When I first got my own place, I felt overwhelmed by the mountain of monthly bills I was responsible for. Paying for rent, cable, Internet, groceries, car insurance and student loan payments added up fast—and that’s not including my social tab! So when my company gave me the option of enrolling in its 401(k) plan, I was hesitant to opt in. The last thing on my mind was how my life would look 30 years down the road. And with so many fixed expenses, it seemed impossible to set anything aside on my entry-level salary.
But after talking to a family member who’s a financial adviser, I learned that it’s never too early to start saving for retirement. Here’s why:
Money doesn’t grow on trees, but it can really add up when your employer sends some extra your way. Many employers will match the dollar amount you put toward your 401(k) —some match 100 percent of your contributions, but most will match a portion of what you contribute. With a match program, not only will you have more money going into your 401(k), the money you do have will accrue more interest.
Having a 401(k) can lower your taxable income. The contributions you make to your 401(k) happen pre-tax—the income isn’t taxed until the benefits are paid out to you later in life. This allows your money to compound more quickly, which means you save more money in the long run. (I can already see the dollar signs…)
If you change jobs, you can usually move your 401(k) over to another retirement account fairly easily. When you’re unsure of where the future will take you, like most of the 20-somethings I know, that’s a huge plus.
You may spend a third of your life in retirement, so in order to maintain a solid standard of living, you’ll need more money than you think. Experts recommend that you start saving at least 6 percent of your salary in your 20s and increase that amount (even if just a tiny bit) every year. If you start saving now, you won’t have to set aside as much later on to reach your retirement goals.
While it seemed unimportant at first, I totally get why it makes sense to start saving for the future now. It’s about securing a future for yourself. And there’s nothing like the satisfaction of feeling young, free—and financially responsible.