Are you a young investor? I don't want to feed your ego or anything, but you are the most dangerous type of investor. And that's a good thing. Being young allows you to make your money work longer and harder to build a comfortable retirement. However, it only works to your benefit if you take advantage of the opportunity. Here are three retirement planning tips to set young investors on the right path.
Don't squander an early start
It's never too early to begin planning for your retirement. In fact, the sooner you start, the easier it will be to save in the long run. Stowing away a few hundred dollars per month now can save you from needing to save hundreds more each month if you put off a retirement savings plan until later in life. Consider the following chart, in which savings compound at 6% per year:
Start saving at age...
Pre-tax savings at age 65
As you can see, your savings power diminishes greatly the longer you wait. You can save more or less than $300 per month as long you are comfortable with your plan. The important thing is to make contributions over the long term.
Pay off credit card debt
This may never be considered a part of your retirement planning, but my girlfriend Suze Orman will tell you otherwise. Carrying credit card debt can significantly impact your ability to save for retirement. Think about it: monthly credit card payments often come with high interest payments. If you don't already, start viewing the added interest as an anti-investment. By not making credit card debt your priority -- even over investing, savings, and employer retirement accounts -- you are throwing money away over the long term. To maximize your savings efficiency, pay off your credit card balances before lower interest-rate debt, and continue to reset your balances at the end of each month.
Make a budget spreadsheet
It seems so simple to sit down and track your expenses for a month or two, but it can be an eye-opening experiment with big benefits. By writing down each purchase and payment, you'll be able to see if you're spending too much money on one category -- ordering too much food, perhaps -- or can boost spending in another -- maybe an extra couple of bucks in beer money each month. It will also give you a better idea of how much money you can actually afford to put toward your retirement. Shooting blindly from the hip at monthly savings totals increases the likelihood that you will fall off the bandwagon. Making a budget spreadsheet taught me that saving for retirement and having fun do not have to be mutually exclusive.
Foolish bottom line
One important thing to mention is that, as a young investor, you are bound to make some silly mistakes. Of course, the younger you start, the more time you have to learn the ropes and avoid future downfalls. It isn't too often that you gain an advantage in investing because of an external factor such as age, so you should certainly take advantage of it while you can. You will be happy you did later in life.
The best investing approach is to choose great companies and stick with them for the long term. The younger you begin, the better. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
The article 3 Retirement Planning Tips for Young Investors originally appeared on Fool.com.
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