Now, if you were starting at age 35 instead with that same match and rate of return, you’d have to save 29% of your salary to be a millionaire by age 65. To keep pace, your monthly contributions would increase to $725, leaving you much less to live on in the meantime. The lesson here? Getting an early start relieves some of the pressure to save more aggressively.
3. Choose the right savings vehicle
A 401(k) is a great way to save for retirement when you’re earning $30,000 a year, especially if your employer matches part of what you put in. If you don’t have access to a 401(k), however, you’ve got to look elsewhere for a place to invest your hard-earned dollars.
An individual retirement account or IRA is the next logical choice. A traditional IRA allows you to deduct your contributions each year while a Roth offers tax-free growth. Generally, a Roth is going to be the better choice for someone who’s not earning much money. That way, if you end up in a higher income bracket in retirement, you’ve already paid taxes on those funds at a lower rate.
As of 2016, you could chip in $458 a month to an IRA. To put it in perspective, that’s about the same as the average car payment. If you’re thinking of getting a loan to buy a new set of wheels, you should reconsider diverting that money into your retirement accounts and just paying cash for a cheaper car instead.
A Health Savings Account (HSA) is an often overlooked way to pad your retirement savings. If you’ve got a high deductible health insurance plan, check to see if you have an option to save in an HSA. The 2016 contribution limit works out to $279 a month for single coverage and $562 if you have family coverage.
Contributions to an HSA are tax-deductible, even if you don’t itemize. The money is meant to be used for health care expenses but if you stay healthy, you can withdraw the funds penalty-free for any reason once you turn 65. You’d just have to pay regular income tax on what you take out
4. Streamline your budget
If you’re struggling to come up with enough money to save in a 401(k) or max out an IRA, it may be time to buckle down on your budget. Look at what you’re spending each month to see where your biggest money leaks are. I’ve found the easiest way to keep track is to use a free personal budgeting app like Mint or PocketGuard, which links to your bank and credit card accounts.