How to Start Saving for Retirement (or Any Financial Goal)

How to Start Saving for Retirement (or Any Financial Goal)

Slow and Steady Wins the Race Often when I meet with people who are learning good financial principles for the first time, they are anxious to get started and want to do everything perfectly right away. I am glad for their enthusiasm, but this approach may not be sustainable. I would not normally recommend that people immediately start saving 20% of their income if they are only accustomed to saving 5%. That would be like trying to run a full marathon if they had never run more than six miles at a time. Marathon trainers recommend starting with a much shorter distance than the full 26.2 miles, then adding no more than 10% to the training distance each week. Otherwise, trainees could injure themselves and lose months of progress. Likewise, too big of a sudden increase in savings could cause “financial injuries” such as increased credit card debt, marriage tension, or spending binges. We may even become so frustrated that we stop saving completely. Of course any level of savings requires some sacrifice, but starting with a realistic amount that does not hurt too much is more healthy and sustainable. Then we can gradually increase it over time. How to Get Started Saving Those who are not saving anything at all right now might even want to try starting with only 1-2% of income. Most people are surprised how little they feel the difference when they increase their savings by modest amounts. Then gradually building from there is easier. Just remember that whatever amount we decide to save now, in the future we are likely to wish we had saved...
How Much Should We Save?

How Much Should We Save?

The best way to calculate the proper amount to save is as a flat percentage of current income. I believe we all must consistently save at least 20% of our gross income if we ever want to get ahead financially and retire comfortably someday. Everyone I have ever met who is financially independent, meaning that they have enough money to live a comfortable lifestyle without having to work, has consistently saved a significant portion of their income, many of them more than 20%. No other reliable way to accomplish this exists, except perhaps by means of an employer or government pension that guarantees payment of a significant portion of pre-retirement income for life. Still, most people I have met who are successfully living on pension income also regularly saved a large percentage of their income throughout their careers. Keep in mind that many pensions are facing severe financial difficulty, so even if we are entitled to a pension, we would be wise to save a substantial amount of our income in case it does not pay out as expected. Ancient Wisdom for Saving Consider a famous example in the Bible from thousands of years ago which illustrates the wisdom of saving at least 20% of our income. Joseph, the son of Israel who was sold by his brothers as a slave and then taken to Egypt, was the only man able to interpret Pharaoh’s troubling dreams. Joseph perceived that the dreams were actually warnings from God that there would be seven years of plenty followed by seven years of famine. Joseph counseled Pharaoh to save a fifth part (20%)...