Here’s some good news for anyone behind on retirement savings: Being a smart saver isn’t difficult. There’s no magic secret to getting it right. Once you understand the rules of the game, you’ll know exactly what you need to do to manage your money wisely as you navigate through life.
Here are some standard practices that every retirement-savvy saver lives by. Let them inspire and guide you during your own phase of accumulating wealth.
1. They never pass up free money
Whenever you have access to a workplace retirement plan, always check to see if there is a company match on contributions. If there is, make sure you contribute at least enough to earn the match. This is one of the easiest and fastest ways to jump-start your savings — and, of course, it’s free money. Not taking advantage of a company match is one of the biggest missteps you could take with your 401(k). (See also: 7 Things You Should Know About Your 401(k) Match)
2. They always know where their money is
There is something to be said for having organization among your financial accounts. Having multiple old workplace retirement plans can lead to higher fees (paying multiple plan management and fund fees) and an undiversified portfolio (not realizing that all of your retirement accounts represent one portfolio and should be invested as a whole). Each time you leave a job, consider rolling your old plan over into either an IRA, or if allowed, into your new company’s retirement plan. (See also: A Simple Guide to Rolling Over All of Your 401(k)s and IRAs)
3. They keep retirement savings for retirement
While most early withdrawals of retirement funds will result in a tax bill and a penalty fee, there are a few penalty-free exceptions for certain accounts, including a first-time home purchase or paying for some higher education costs. But these are financial goals that should be saved for separately, regardless of the fact that the government allows you to touch your retirement savings for them. Once you earmark money for retirement, don’t factor it into any of your other financial obligations. The best thing you can do for your retirement accounts is to let them grow. (See also: 5 Questions to Ask Before You Borrow From Your Retirement Account)
4. They pay themselves first
For most people, their first financial priority each month is covering their non-discretionary living expenses, like housing, utilities, and food. But serious retirement savers know that paying their retirement account every single month as well sets them up for successful saving. Build retirement savings into your budget as a nonnegotiable bill, not as a leftover expense that you may or may not be able to pay at the end of the month. (See also: 7 Reasons You Really Need to Pay Yourself First (Seriously))
5. They use tax-advantaged accounts
It’s in everyone’s best interest, including the government’s, that we save for our own retirement. That’s precisely why there are accounts specifically designed to encourage long-term savings. Whether you use a tax-deferred account, which allows your money to compound for decades before any taxes are due, or a tax-exempt account, which allows your after-tax money to grow tax-free and qualified distributions remain untaxed, or a combination of both — a strategic saver makes use of all available saving tools. (See also: 401(k) or IRA? You Need Both)
Being a retirement-savvy saver doesn’t mean having or saving more money than everyone else. It’s about knowing what moves can make a difference in your savings goals and being an active and purposeful retirement saver.