How to Manage Your Money When You Don't Have Any (Second Edition) by Erik Wecks

Author:Erik Wecks [Wecks, Erik]
Language: eng
Format: epub
Publisher: Erik Wecks
Published: 2012-03-08T08:00:00+00:00

Saving for Retirement

This isn't a book on planning for retirement. Actually, that isn't quite true. This isn't a book that is directly about how to save for retirement. However, anyone who aims at financial stability is much more likely to be ready for retirement than someone who arrives at its door with credit card debt and 20 plus years to go on their mortgage. Just think how much less you have to save if you don't have any debt, and you own your house free and clear. It will make the burden of saving for retirement much simpler.

Even though this book won't cover the hows and whys of mutual funds and financial advisers, it is worth mentioning a few things before we move on. First, it doesn't make sense to be saving for retirement if you are going in the hole each month. Remember, your first priority is to make sure on a monthly basis that your boat is not leaking. If you can't pay for your basic necessities right now, you have no business trying to pay for them in the future.

Next, retirement savings is not as high a priority as making sure that you pay off your debts right now. Debt is a risk and remains an ongoing threat to your household until it is paid off. Even if your boat is stable at this point in time, what would happen if you were suddenly to lose your job? You could end up in a position where you can no longer pay for your credit cards, and if it takes too long to find another job, you may end up in a bankruptcy. If you end up in a bankruptcy, there is a good chance your creditors will try to take your retirement funds to pay for your debts.

In some cases, it makes sense to stop making your retirement contributions to pay off your debt, even if it means giving up a company match. Remember, our goal here isn't to become wealthy but instead to be financially stable. What good is the company match if you end up in a situation in which you are bankrupt and have your retirement taken away anyway? Retirement savings shouldn't be allowed to threaten your financial stability, no matter how enticing the free money offered by your company. (Remember that the match isn’t truly free. There is a cost—five years of loyalty to a company that may or may not be a good fit for you.)

Once your consumer debts have been paid off, by all means take that company match. (In fact, if you have your consumer debts paid off, why aren't you taking your full company match?) However, beyond that, keep your contributions modest until you have a full emergency fund of eight to ten months. Remember, a fully funded emergency fund is necessary to keep you from losing your home if you are suddenly unemployed. That takes a higher priority than a retirement fund.

On the other hand, many of us don't really have a problem of placing too high a priority on saving for retirement.

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