Which one of these can't you take out a loan for? Your principal residence, Your children’s education, Your retirement. Image: Andrew Angelov/Shutterstock.com
By: John GrobeYou can join AARP as young as the age of 50, and many readers are likely already members of AARP even if they are still gainfully employed at their federal job. In the July/August edition of the AARP Bulletin the organization stated the obvious: “So much of saving money is simply being mindful about spending. Maintain a money-smart attitude and keep adding frugal habits, and your savings pile can truly become a mountain.”
How our savings and investments perform is certainly part of preparing for retirement, but we have to identify money to save and invest in order to be successful and have a “mountain”, or at least a “pile” working for us. Yes, we will talk about budgeting in this article.
Having a basic budget is the starting point in financial planning. A budget allows you to (at a minimum) see where your money goes. Ideally, a budget allows you to control where your money goes. An effective budget:
Can identify wasteful spending by showing you where your money is going. If you can eliminate $5.00 a day in un-needed expenses and you invested this saved money at a 5% return, after ten years you would have $16,841; after twenty years you would have $44,578 and after thirty years you would have $90,262.
Can allow you to earmark money for special goals such as retirement, a new car, or a special vacation.
Can allow you to automate your savings and investing by using payroll deduction and/or direct debit from your checking account. The old saying “If you don’t see it, you won’t miss it” is just as true today as when it was first uttered.
Once you have a budget in place, you can set and pursue reasonable goals. Typically, people have three major goals over their lifetimes.
Ask yourself, for which of the three following goals can’t you take out a loan.
Your principal residence
Your children’s education
Your retirement
There are also interim (rather than lifetime) goals that can assist you in reaching those major goals.
Contributing more to the TSP
Cutting unnecessary expenditures by a set amount
Opening an IRA for additional retirement savings
Opening a 529 plan or a Coverdell ESA for college savings
If you don’t already have a budget, start one. Organizations like the American Savings and Education Council ASEC, provide useful resources to get started.
Once you have a budget that sets aside money for retirement, you’re on your way to a successful retirement.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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