Have you ever wondered how much a dollar saved “now” will be worth in a decade or two? If yes, here is some math to help you:
When you are 20 years old, you decide to save 1 USD. This dollar will be worth 20 USD when you turn 60. This means you receive a return of 7% every year.
When you are 30 years old, you decide to save the same 1 USD. By the time you become 60, the dollar will be worth 10 USD!
When you are 50 years old, you save the same 1 USD. This dollar will be worth 3 USD when you are 60.
The Dollar you save when you are 20 years old is more productive than what you save when you are 30 or 50. This is why you should save as early as possible. At all times you must have a plan that can optimize your returns. With a strategic blueprint, you will be able to optimize savings and retire happily.
#1 Emergency Savings
“Emergency Cash Savings” is of paramount importance. According to experts, this tops the pyramid of savings. Your emergency fund should be able to handle 4 to 10 months of your expenses. The money must be in the form of liquid cash or investments. You should use this money only during tough times (after a job loss or when you have to clear critical medical expenses).
#2 Short-Term Funds
Next, you should have some “Short Term Cash”. This money should be used for expenses that are likely to happen in the next 2 to 3 years. You must not be confused short-term cash with emergency savings.
Short term funds can be used for planned expenses like buying a new car or home. Never touch or wipe out your emergency funds for these planned events.
#3 Roth IRA
Three, you must start a Roth IRA savings plan. You can fund Roth IRA fully or partially. The contributions can be withdrawn easily. Always choose schemes that will let you withdraw without any penalties. The moment you become 60, all withdrawals will be absolutely tax-free.
#4 Your 401K Plan
Finally, you must maximize your 401K savings. Once your Roth IRA is funded, you should focus on 401K. your 401K program must match with your employer’s contributions. In just a few short years, the amount of money in your 401K program will build up.