How to Save for Retirement When You Have Little to No Extra Income

Recently, there was an excellent article published on CNN Money that contained tips on how you can save money for retirement even when you are living paycheck to paycheck.  If you haven’t thought about saving for retirement or are having trouble finding funds to save, consider some of these tips:

• Start saving when you are young. Most people in their 20s are not thinking about retirement but it is a very wise decision to start putting away money for retirement in your 20s.  This will require you to put away less money each month than if you were to wait 10-20 years.  The return on your investment should be much higher the longer you invest.  The example the CNN Money article outlined was as follows:  If you contributed just $15 per week ($60 per month) toward retirement and earned a 7% annual rate of return on your investments, you would have $100,000 after 35 years.  However, if you only have only 10 years to save $100,000 for retirement, you would have to contribute $600 per month to get there.  It is much easier to come up with $60 per month rather than $600 per month… so starting retirement savings early can really payoff.
• Don’t throw away free money. Most companies that offer 401k withdrawals will match its employee 401k savings up to a certain percentage.  If you are not participating in your companies 401k, you should think about doing so because you could be throwing away money that your employer is willing to give you.  Let me explain, I was 21 when I was hired by a bank.  After one year of employment, that bank offered a 401k match up to 6%.  If its employees contributed up to 6% of their salary into the 401k fund, the bank would match it.  Therefore, if an employee made $800 bi-weekly and contributed 6% to his/her 401k ($48 bi-weekly), the bank matched it.  That would add up to the bank giving the employee $1,248 per year ($48 x 26 paychecks per year).  Who doesn’t want FREE money!
• Consider investing all or part of your tax refund every year. If you work for an employer who doesn’t offer a 401k, you could considering opening an IRS which allows you to invest up to $5,500 per year ($6,500 if you are 50 and older).  The IRA will allow you to earn interest on your retirement savings.  IRS Form 8888 offers the option to have your tax refund deposited directing to a retirement account.
• Save $1,378 in one year to deposit into a retirement account. If you have trouble saving money, consider trying the 52 week money challenge that teaches you to save every week starting with $1 for the first week and $52 in the last week of the year.  At the end of the year, you would have $1,378 to invest in your retirement account.

My favorite quote about finances is from Dave Ramsey and it is “live like no one else now so later you can live like no one else." Essentially, if you start today making financial sacrifices to save for retirement then you will not have to work as hard later for the rewards.