How to Start Saving Money for Retirement

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Save Money

Save Money (Photo credit: 401(K) 2012)

Many individuals believe that the biggest expense in their life will be the purchase of a home. However, the cost of purchasing a property pales in comparison to the cost of financing retirement. The thought of giving up money today in order to spend it tomorrow often seems to be rather illogical, especially to young individuals considering saving for retirement. But if the money is invested correctly, $10,000 could very well turn into $100,000 over a 30-year time span  Saving for retirement sooner rather than later is always a good idea. Whether you’re planning to retire 10-years from now or 30-years from now, beginning your savings now will always result in a more favorable outcome.

Be Discerning with your Money

The closer you are to retirement, the more aggressive you must become with your savings efforts. It’s important to tighten your monthly budget in order to create a larger portion of expendable income, which will then be applied to your retirement savings. Significant lifestyle changes such as exchanging a luxury car with a high monthly payment in favor of a reliable but unattractive car that is paid for in cash, can allow you to instantly free up $300 each month. If you’re a renter, moving to a smaller flat in a lower cost-of-living area can allow you to save $250 per month. Scaling back on a wine habit can free up an extra $50 each month.

All of these changes, some more drastic than others, provide a savings of $600. Over the course of a year, applying $600 monthly towards retirement savings will amount to $7,200. Over the course of ten years, it balloons into $72,000. This is without employer contribution or investing your money. If you invest the money, it can very well turn into nearly $1,000,000 over the course of several decades and proper investing. Using a trusted super fund can pay great dividends on your hard earned cash too. Some of the most trusted and popular super funds are AMP super and MLC superannuation for Australians.

Diversify your Investments

The traditional investments are stocks and bonds. While these tend to provide the best rate of return, if you place all of your eggs in one basket, your money will sink along with the ship you’ve chosen to invest in; if it is your sole investment. Any successful and seasoned investor will attest to the fact that placing all of your money in one basket is a risky move. Diversity is what makes the volatile game of investing that much safer. It is a smart idea to diversify across the board, don’t only invest in stocks, but also invest in bonds and have a cash reserve.

Take it a step further and invest in property. This option generally provides a lower rate of return, but renting out a home can provide a steady stream of predictable and much-needed income throughout retirement. If your local market is thriving, consider investing a bit of time in a property by renovating, and selling it for a profit.

There is no shortage of methods of investing your money. However, before you can begin to think about investing, it’s necessary to build retirement savings with which to invest. Slim your monthly financial obligations and find every way that you can possibly maximise your dollars. Then invest with an eye on diversity in order to protect your investments. This is the simple, but successful, recipe of saving for a comfortable retirement.