Thinking about retirement in your 20s might seem like thinking about Christmas in February; it’s just something you’ll deal with later. But making moves early on can have big financial repercussions that you’ll appreciate later.
Personally, I was thinking about retirement before I even graduated college. It was a subject that I found interesting; and therefore, took time to consider. And while my wife and I didn’t have a lot of money to throw at our retirement plans in our 20s, we made certain moves that paid off as we moved forward into adulthood.
Paying off debt
Debt can be a huge cost if not handled appropriately. According to Creditloan.com, the average American’s interest payments on debt is $600,000 over the course of a lifetime. With this knowledge in hand, and having no desire to spend more than half a million dollars just to pay to use someone else’s money, we made a real push to pay off debt. After building a multi-month emergency fund, we pushed hard to put any additional funds toward paying off things like consumer purchases and student loan debt, ridding ourselves of about $50,000 in student loans in under three years.
Creating an emergency fund
As I mentioned, while debt reduction was a key goal in our 20s, so was financial security. Paying off debt may not do much good if it’s only re-incurred due to an emergency or financial insecurity. Therefore, we put money aside to cover a multi-month period of income loss to protect against unforeseen financial circumstances. Eventually, we grew this amount to $5,000, which we felt was enough to handle a variety of emergency situations but not so much that we were missing out on putting cash to work in other investments like our employer-sponsored retirement plans.
Saving a home downpayment
According to a Time.com business article, “In 1989, just 26.4% of all households were retired with a mortgage, according to data from the Federal Reserve’s Survey of Consumer Finances. That jumped to 46.5% by 2007, before receding a bit during the recession.”
Buying a home was the largest single investment we’ve ever made. And with an eye toward avoiding debt, we wanted a larger downpayment than normal. Therefore, we worked hard to save up additional money to put down on a home. By saving up a 40 percent rather than the standard 20 percent downpayment, we essentially reduced the amount of interest we would have to pay over the course of our mortgage by about $24,000.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.