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Even if retirement is a long time away, there are steps you can take now to make sure it happens eventually. But sometimes, it’s the steps you aren’t taking that can have the biggest impact on your financial goals. Here are three signs you’re sabotaging your own retirement.
1. Avoiding the Topic
Whatever your plans for the future, you need to think about it. Even if you think you are too young or making too little money, you can’t afford to avoid the topic. Consider how you picture retirement — at what age you want to leave work, whether you want to travel, whether you plan to downsize, etc. The answer to these questions can help you determine how much you need to save for retirement.
If you are married or in a long-term relationship, you’ll want to discuss your retirement goals with your significant other. You don’t have to agree on everything, but you want to be aware of what you are both aiming for and how you are planning. Revisit retirement plans every few years — and even more often as retirement age draws near.
2. Not Saving
Putting off retirement saving can leave you coming up short. Starting saving early gives your money the most time to grow. Compounding interest means you can put in less money early on in your career and end up with more money for retirement. Basically you are allowing your money to earn interest and that interest can then start earning interest.
Set goals to put aside at least some money each year, even if it isn’t a lot in the beginning. Then every time you get a raise or a bonus, pump up your savings. Ultimately, you want to be maxing out your contributions.
3. Being Forgetful
Many companies offer 401(k) or similar plans to help you save for retirement. When you start a new job, you may feel overwhelmed with paperwork. Sometimes participation is automatic, but employees frequently fail to change the default contribution to a percentage high enough to help them reach their retirement goals. In addition, leaving the contribution at the default rate potentially leaves an employee match on the table. It’s essentially turning down free money.
Another way being forgetful can hurt your future retirement is when you switch jobs. You don’t want to lose track of your savings, so make sure you keep track of all your separate accounts. You can consider rolling over the 401(k) from your old job to your new account so it’s all in one spot.
Parents of teens often wonder if the sage life advice they attempt to impart rubs off on their children. Your kids may not listen to you about brushing their teeth or driving too fast, but their ears are likely to perk up when you talk cash. Take advantage of this interest in finances by teaching your teen some valuable money management lessons, and you’ll do yourself and your child a favor.With some direction, your son or daughter will make a sound financial launch and be less likely to call home for cash after leaving the nest.
Here are 6 steps to teaching your teen financial responsibility:
Develop a budget:
All sound financial plans start with a workable budget. The fact that your teen most likely has a small amount of money to manage is a benefit, as any mistakes made will have minimal impact but teach lifelong financial lessons.
Review your teen’s income sources, such as allowances, monetary gifts, or a part time job, as well as expenses, including spending money and savings. Have your child subtract the expenses from the income and discuss the results.
If there is a surplus, can your child save more for something he or she really wants? And if there is a deficit, discuss ways of cutting expenses. Budgeting can be done on paper or use one of the many online budgeting tools available.
Discuss savings options:
If your child already has a standard savings account, now is the time to talk about the advantages and disadvantages of more complex savings vehicles and perhaps open up such an account.
Explain the differences between regular savings, money market accounts and certificates of deposit and their various uses.
If your child is two years away from college and CD interest rates are attractive, for instance, this may be a good time to open a 24-month CD and deposit college savings money.
When your teen has a job, also teach long-range financial planning by opening up a retirement account in his or her name, such as a minor Roth IRA.
Teach price consciousness:
Since teens are used to parents paying for everything, it’s often eye-opening when they see how much things really cost.
Have your child pay bills with you a few times, and when you’re grocery shopping, have your teen help you meet your budget. This requires examining prices and making choices.
When your child wants a big ticket item, such as an upgraded cell phone, use this opportunity to teach how to research prices and together determine how long it will take to save enough money to buy the phone.
Open a checking account:
In order to prepare for the eventual task of paying bills, your teen needs a checking account.
A custodial checking account gives you a chance to show how to monitor the account and balance it.
Checking accounts generally come with a debit card, which is a good precursor to a credit card.
Start building credit:
Once kids have proven themselves with debit cards and reach 18, they are eligible to open a credit card account, which is one of their first steps toward building a credit history.
Whether teens are ready for this responsibility depends on various factors, including how well they’ve done with a debit card and if they’ve managed to save money.
Use the opportunity of opening a credit card account to discuss credit scores and how credit standing affects your life as an adult.
Stress financial freedom:
While it’s good to warn teens about the perils of overusing credit and not saving, it’s best not to overstate the negatives.
Take a positive approach and give your child something to aspire to by pointing out young adults who live financially responsible lives and are reaping the benefits.
For instance, share the story of a young person who amassed savings and as a result was able to take the summer off to travel around Europe.
Have them follow a few personal finance blogs (like MintLife!) for more real-life tips and stories.
Now that you have a plan of action, you can get started teaching your teen to live a financially rewarding life.