The lack of pension savings is rapidly becoming a crisis in this country. One in three Americans has less than $ 5,000 in retirement, and every fifth has no savings, according to Northwestern Mutual.
If you are among those in the group, you should consider raising your retirement savings, but there are a few more things to look for first.
1. Create an Emergency Fund
Nothing can escape your finances like an emergency. If you do not have any savings, you may need to take a loan or charge your credit card that you can not pay back at the end of the month. Once it falls into that debt cycle, it may be difficult to get out and the money you could otherwise save has to go to interest on your debts.
You can avoid proactive savings for these unexpected events in the emergency fund. Open a special account or keep your money in an existing savings account. Just take care of emergency savings.
You need to have at least three months of life costs, but six months is even better. If you want, you can save on a retirement and emergency fund at the same time. But give priority to your emergency fund. Once you have fulfilled your goal, you can put more of your money back each month.
2. High Interest Debt Payment
There is a discussion of whether it is best to pay down high interest debt before you save for retirement or whether you should do both at the same time. It's not a simple decision. The longer you take to pay off your credit card debt, the more you pay interest. If you have a guaranteed loss, and depending on how much you owe and what your credit card is the interest rate, it could amount to thousands of dollars. But postponing your retirement savings to pay off your debt, you miss it for months or even years when that money could grow, and when retirement comes, you will have less nest for that.
The real way to solve this dilemma depends on your situation. If your employer offers a 401 (k) match, you should not skip this unless you can allow him to contribute. Contribute enough to take advantage of free money, then put the rest to your debt repayment. Find ways to reduce your debt, such as transferring your balance to a 0% APR account or consolidating a debt with a personal loan. This can help you raise your debt faster.
If your employer does not offer 401 (k) or does not respond to your contributions, it is a bit harder. If you have only a small amount of debt with high interest rates, you may be better off to put all your extra cash in a month or two to shut them down. Then, you can devote all that savings money when your debts are paid.
But if you have a lot of high-interest debts, consider contemporaneous payments and savings for retirement. You could share your money evenly between those two or grace whatever your priority.
You may have to make some lifestyle changes to free up extra money, such as traveling and dining less or picking up the side crowd. If you are trying to find a plan that works for you, consider consulting a financial advisor that can give you personalized tips. Perhaps they could figure out a plan you did not think.