If you want to pay yourself a pension of $1,000 in old age, you have to save $300,000 before retirement. This huge amount can only be achieved by those who plan carefully and avoid some beginner mistakes.
1. You have no plan
Before you even start retirement planning , you need at least a rough plan. How much money do you want to save? How much time do you have for this? How much interest do you need and which investments can be used to generate it? How much money can you save each month?
You should first clarify all of these questions for yourself before you actually start saving. Much of this may change in the future, but a basic framework should be in place. Anyone who has to save $100,000 in ten years needs completely different savings rates and investments than a young person who still has 40 years to get $300,000 in assets.
2. You pay others first and then yourself
In the United States, the beautiful “pay yourself first” saving principle applies. What is meant by this is that you only use your salary to pay for everything that is most important to you. First and foremost, these are things like rent, electricity, internet and groceries and then also your retirement savings.
Many make the mistake of seeing how much money is left at the end of the month and then saving. It is better to put a certain part of the salary on the high edge at the beginning of the month – five to ten percent is recommended – and to make a living with the rest.
3. You don’t care enough about your expenses
Each of us spends money on things that he or she doesn’t need. There would be membership in the gym , which you can only see from the inside three times a year, the SMS flat rate in the mobile phone tariff, although you have only been using WhatsApp for years , or the glass insurance that an avid insurance agent once said to you.
Most of this unnecessary expense comes from not knowing what we’re actually spending money on every month. That is why it is advisable to make a checkout once a year. Take a close look at the movements in your checking account and record all income and expenses in a (digital) household book.
In this way, it can usually be seen at first glance which items are actually completely unnecessary. Apps like “Daily Budget” help you to keep an overview every day.
4. You care too little about your earnings
Expenses are only one side. After all, you can only limit them to a certain limit. That’s why it’s just as important that you keep trying to increase your earnings.
There are two ways to do this: Either you try to get more money out of your working hours or you increase your working hours. Because the latter is not recommended for someone with a full-time position, only the other option remains.
The first option would be a raise. You didn’t always deserve it, but only a few employees ask your boss about it during an annual meeting. However, if your salary does not increase over the years, it hurts you because inflation increases your spending steadily.
If your boss cannot or does not want to pay you more money permanently, a change of job is recommended. As a rule, this allows you to negotiate a higher salary premium than if you stay with your current job. If you change jobs every few years, this is clearly reflected in the final invoice .
5. You save instead of investing
Most of the time, there is talk that you would have to save for your retirement savings. But that’s actually the wrong term. “Saving” implies that you simply put a bit of money aside every month and this increases automatically.
This may have been the case earlier, when there was still a lot of interest on savings books and overnight deposits, but today it is a wish in times of low interest rates. Instead, you need to invest your money today, be it in stocks, bonds, real estate, gold, or funds.
This requires more work than before because you usually don’t automatically know about these investments. But it’s easier than you might think.
6. You think you can’t get rich with savings anyway
The above-mentioned $300,000 for retirement are not a privilege for children of rich parents or happy stock market gamblers, but can be achieved fairly easily if you follow the first six tips – provided you have enough income for a certain savings rate every month.
If you have 40 years to save, around $120 per month you can have $300,000 in your account for your 65th birthday .
Yes, if you then pay an additional pension from it, the state accesses it through taxes. But that’s also true, after all, it’s about income. You also have to pay tax on your other pensions, and private pensions are no exception. But: $1,000 gross is still a significant additional income to what you probably get from the statutory pension fund
