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| Planning Basics: Getting Your Finances in Shape |
| Running a marathon might seem impossible, but you could probably complete one if you followed a qualified training regime that starts with short runs and gradually works up to longer runs. Investing for retirement is the same way. You can do it, as long as you build up to it properly. |
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One painless way to begin investing is to deduct a small amount of cash from each paycheck. You’ll hardly miss it. Meanwhile, cut back a little on your spending. You’ll also want to start paying off your debt—especially credit cards that carry high interest rates.
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| Of course not everyone can afford
to give up a large chunk of pay. But it’s important
that you try to invest as much as you possibly can.
You’ll want to do two things with the money you
put aside. |
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First, funnel part of your cash into an emergency fund.
This is a savings account or a money-market account outside
of your employer-sponsored retirement plan. You’ll use
the money to pay for unexpected events, such as getting laid off
if your company downsizes or finding a hole in your roof.
You should start out by tucking somewhere between $500 and $1,000
into the fund, then build that up to cover three months worth of
expenses. If you’ve got a family, or want an extra cushion,
you should gradually increase that amount to cover six months of
expenses.
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At the same time, you’ll want to invest in your retirement
plan so you have enough money to live comfortably in retirement.
If your employer matches your contributions, try to invest at
least that much so you can take advantage of the match. But if
you have to, start smaller, say with 1% or 2%, and gradually
work your way up. As you get raises and bonuses, you can add to
that amount. Of course, the more you can invest, the more you’ll
have for retirement.
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Do these two things—start an emergency fund and put money into
your retirement account—and you’ll be well on your way toward
getting in good financial shape.
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