Saving For Retirement In The New Economy

Saving For Retirement In The New Economy

Saving for​ Retirement in​ the​ New Economy
Let’s face it .​
Most of​ the​ financial advice out there says something like this, if​ you make on average $60,000 per year… Most of​ the​ advice is​ designed for​ baby boomers about to​ retire .​
The young generation 35 years-old and​ under are not going to​ relate when their incomes range from $25,000 to​ $40,000 .​
True their income may rise someday but there is​ a​ good chance it​ could decrease with the​ onslaught of​ lay-offs, downsizing and​ cost cutting .​
The wages their parents earned who worked at​ companies like GM making a​ combined income of​ benefits and​ wages in​ the​ $65 per hour range are not likely to​ be around in​ the​ future .​
Many of​ these companies have two-tier wage systems that hire new workers somewhere around $24 per hour (benefits and​ wages combined) .​
Not only are low wages going to​ be a​ problem but also lack of​ employment opportunities, high interest mortgages, expensive college education, lack of​ social security income and​ major cut backs in​ all federal spending .​
So what strategies should a​ young person making his/her way in​ a​ tough times economy to​ do?
The biggest advantage young people have is​ their age .​
Compound interest is​ a​ very powerful force that is​ likely to​ make or​ break a​ retiree .​
By putting away only $200 per month from the​ age of​ 30 and​ compounding it​ at​ 9% interest a​ young person could have around $500,000 by the​ time they are 67 years-old .​
Double that amount and​ you could be well over a​ million dollars .​
With a​ 401K offered by your employer it​ becomes very easy to​ save because it​ is​ pretax dollars that you don’t have to​ think about .​
You may also choose to​ put your money into a​ Roth IRA .​
Generally, the​ money is​ taxed before it​ is​ put away and​ then you don’t have to​ pay taxes on it​ in​ retirement .​
Not a​ bad deal when it​ has compounded for​ 30 years .​
The best retirement utilizes a​ combination of​ the​ two .​
It is​ beneficial to​ put away money automatically in​ your 401K and​ set a​ goal of​ putting away $100 or​ $200 per month into a​ Roth IRA.
One may also consider reducing the​ cost of​ big expenditures and​ saving big money .​
The housing market is​ beginning to​ cool as​ baby boomers are leaving the​ market with their large incomes .​
It won’t be long before appreciation on houses has returned to​ a​ mediocre percent such as​ 3%-5% .​
As a​ young person trying to​ show his or​ her financial stuff they may want to​ buy the​ nicest houses they can get .​
Unfortunately that nice house also comes with a​ large mortgage payment .​
a​ good rule to​ follow is​ that your housing cost should not be over 25% of​ your household income .​
For example, if​ my wife and​ I​ make 70,000 (two young professionals at​ $35,000/year) than we could have a​ house that costs $1,400 per month .​
Because we are financial savvy, with a​ lot of​ energy, we bought an​ older house with an​ $800 per month mortgage payment, put our sweat equity in​ it, and​ watched its value increase 20% .​
Because we were under our $1,400 limit we also bought 10 acres for​ a​ nice cottage at​ $300 per
month .​
Now we are increasing our long-term assets at​ a​ cost of​ $1,100 per month .​
What happens to​ the​ savings? Well they go into our retirement account.
Of course one of​ the​ best ways of​ saving money is​ diverting your expenses into investments .​
Basically, You don’t buy what you don’t need! Go to​ discount grocery stores, take cheap vacations within driving distance, buy good quality clothes at​ discount prices, and​ stick to​ a​ solid budget .​
It is​ much easier to​ save money than it​ is​ to​ make more .​
Keep in​ mind that even though you don’t look as​ wealthy as​ your friends you are probably much wealthier financially .​
Trust me; no one gets out of​ college making a​ hundred thousand dollars a​ year .​
Therefore, don’t try and​ make your self look like it.

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