I know retirement seems so far off – heck you likely won’t reach it for 3-5 decades. That’s a long time! That being said, don’t lull yourself into thinking you can put it off.
Consider the following stat from the Center for Retirement Research, if you start investing at 25, you have put away a third of what you’d have to if you put it off until age 45. I know it seems unlikely, but it points back to the power of compound interest. If you start today, even in small amounts, that money will work for you and earn much more for you.
There are many things that compete for your money. With a plan, you can turn those challenges into an opportunity to grow your money for the future.
Author Bio: John Schmoll and Gary Dek, two former finance professionals, are the founders of BestDiscountBrokerages.com, a review website committed to researching and rating the best discount brokers online.
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