Getting Started - How to Manage Your Money and Plan for Retirement

Learning to manage your money is a vital skill. You will need at least 70% of your current income when you retire. Social Security will generate less than half of this amount. You need to save money through your own retirement investments. You can expect to live approximately one-fourth of your life in retirement. Planning ahead will make a difference.

• Educate yourself about money. Two excellent books are Personal Finance for Dummies by Eric Tyson (New York: John Wiley, 2000) and Making the Most of Your Money by Jane Bryant Quinn (New York: Simon and Schuster, 1997). Learn more by attending classes and workshops in your community.
• Know what you spend your money on. For at least two months, track every dollar your family spends. Put your spending in categories under two headings: fixed expenses and flexible expenses. Examples of fixed expenses include mortgage, utilities, insurance, and loans. Examples of flexible expenses include food, clothing, entertainment, vacations, and so on. Set aside savings at the beginning of the month as a fixed expense. Cut something under flexible spending if you are short at the end of the month.
• Pay off all credit card debt. If you can't afford to fully pay off credit card bills at the end of each month, this is a sign of overspending. The money saved from paying interest on credit cards can be used toward your retirement.
• Use cash for all purchases. The only exceptions to this rule are the purchase of a house, home improvements, and a college education. You should set aside money each month in a car replacement fund so that you can pay cash for your next car.
• Start saving in small amounts. Some providers set aside the amount of a payment for one child as their retirement savings.
• Purchase insurance to protect yourself against major disasters. See How to Reduce the Risks of Running a Business for more information.
• Planning for retirement is a long-term goal. Before making long-term goals, make sure you have a plan to meet your short-term goals (one to five years). Short-term goals would be buying a car, making a down payment on a house, and so on. Also, plan how you will pay for your own children's college education.
• Set up a plan to meet your regular monthly expenses if you become disabled or out of work for three to six months. You don't want a short-term emergency to wipe out your retirement savings.
• Figure out how much you will need to retire, and make that your goal. Here are two Web sites that will help you estimate this: www.money.com and www.quicken.com.
• Target at least 10% of your net income (income minus business expenses) for retirement savings. If you are over 40 years old, then 20% is better!
• Don't wait until the end of the year to put money into a retirement account. Start putting a small amount away each month.
• If you don't know where to invest your money, put your retirement savings into a money market account. This is a safe starting point. Then start educating yourself and seek out advice about where to put your money. Don't invest in stocks or bonds until you understand their risks and rewards.
• Depending on your household and business income, you may be eligible to participate in several tax-deferred retirement plans. These include a traditional IRA, Roth IRA, SIMPLE IRA, or SEP IRA.

Saving money and planning for retirement is not simple. But you can educate yourself about finances. And doing so will give you more control over your future.

Time is money. The sooner you begin saving, the better.

*money earned 8% annual interest

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