Baby Step 4: Saving for Your Retirement

After completing the first 3 baby steps, you will now be debt-free except for your home loan {if you have one} with a fully funded emergency fund.

Now it is time to get serious about building wealth, and the first thing to do is to start saving towards your retirement: This means you need to invest 15% of household income into tax-advantaged retirement accounts. While you are at Steps 4, 5 & 6, do not invest more than 15% into your retirement so that you will be able to complete the next two steps: Saving for your children’s studies and paying off your house early.

Why shouldn’t you invest less than 15%?

“Some people choose to invest a small amount, if anything, because they want to get a child through school or pay off the home in a hurry. But the kids’ degrees won’t feed you at retirement, and if you throw all your money into your mortgage at this point, you’ll end up having to sell the house and buy the book 72 Ways to Prepare Alpo and Love It. Bad plan.”  – quote from The Dave Ramsey website.

Need Motivation?

If you need further motivation, studies have shown that visualising an aged version of ourselves help to motivate us to save for our retirement.  A good site to play with this concept is {you will need a web cam}. Your “future self” will smile back at you eerily, but also remind you that our lives are very short and we should plan for the future.

{The image used with this article is from}.