Remember being 20? (If you’re 20 and reading this, take note.) Everything seemed possible, and the sky was the limit.
Sure, college is hard work, at least if you’re doing it right. That first job is a bracing change, an introduction to so-called real life. Often, first jobs are a mix of fun and work, social experiences and other young people learning the ropes.
Money was the last thing on your mind. As long as the bills were paid, all was good. You drove a simple car, lived in a simple apartment or shared a house, ate out on the weekend and tried to enjoy yourself.
Fast forward 20 years and life can be more angst-ridden. Kids need things. The mortgage is due. Bills come out of nowhere. You make more than you have ever made but it never seems to be enough. Taxes, too.
And then there’s retirement. Are you saving enough? Are you saving at all? Around 40 or so we begin to have a very different relationship with money, one marked by worry and and even a dose of fear from time to time.
Here are some ways to break that cycle of retirement worry, whatever you financial status, in order of importance:
Extinguish all “bad” debts
This is an important first step. If you are carrying credit card debt or home equity line debt, pay it off. If necessary, close credit lines. Make a 12-month plan that ends all high-interest debt and stick to it. If that means you sell a vehicle or put off a vacation, make it happen.
Build a cash cushion
It won’t help to be debt-free (other than a mortgage or car loan) if you can’t pay unexpected bills. And those happen. Work hard to get to a basic cash cushion — one month’s expenses — and then build up from there more slowly to three months or even six.
Pay yourself first
Once the cash cushion is in place, immediately up your 401(k) or IRA savings rate. Get money out of your paycheck before you get paid. It’s the easiest way to save and can save you on taxes, too. Aim for 10% of your gross income per pay period.
A balanced, thoughtful portfolio of low-cost index funds is a proven winner over the long term. You won’t be beating the market, and plenty of your friends will brag about the “killing” they made on some stock tip they got from a friend. What they don’t tell is how much they lost chasing tips in the past. Get a simple plan and stick to it.
Ignore the markets
Here’s the biggie. Once you have enough cash to relax about your monthly cost of living and enough to save and invest, you can pretty much tune out the barrage of financial “news” that is designed to foster panic among investors.
Ignore it. Turn it off. If you want, set a date on your calendar to check your balances once a quarter at most. Then relax already, because things will be just fine.