Budget Bzzz: Saving for the Future

Let’s be honest; life can sometimes be unpredictable. Things happen that can change your plans. When it comes to budgeting, it is important to be flexible and have a safety net for when something occurs and takes a hit on your bank account. For example, you plan on retiring at 65, but instead, a medical problem arises, and you have to stop working five years early. Will you have a stream of income for these extra five years? Have you saved for retirement or the future?

Saving money can be tricky, but whenever you are able to afford it, it is wise to put away extra money. The good news is that there are many ways you can add more money into your bank account. For example, there are suggested financial milestones for every decade of life, investing in stocks or bonds, and choosing between a Roth IRA and a 401(k). Don’t know where to start saving or how to do it? Continue reading for the inside scoop.

Financial Milestones

In order to obtain a comfortable retirement savings, financial experts suggest the following guidelines for people to achieve in each decade.

20s: Start putting 10% of your income into a 401(k). By the time you turn 30, you should have one year’s salary saved.

30s: While adding to your retirement, make it a goal to pay off all your student loans and debt, if you have them. Also, by 35, your savings should include an amount twice your salary.

40s: Start looking for additional income, such as cutting expenses, a raise or new job with a higher salary. As for your retirement account, increase your contributions about 10-15% more, if possible.

50s: When you’re in your mid-50s, it is recommended to have at least four to five times the amount of your salary saved.

60s: Hold off on Social Security benefits for as long as possible, because each year you hold off, the amount increases 8%. Lastly, begin withdrawing money from your retirement accounts. Always start withdrawing from your taxable accounts.

Stocks vs. Bonds

Many people consider investing in stocks and bonds, and you might be one of them. However, there are a few things to know before taking the dive.

When someone purchases a stock, they purchase a small share of a company. The risk of losing money is higher compared to bonds, but you have a higher return. For example, when your stock increases in value, you can get a higher return for selling it (more than you originally purchased it). Stocks are the best option for those who have more money to risk, usually younger people, and can allocate more money to this type of investment.

As for bonds, they are long-term debt issued by a company or government. They come with less risk and lower returns. In order to make money, the bond’s seller must agree to pay you interest on the loan at a fixed rate and schedule.

Roth IRA vs. 401(k)

The most common types of retirement accounts are the Roth IRA and 401(k). There are similarities between the two, but it comes down to the differences when deciding which option is best for you.

A Roth IRA is funded with money that is taken out of your account after-taxes. There are no taxes on it when you withdraw money, but you must make your own investments. Money from your paycheck won’t be automatically taken out. There is a contribution limit of $5,500 per year, and you must earn under $118,000 to receive a Roth IRA account. In addition, your taxes are lowered during your retirement, and you have complete control over your investments.

A 401(k) automatically comes off your paycheck before taxes. However, you do have to pay taxes when withdrawing money. Also, you can contribute $18,000 a year with no income limit. The 401(k) has more present benefits than future with lowering your taxable income, but unfortunately, you have limited control over your investments.

These are just three examples of the many, many ways you can save for the future. You might decide to try them all and see what fits your budget and lifestyle. However, it is always important to keep the savings rule of thumb in your mind: a little bit here and there can add up.




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