A 401k is a program offered by some employers that allows you to save for retirement. Many times your employer will also contribute to the account. This type of investment account can have some nice tax advantages also.
I highly recommend starting early when saving for retirement. We can't be 100% sure Social Security will be available when we retire. The money you put in now will have the advantage of time. In the long term your money will most likely grow. If you invest $1,000 at the age of 22 it could be worth over $52,000 by the time you hit 68. (This is assuming a 9% investment return over 46 years)
Time value of money is on your side when you are young! Invest what you can and watch it GROW!
There are many future value calculators out there online. Check them out. You'll see just how powerful the time value of money is.
There is also a simple investment rule of thumb out there called the Rule of 72. This basically says to divide 72 by the rate of return on your investments to see how long it will take to double.
So let's say you have a 9% rate of return. Your investment will double roughly every 8 years.
Chris recommends the following next steps:
- I suggest you do some research on the time value of money. See just how powerful that is. How investing early gives you a tremendous advantage when saving money
- Also look up compound interest. Those that understand compound interest will earn it. People who don't understand compound interest will pay it. Try not to pay it.
- I think of saving and investing as financial self-defense. Game plan where you want to be in 10, 20, 30 years. It seems like a long way off, but I SWEAR it isn't. Understand finances and budgeting. You will have a better opportunity for financial freedom