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College grads: How to save for retirement when you can barely pay your rent

RetirementGraduated from college. ✓

Got a good job. ✓

Started saving for retirement. WHAT?!

I know what you‘re likely thinking: “I have plenty of time to save! Why would I start now?” I get it, the idea of saving for anything, let alone your distant retirement years, seems crazy. You’re not alone. You might be shocked to hear that only 46% of non-retired Americans believe they will reach their retirement goals and 20% don’t believe they ever will.

A miniscule 5% felt they had succeeded in setting aside the money they would need for retirement. No matter how unbelievable it may seem now, you can be part of that 5% since people at the beginning of their careers have the opportunity to begin saving early. Even if you’re feeling pinched financially between rent, student loan repayments and other bills, there are steps you can and should be taking to save for the future:  

Develop a cash flow analysis. This is another term for a “budget,” which is a dirty word to many people. No matter what you call it, though, it’s a great tool for establishing your cash outflows and inflows and getting a grip on your financial situation. Using a simple piece of paper or a spreadsheet, track the money you have coming in, including salary and any investments or other income. Then list your expenses, including fixed items such as rent or loan payments, as well as changeable daily outflows, such as money spent on, say, a car repair, dinner out or a vacation. It’s a good idea to track your cash flow over at least 6 months to get a sense of expenses you don’t pay every month, such as car insurance. Don’t forget to include all the cash you pull out of an ATM and where it went so that you can see what happened to that $100 you withdrew only a few days ago.

Use your analysis to find ways to adjust spending. Does your analysis show that you’re actually spending more than you earn? If so, you can make immediate cuts to keep your spending within your means. If you have some left over, you can decide how you want to use that money, including setting up regular allocations for saving and retirement. You’ll also be in a better position to manage your spending and make the best use of your money. Have you ever looked at a credit card statement and wondered, “Where did I spend all that?” With your cash flow analysis, you’ll know in advance where your money went. From week to week, you’ll be able to spot unnecessary outlays and resolve to avoid them in the future so you’re better able to meet your retirement or other savings goals. They may include many autopay accounts that shouldn’t be there, including subscriptions—such as cable or satellite TV—that you rarely use.

Take a candid look at your situation. Are your housing expenses reasonable? Many new graduates end up devoting a major percentage of their income to rent, leaving little money for anything else, including saving for the future. If that’s your situation, there are a number of options to consider. You could find a roommate, a smaller place or one that’s a little farther from your workplace if that will lower your rent, or even move in with your parents or other family members if that’s an option. Moving back home can give you time to take important steps such as paying off a student loan, which could enable you to contribute more to your retirement savings.  

Don’t leave retirement money on the table. Many employers offer retirement plans that deduct an amount you choose from each paycheck and deposit it into a retirement savings account. A large number will also match some or all of your contribution. That match amount is free money that you’re missing out on if you don’t contribute as much as possible to a plan. So, although it might mean cutting back on evenings out with friends or other indulgences, when you start your retirement savings, aim to take the greatest advantage of that match.

Focus on the Endgame. Your post-grad life is an exciting time. There’s an understandable tendency to think only about your current financial needs and wants, but don’t forget to keep a focus on your future as well. Think about your life 5, 10, 20 or 40 years down the road and prioritize expenses now while keeping that vision in mind.  If you need some motivation, use the AICPA 360 Degrees of Financial Literacy Retirement Planner to calculate how much you may need to save for the long term. It can help motivate you to start saving sooner rather than later, and the tips outlined here can help you stick to your goals.

As your financial situation becomes more complex you may be interested in seeking out the advice of a CPA financial planner. Visit www.findacpapfs.org to find a CPA/PFS.

Michael Eisenberg, CPA/PFS, Financial Services Principal, Squar MilnerMichael provides his clients with financial planning for all stages of life and advises them with a comprehensive strategy to maintain, protect and grow their assets by carefully building a diversified portfolio. He is a member of the American Institute of CPAs National CPA Financial Literacy Commission.


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