Saving For Retirement- Starting With The Basics

Thinking about saving for retirement can be scary. Most people put it off, I know I did.

If you are 7 years or less away from retirement, it is time to start planning in earnest.

First- it's time to face facts.

1). Do you have a budget? (I didn't)

2). Where is your money? 

3). If you have some savings, how is invested?

Before we go further, full disclaimer, I am not a financial analyst. I am going to share information based on the research I have done and on what has worked for me.

Budgets- everyone needs a budget. There are many out there, easily available on the internet. You have many to choose from. Try fresh Books or odoo or any of the many others available. These 2 happen to be free.

Put in all your expenses and all your income. Allow extra for those expenses that might not come up every month but that we all know are coming- a new roof or replacing an appliance. Let's call this the replacement fund.

When you've accounted for all possible expenses that will come your way, and worked it into monthly sums, you're ready to move to the next step which is what to do with this money.

When you have a total of one month's expenses (mortgage, car payment, gas, food, utilities, and whatever you have in your replacement fund per month), multiply that amount by 3.

This amount should be kept ready in case you need it, you lose your job or have some family emergency. You may want to keep it at your local bank. Let's say your monthly expenses total $5000.

Triple that for a 3 month safety net and that's $15000.

This should be in a savings account, but you should check out the interest rate. So many of us don't know what interest our local bank will pay on our savings account. Why leave it in an account at 1% when it could be gathering 3% or more?

$15000 at 3% interest is $17424.25 after 5 years. While $15000 in an account with 1% interest is $15768.74 after 5 years. That's a difference of $1,655.51 just for putting it in the right account.

So, invest in a savings account with at least 3% interest rate. Use Nerdwallet Calculator to check out how your money will grow.

To see accounts with interest rate of over 1%, go to Save Better for a list of banking options. All are covered by FDIC rules, and some require as little as $1 to start investing.

Next time- investing the next $15,000.