Setting goals to get savings on track

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Intimidated by the thought of saving money for retirement? Don't be. It's a big job, but one that can be approached in a series of manageable steps. The key is getting started.

According to the Employee Benefit Research Institute, between the first years of a young adult's career and when they are an experienced worker in their fifties, the average person's 401(k) balance climbs from less than $5,000 to nearly $280,000. How do people climb such a steep hill, and how will they make it the rest of the way to have a savings balance large enough to fund a comfortable retirement?

You can't do it all at once. You have to go step-by-step, setting attainable goals that will help you make steady progress. In the long run, that series of small steps will add up to get you a long way toward funding retirement.

Here's how to set goals that will get your savings on track:

1. Get spending under control

Savings don't come out of nowhere. They start by getting a handle on your budget, so you spend less than you have coming in. You can facilitate this by having your pay directly deposited into a savings account, and then transfer only a budgeted monthly amount into checking. Initially, it doesn't so much matter exactly how much you save, just that you get used to budgeting and living within your means.

2. Start eliminating high-cost debt

With the average credit card balance being charged 14 percent in interest while the average savings account earns less than 1 percent, it's clear that your savings will be going backward unless you eliminate expensive credit card debt. Work out a timetable for eliminating credit card debt, and target the balances on your most expensive cards first.

3. Bank at least half of your next raise

So far, it may have seemed like you've had to really scrape just to find a little room in your budget for savings after meeting necessary expenses and paying down debt. However, as soon as you get your next raise, you have an opportunity for your savings to take a much bigger step forward. Devote at least half of that raise to savings. You should find this allows you to significantly boost your saving rate without your lifestyle taking a hit. Get in the habit of doing this with each raise over the years and you will steadily ramp up your savings.

4. Build a viable emergency fund

An early step toward getting savings on track is to set aside enough money to cover three to six months of expenses in case of emergency. Experts often recommend keeping this money accessible in a savings account. However, assuming emergencies are the exception rather than the rule, you may find it worth putting the money in a long-term CD account, risking paying an occasional early-withdrawal penalty to earn a higher interest rate for your funds. In either case, shop around for a competitive bank rate.

5. Take full advantage of your employer's 401(k) match

If your employer matches any of your 401(k) contributions, an immediate goal should be to contribute enough to earn the full match available. Otherwise, you will be walking away from money that could be yours.

6. Invest for the long term

Your emergency fund needs to be fairly liquid, but once you start investing in a 401(k) plan, you should be investing for the long-term. This means allocating the bulk of your retirement plan balance to growth-oriented investments like stocks.

7. Run some retirement calculations

Once you are regularly putting aside some retirement money, it is a good time to run some calculations to see just how much you'd have to save each month to meet your retirement goals. Use a retirement calculator, and don't fret if you can't get completely up to your target right away. At least you will know what to shoot for, and with each raise, you can get a step closer.

8. Make use of "catch-up" contributions

Obviously, it pays to start saving early, but if you are later in your career and are behind on your retirement saving, you may be able to take advantage of so-called "catch-up" contributions. These are amounts of tax-deferred savings the IRS allows over and above the usual limits, for people who are age 50 or over. For example, for 2017 most 401(k) plans allowed older participants an extra $6,000 a year in catch-up contributions, and IRAs allowed an extra $1,000.

9. Be prepared to adjust

Retirement planning is not an exact science. Don't let the unexpected discourage you from continuing to save. Just re-run your calculations using the latest information and adjust your expectations as needed, and then set new savings goals to reflect those changes.

The longer you wait to get started, the more intimidating the task of saving money will become. Set goals that focus on simply taking the next step, and one day you will look around and be surprised at how far this has gotten you.

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