It’s always a good idea to start preparing for retirement early. One main part of this process will be to ensure you have your finances in order. It will always be best not to put this off too long and plan well in advance so that you start looking forward to a retirement that will allow you a lifestyle that you can enjoy. Author of the bestselling book Total Money Makeover, Dave Ramsey, lays out for us a financial plan that can help us out when preparing for retirement.
The 7 Baby Steps and financial planning do’s and don’t from Dave Ramsey are set out here below:
Step 1: Set aside $1,000 to start off your emergency fund.
$1,000 is a great amount since it should cover the cost of any emergency. This will help prevent you from falling into debt and ensure you can stay on track with your retirement savings plan.
Step 2: Pay off your debts, aside from your mortgage, using the snowball method. Start off with your smallest debt first and work your way towards paying off your biggest ones.
Step 3: Put away between three and six months worth of expenses in your emergency fund. You’ll want to try and increase your savings to a sufficient level so that if any emergency does come your way that you’ll need to make a payment for, you’ll have the funds to do so.
The reason why it’s good to have three to six months’ worth of expenses saved is that not only will it mean you’ll be well covered in case of an emergency, but it will also return you better on your investment.
Step 4: Invest 15% of your total household income into your fund. It will be within your best interest to start preparing for your retirement as soon as you begin employment. Save into an IRA retirement account and invest in EFTs, mutual funds, and index funds.
Step 5: Invest money into an account and plan for the future of your children’s education. If you have children, start saving for their college funds. Just make sure to plan this well so as not to leave yourself short for your retirement. By balancing them, both you and your children will be well looked after and can enjoy your future plans for life ahead.
Step 6: Finalize your mortgage payments sooner. By making mortgage payments early, you can enjoy financial freedom later. Imagine the flexibility that can come with having more money in your retirement fund for when you finish off your career, while being able to invest more into your children’s college funds too.
Step 7: Watch your funds grow. Now, you can reap the benefits of watching your retirement fund build more quickly while having more savings become available to you.
Final Words
As shown here, preparing for your retirement can come easy by putting a few simple steps in place.
To recap, these are:
Save $1,000 for starting your emergency fund.
Pay off your debts.
Add savings into your emergency fund.
Invest 15% of your household income.
Save for your children’s education.
Pay off your mortgage early.
See your savings grow.
By following Ramsey’s 7 Baby Steps, you can watch your funds grow bigger while planning your finances better for later. That way, you can enjoy your retirement the way you’ve always wanted and can have more flexibility when your time at work has come to an end.
