What to Do if You Can’t Save 15% Toward Retirement Yet

See Also

If you’re familiar with Financial Peace University, you know all about the Baby Steps. In Baby Step 1, you save up $1,000 for your starter emergency fund. Then you use the debt snowball to pay off all of your consumer debt in Baby Step 2. And in Baby Step 3, you build up your emergency fund until you have 3–6 months of expenses saved.

That brings us to Baby Step 4. This is the Baby Step where you get really serious about wealth building. It’s time to invest 15% of your income for retirement.

Fifteen percent may sound like a big chunk of your income. But it isn’t a random number! If you invest less than that, you run the risk of not having a big enough nest egg when it comes time to retire. You won’t be able to retire with dignity, and you may find yourself wishing you’d put more away in your younger years.

You don’t want to go above 15% either. You will want to invest more in the future, but not before you save for your children’s college expenses in Baby Step 5 and pay off the house in Baby Step 6. Once those are done, you can really go to town with investing because you won’t have any payments! But for now, you want to stick to investing 15% of your income into your 401(k) and/or IRA.

“But what if I can’t afford to invest 15% of my income right now?”

It’s a reasonable question, especially if you haven’t invested before and can’t imagine making that big of a commitment for your budget. But keep this in mind: If you’ve been following the Baby Steps, you already have one pretty good advantage. You’ve been gazelle intense, living on beans and rice to throw all your extra money toward debt—and then toward your savings. Why not take that money and roll it over into Baby Step 4?

Now, instead of paying other people, you’re investing in yourself.

But if that still makes you a little squeamish, start by setting a smaller goal—like meeting your company 401(k) match. Many companies will match your 401(k) contributions up to about 3–4% of your income. That’s a great starting point if you want to get your feet wet with retirement investing before going all out with the full 15%. And keep in mind that meeting your company match means you are getting free money—and a 100%, guaranteed return on your investment! It doesn’t get much better than that.

But what if you feel like you can’t even meet your company match right now?

If even that goal feels a little too lofty for this season of your life, here’s another option: Start investing just 1% of your income. Sure, it’s a small step toward your retirement dreams, but starting small can help you get into a rhythm and feel comfortable with the process. Then, you can kick it up a notch.

Just remember . . . while something is better than nothing, you don’t want to settle on 1% for the long term. You want to eventually work your way up to 15%, even if you do it one percent at a time. Why? Because the more you can invest, the more compound interest can work its magic—and really pick up some serious speed!

Once you’ve figured out a plan and start investing, you’re setting yourself up to build wealth and change the course of your life. And even better, it will create great opportunities for you to live—and give—like no one else.

money | @ChrisBrownOnAir