Congratulations! If you have paid off all of your consumer debt (all debt except for your house) and have an emergency fund of 3-6 months worth of expenses saved, then you are ready to start saving for retirement.
How do you know what to save and where to save it? I’ll give you a few guidelines.
- Save 15% of your take-home pay. By “take-home pay”, I mean the amount you get to take home after taxes but before all of your deductions for things like health insurance, disability insurance, work sponsored life insurance, etc.
- Match >Roth>Traditional This is a simple way to know where to start saving for your retirements first since there are multiple options for retirement vehicles. Take the match first, if your employer off it (this is free money!!). If your employer does not offer a Roth option, then a good next place to save is a Roth IRA (Individual Retirement Account), which you can fund up to the yearly limit set by the IRS. There are several rules and income limitations on Roth IRAs, so make sure you qualify for a Roth IRA before funding it. And then the last option is a Traditional IRA.
- After you have finished paying off your house, then you will have room in your budget to save more than the 15%. This is once you are on Baby Step #7 where you can live and give like no one else!
- Work with a professional to ensure that you are working a plan that works for you and your situation. Click here to schedule a consultation to work toward your financial freedom!
