3 Tips For Building Your Financial Security and Retirement Savings
Almost all of us worry about our financial security and our savings for retirement. We sometimes may imagine what it would be like to not have any savings and have to survive on the pittance that will be available to us through Social Security. We probably imagine living on the streets, on charity, or otherwise dependent on other people just to survive. While those images are a reality for too many people, they do not have to be. Here are three tips to get you started on the road to financial security.
1. Pay yourself first. Before you pay the first bill, or even spend the first dime, set money aside for yourself in a savings vehicle such as a money market or savings account. It is ideal if you can have the savings deducted from your paycheck so you will be even less likely to miss it, but if you cannot, make sure that you pay yourself first. Ideally, you should pay yourself at least ten percent of your gross income, but that is a daunting amount for many people. If you cannot do even five percent, start with just a percent or two. Just two percent on a two thousand dollar monthly salary comes up to $480 a year. While it may take a couple of years, with interest and raises you be putting away $1,000 or $2,000 a year in just a few years.
2. Live below your means. For some of us, as the saying goes, we have “champagne tastes on a beer budget.” We want the best even if we do not need the best. We want the designer sunglasses when a pair off the $10 rack will do just fine. We want the two bedroom apartment next to the pool in the exclusive complex even though we would fit in better in a one bedroom at a safe, but average complex. We want to have our cake and eat it too. That is human nature, but that nature comes with a price. Often that price is living beyond our means and piling up debt. Instead of buying $250 sunglasses, buy a $25 pair and take good care of them. Put the extra into savings or into paying off a debt. Live in the average neighborhood and put the difference toward saving for a house. Live below your means and do not worry about keeping up with everybody else. It may be unrewarding in the short run, but it will be worth it when you do not have to endure the financial pain that your friends do.
3. Make your money work for you. Since almost every country in the world uses a fiat currency of one type or another, inflation is a very real concern when it comes to saving money. The reason for this is that fiat currencies are not backed by any real assets such as gold or silver. Fiat currencies are backed by the government or bank that issued them. Because of this, the more money that is printed, the less that the individual denomination of currency is worth and the more that people demand of that currency to provide a good or service. In good times inflation may only be between two and three percent, but that means that the value of the money you have saved declines by that amount each year. Unfortunately the only way to overcome inflation is to make your money work for you. If you let it work in a traditional savings account, you may only make enough to keep pace with inflation. A money market or certificate of deposit will get you a little more, but not a whole lot. The most well known investment market will provide an average return of about eight percent but there will be years that you will lose many times more than that. Since all of these investment vehicles carry risk, the key to making your money work for you is to learn when and why your money needs to be placed in any certain vehicle. It will take some work, but learning how to invest your money is vital since it is unlikely that you will simply be able to save enough to provide for your security.
We have looked at three keys for obtaining financial security and retirement savings. There are certainly many more things that you can do from clipping coupons to getting a second job, but virtually none of those items will provide you with the security you will get if you learn these three keys–paying yourself first, living below your means, and making your money work for you.
Mike Dennison is the author of “365 Self Help and Motivational Tips for Living.” Through near bankruptcy, divorce, and the death of loved ones, Mike has reinvented himself and now shares his experience of healing and growth with others. For more information and a free sample of Mike’s book, visit http://www.BuildingTheBestYou.com.
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