RETIREMENT MAY seem like a distant dot on the horizon for people in their twenties, but it never hurts to start planning early. It's important to develop good financial habits in youth so it's easier to maintain them with age.
To start, keep credit card debt under control. This may seem obvious, but some people in their second decade of life do need to be reminded that debt does not just go away and will grow over time with interest. It may be tempting to buy something and get the instant gratification that comes with using a credit card, but for large purchases it is better to save money over time and buy the item outright.
However, this doesn't mean all debt is bad, and building good credit is as important as avoiding bad credit. Consider getting one credit card to be used with restraint, and make payments on time every month to build good credit.
Having a good credit score later in life can help in getting a low-interest loan on a house or car.
Student loan debt can be a detriment to retirement, as many grads amass huge amounts of debt in the course of earning a degree. It's unavoidable for many career choices, but be careful about further education. Weigh the pros and cons of how much money stands to be earned from a degree against how much the degree itself will cost. For example, if earning a master's degree will only contribute a small pay increase over time versus a bachelor's degree, it may be better to go for the shorter degree.
It's also important to start putting aside savings as soon as possible. The more money you save in youth, the more interest it can gain as you age.
Consider opening an independent retirement account (IRA). They're provided by many financial institutions and offer tax advantages. Erin Burt, a contributing editor for Kiplinger financial advice, says IRAs are better than 401ks thanks to flexibility.
"Any money you put into one of these retirement-savings accounts grows absolutely tax free: You won't owe Uncle Sam a dime as you let your savings accumulate or when you cash out in retirement," Burt writes in her article "Why You Need a Roth IRA."
IRAs come in two varieties: Roth and traditional. Traditional IRAs are available to anyone under 70 years of age with an earned income. Roth IRAs have some income eligibility restrictions. See a financial advisor to determine which account would be best for your financial situation.
Don't be embarrassed to ask for financial advice; it's something everyone needs to know and you'll be rewarded for it later in life.
Warner may be reached at email@example.com.