We all should have started investing while still in our twenties. Some of us have and some of us have not, but no matter what your portfolio looks like your thirties is the time to get serious about retirement. Now is a good time to make a decision about when you want to retire. You should pick a year that is not only desirable, but is also realistic. This is number will be variable and may change over time, but for planning sake you need to have a target year.

You will need to look at your finances to see how much you can realistically save each year. This is hard to do when thinking about the whole year at once, so break it down into smaller segments. Look at your monthly finances and see what you can set aside for retirement investing. This isn’t always an easy task, but most of us need to look at cutting our discretionary entertainment spending. Going out to dinner a few less times a month could mean retiring a few years earlier – sounds worth it to me!   If you can find a way to save 15% of your annual income each year, you will be in a very good position.  You should aim to replace 80% of your pre-retirement income when you retire.

Don’t see how you could possibly save 15% of your income? It doesn’t all have to come out of your pocket, so it isn’t as painful as you might think. Let’s say you are single and earn $50,000 a year. Let’s also say you contribute to a 401(k) plan and the company matches your contribution 50 cents on the dollar up to 6% of your salary.  You would need to contribute $3,000 to your 401(k), or $250 per month, to get the largest possible matching amount, $1,500.

401(k) contributions are made in pretax dollars. So in the 25% federal tax bracket, saving $250 a month would reduce your take-home pay by just $187.50, or $2,250 per year. With your employer deducting the money off the top of your salary, you wouldn’t miss the cash, and taking that single step would get you more than halfway to your annual savings goal.

To close the gap, you could then contribute an additional $3,000 to a Roth IRA. In retirement, you’d have to pay tax on funds withdrawn from your 401(k), but withdrawals from your Roth would be tax-free.

In the end, adding 15% of your $50,000 earnings, or $7,500, to your retirement kitty would cost you only $5,250 out of pocket.

Once you have decided how much and how you will invest, you still need to stick to the plan. It is far too easy to push it off and say that you will save later. Just remember the power of compounding interest – the earlier you start the more money you will have.

As mentioned, the purpose of this article is not to provide specific advice, but to get you focused on investing for your retirement. Investing is a highly unique process for each person. Everyone has different financial situations and risk tolerances. What is important is that you start thinking about your retirement. What do you really want? What can you really expect? How much are you willing to forgo now to have more later? There is no definitive answer to these questions. You need to decide what will work for you. Just make sure you are doing something…no matter how insignificant.

Fully funding your 401k is a must and something everyone should do, but that alone is not enough. You should be looking at other retirement investment vehicles as well.

Fidelity Investments has a great tool for getting started with retirement. Try their Retirement Plan Quick Check.

Retirement Planner

A related 2nd step is to kick the debt cycle all together.  Paying off all of you credit card debt will do you no good if you do not learn how to live your life without depending on your credit cards.  For some, the availability of credit is a very dangerous thing.  It’s so easy to just swipe a card and worry about paying for it later.  However, this type of thinking is exactly what will keep you from ever having any real wealth.

Our generation seems addicted to living “as if”. As if you were rich, as if you did not have to worry about the long-term consequences of your financial actions.  I see so many people walking around in $220 True Religion jeans, wearing Tag watches, and  driving leased BMW’s.  Sure, there are some people who can afford these luxuries, but most of the people who are enjoying these things, are doing so on borrowed money – living on borrowed money is a sure-fire way to ensure that you will never be rich.

Just think, every time you buy something on your credit card, you are digging the hole a little deeper.  With each swipe you are taking away a little more from your future.  If you carry around credit card debt, you are even nullifying any smart investments you may be making.  I can almost guarantee you that the interest you are paying on your credit cards is greater than the returns you are making on your investments – especially in this market.

Next time you think about charging something, ask yourself this question:  Is what I’m buying going to appreciate in value?  If they answer is no, then you are making a poor financial decision. Deferred gratification is the key term of the day.

Here is a list of a few major expenses that people commonly go into debt for:

1) Wedding Ring – Absolutely not, the number one reason for divorce is already related to financial pressure.  There is no worse of a way to start off a marriage than with a heap of debt from an engagement ring.

2) Grad School - This can be a good and reasonable thing to go into debt for, but all major decisions like this should be evaluated with caution.  How much will the degree actually improve your earning potential?  – If it will significantly increase your  earnings in the long run, then it may be a great decision.

3) Car – Ideally, the answer would be a big fat no on this one, but realistically, it’s hard for younger people to come up with enough cash to buy a car outright.  A car is bad purchase to go into debt for because it is going to depreciate, but it also can be a necessity for life, and work.

4) Travel - No.  You may feel you deserve a nice trip because you work so hard, but charging travel is a terrible idea.  The memories and relaxation may be important, but paying for them over the next several years is not worth it.

5) Furniture - No. Once you get your own place it can be tempting to furnish it just the way you would like, but financing furniture is a very poor choice – especially through in-store financing options.  Remember – Deferred gratification!

6) Home – Yes! As with any big financial decision you need to do your share of due diligence, but generally speaking buying a home is a great idea.  Just plan to stay there for five or more years, and make sure you account for the unexpected costs like insurance, repairs, and taxes.

Check out the first article of this series and learn how to Start The Fight Against Credit Card Debt

Here are a few things you can do to get started:

1) Call your credit card company and try to negotiate a better interest rate – This may or may not be successful, but it’s worth a try. Credit card call center employees do have some limited ability to lower your rates, so ask nicely and you may get a lower rate. Lending standards have changed and times are tight for everyone, but banks do have wiggle room and they would rather lower your rate than have you consolidate with another company.

Note: The better your credit is, the better chance you have of getting a significant reduction.

2)Create a budget – Without a budget, your chances of paying off the financial wreckage of your 20’s is highly unlikely. It will take a dedicated, sustained effort that is not always going to be fun. You should be spending money on necessities like, like rent and groceries, and then use what is left over to pay your credit cards. Eating out and buying new jeans should not considered necessities. Spend what you have to spend to stay alive – the rest should go to your credit cards.

3)Pay!
It is a good idea to go after the card with the lowest balance fist. Not only will this completely get rid of one of your credit card balances, but you will feel rewarded sooner and be encouraged to keep going on your higher balance cards.

The key is, you have to pay more than the minimum monthly payments. Those payments are designed to keep you paying the most interest, for the longest amount of time. It can be hard to come up with the money, but it must be done at all costs.

The budget and plan you use should be tailored for your particular situation. There are many tools out there to help you create a budget and plan for getting out of credit card debt. These tools are great, but it is your fortitude that will make any of them successful

Useful Tools:

Credit Card Debt Calculator
Excel Credit Card Debt Template
Another Excel Credit Card Debt Template

This was meant to be an introduction to paying off your credit cards – A little something to get you thinking in that direction. Once you are ready to seriously embark on this mission, I suggest you spend some time scouring the web, researching your options, and reading everything you can.

Read part 2 of this series on Kicking The Debt Cycle