There is a significant challenge to starting to invest for retirement. Article after article attempts to boil it down to a single commandment: ‘Thou shalt invest for retirement no matter how young you are.’
The funny thing about this is that it is good advice. Investing early, often, and with as much money as you can will help you have the maximum amount of savings possible at any given point in time. Unfortunately, it is like most rules: worth breaking at times.
The greatest reason to break this rule is when it conflicts with bad debt. Bad debt in this case is any debt that will last longer than the benefit gained from that debt. For example, charging up credit cards to live like a millionaire today when you aren’t a millionaire yet. Other examples include expensive cars that depreciate faster than the loan to buy them. There are many other examples applicable too.
Why would you want to earn 6-10% interest on retirement savings while you are paying 12-30% interest on today’s expenses? If you save $6000 a year for retirement and add $6000 in personal debt each year, you will not come out even at retirement. You will come out behind.
To save for retirement, you must first be living within your means. That means that any missteps you have made previously have to be resolved.Pay down credit card debt. Pay off any other loans that are impacting your ability to live today on what you are making today. Only then, once you are living on less money than you are able to take home every paycheck, should you start saving for retirement.
Planning ahead will involve a lifelong commitment and dedication to doing the right thing. It may even hurt in the short time as you adjust to living today how you can afford to live. Yet, once you reach that stage, you will find that knowing you can afford your life is a sweeter feeling than any possession or activity you could have financed with debt.
It will also make it easy for you to save for retirement, since all that money left over will now be available to save for the future. You will not feel depressed or uneasy over ‘stealing’ from today to pay for tomorrow. Instead, you will have the satisfaction of knowing that you can live both today and tomorrow on what used to be not enough for just today.
It will not always be easy, and in the beginning it may even seem impossible. Yet the closer you can bring your life to what you can live with, the easier it will become and the happier you will be.
For those pessimists out there, I realize that there are situations where it is not truly possible to live within a given income – massive medical bills and natural disasters do have a major impact on many people’s lives for example. It takes time to be able to prepare to weather those life storms. Yet, you have to start somewhere and work to where you can keep your footing no matter what. For most people, that is learning to live within your means.
For everybody, remember, there are multiple ways to live within your means. If you look at how you are living and discover that you are borrowing from tomorrow to live today, you have two choices. The first is to cut back on living today and figure out how to be happy doing so. The second is to figure out how to increase what you are trying to live within. Both topics worth of their own articles.
In summary, to start investing for retirement, make sure your financial house is in order now. Then add as much as you can towards retirement without upsetting the balance you have already achieved. At that point you will be successful in retirement and happy today.