Step 5: Save More For Retirement

Okay, now we’re gettin’ somewhere.  You’re budgeting.  You’re matching your employer’s retirement program and following The Free Money Rule.  Your debts are minimal and under control.  You know what the difference between a Roth and Traditional IRA are (hell, you even know what IRA stands for.  You’re a personal finance BEAST).

Step 5 is all about turning up the volume.

As the flowchart shows, there are different ways to do this based on your employment situation, but the long and short of it is that you should be putting away at least 15% for retirement between all of your retirement accounts.

This includes an employer match, your IRA, and your own contributions: for example, if your employer has a 5% match, you’re matching, and you’re giving 5% to your super-sweet-free-money Roth IRA, then that adds up to 15%.

Of course, if you’re able to contribute more, do so, especially if you haven’t been contributing much up until now.  The more money you can get into these tax-advantaged, quickly-growing accounts, the better.  Earning 5% on your 401(k) in a year doesn’t sound like much, but look at it this way: if you have $10,000 stashed away in there, you get $500, essentially for free.  $50,000?  That’s $2,500.  $100,000?  You literally earn $5,000 for just having your money in the account.

Yeah.  Contribute.  As much as you can (without breaking the bank or becoming a hermit, as I said above.  Remember, having fun is valuable too!).

Step 6: Save for Other Goals & Advanced Methods