As a young adult in my mid-20s, retirement and paying for my future children’s education feels light years away. It can be hard to prioritize saving for the future when you’re trying to stretch your income to cover all of this month’s expenses. When my husband and I first took FPU two years ago, we were the youngest in our class. When the topic retirement came up, everyone in the room looked pointedly at us and shared how they wished they had started thinking and planning for retirement sooner, and encouraged us to take this lesson seriously.
In this week’s lesson, Dave gives us some guidelines when it comes to investing for the future. It’s important to diversify your investments (aka don’t put all your money in one place), and keep it simple (don’t put your money into something you don’t understand). Dave recommends using a tax-favored plan, such as an Individual Retirement Arrangement (IRA), 401(k), 403(b), 457, or Simplified Employee Pension Plan. Dave suggests investing 15% of your income towards retirement. If that’s not realistic for your budget right now, that’s okay! Just start with what you can, but start now!
The next Baby step in FPU is saving for your children’s college education. Is anyone else panicked for what college is going to cost 20 years from now? Me too. But graduating debt free is a HUGE blessing, and if I can provide that for my kids, it’s worth planning ahead. One way to do this is saving in an Education Savings Account (ESA), which grows tax-free. Some other tips? Pick an in-state or community college, compare on-campus vs. off-campus living options, apply for scholarships, and encourage your student to get a part time job. It is possible to pay for college without student loans, but it takes prioritizing your kids’ future now.
Leave a comment below letting us know your questions, challenges, and victories.
Actions Items for This Week:
Calculate your retirement needs. Use the Retirement Planning Calculator here to determine how much you will need for a comfortable retirement and how much you will need to save each month to reach that goal.
Calculate your college savings needs. If college funding will be part of your financial plan, start saving in an ESA or 529. For more resources about these plans, click here.
Discuss your retirement plans. Meet with your accountability partner or spouse and discuss your retirement plans (and dreams). Review the calculations front he Monthly Retirement Planning exercise together.
- Winning with money is not just about building a comfortable retirement for yourself. It also includes leaving a legacy for future generations. Realistically, what type of inheritance would you like to leave your loved ones? What would you like to see them do with it?
- Parents often struggle with the idea of putting their own retirement plans ahead of their children’s college funding. Why is it so important to follow the Baby Steps in order in this area? Why do you think some parents feel compelled to reverse the order of these two steps?
- Some people struggle with the concept of doing the Baby Steps in order, one step at a time, while setting aside or delaying goals they want to reach immediately. Why is it important to focus all your attention on one goal at a time?