Building enough wealth for a comfortable retirement is a big job. So how do you get there?
You can start by getting a better picture of what you will need in retirement, committing to learn all you can about saving for retirement, and developing the financial habits that support reaching your retirement goals. In short, it comes down to getting serious about your finances.
Fortunately, there are also a number of techniques you can deploy to help you maximize your efforts -- and don't forget, you can work on it over a period of years as you move toward your goal.
7 tips for building long-term wealth
Use a retirement calculator so you know where you are heading
Even if retirement is still decades away, it is never too early to use a retirement calculator to help you see what kind of retirement you are heading for at your current saving rate. Getting a vision of the future by determining your retirement needs can be a powerful motivator to start saving more.
Budget for savings
Too many people simply save whatever money is left over from what they spend. That method often leads to potential savings being crowded out by short-term needs and wants.
Here's how to put your future first: Use a savings target for each paycheck as the starting point for your budget, and then make do with whatever is left. This may force you to make tougher decisions about spending, but reducing expenses is an important part of the process.
Devote part of each raise to increase your savings target
If you find it difficult to budget for savings at first, it might be easier to devote a substantial portion of each raise to boost your savings target. You are less likely to miss money you didn't have before, so putting pay raises toward savings as soon as you get them can help you increase your savings target before you get used to spending that extra money.
Manage your career
Over time, you may accumulate savings accounts and investments, and these are part of wealth-building. The key asset, though, may be your career because it has the potential to generate growing amounts of income for years to come.
Manage your career like an investment. Keep your skills up to date and marketable, and use performance reviews as an opportunity to learn how to improve and demonstrate the value you add.
Use your tax advantages to save
From 401(k) plans to IRAs to health savings accounts (HSAs), the federal tax code gives multiple incentives to save for the long term. If you're like most people, you don't like to pay taxes; so reduce your tax bill and do your future a favor by using the tax-advantaged saving opportunities that are available to you.
Don't leave 401(k) plan employer matching dollars on the table
For many workers, tax breaks are not the only incentive to save for retirement. If you participate in a 401(k) plan with an employer match, make sure you contribute enough to get the maximum available employer matching dollars. If you don't, it is essentially like turning down part of your paycheck and letting your employer keep it instead.
Use HSAs for more than short-term medical expenses
If you qualify to participate in an HSA, be aware that it can be used for long-term retirement saving as well as for short-term medical expenses.
You are allowed to accumulate money in an HSA from year to year -- and that money, plus any investment earnings, will never be taxed as long as you ultimately use it for qualified medical expenses. If you take this approach, you should start directing a growing portion of your HSA balance toward long-term investment vehicles once you have enough set aside to meet your short-term health expenses.
Saving for retirement is largely a matter of developing good habits that will get your money working toward your future year after year. Someday, you will look back and thank your younger self for developing those habits.
More resources for saving for retirement
How much money do you need to retire? Use our retirement calculator
Looking for a competitive bank? Read High-interest savings accounts
Ready to set your savings target? Use our savings goal calculator
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