During good economic times, it's easy to snooze through your finances. The latest economic crash may tempt you to put your head back under the covers and dream of better days. Big mistake. Few of today's workers will retire with a pension, and it's unclear just how far Social Security will go. You're on your own facing the single largest expense you'll ever have. "The concern is that going forward there is much more responsibility placed on individuals," said Amanda Sonnega, associate director for external relations at the University of Michigan Retirement Research Center. "And with the uncertainty about Social Security, it's really critical that individuals are actively planning for their own retirement."
Step 1: Discipline.
"The truth of the matter is, if you don't control your spending it doesn't matter how much you make," said Velda Eugenias, south region chairwoman of the National Association of Personal Financial Advisors. "You'll never have enough."
Quicken offers a starter edition of its budgeting software for $29.99, Web sites like mint.com offer free online software, and banks offer free services like Bank of America's "My Portfolio."
Step 2: Save 3 to 6 months of expenses so you don't raid retirement funds.
"I had a call just today, first thing this morning, from an attorney wanting to take money out of his 401-k because he miscalculated his taxes," Eugenias said. Now, he'll have to pay taxes and penalties on the withdrawal.
Automate transfers to a new account, but cut up the ATM card, or create an account with an Internet bank like ING but don't log into it. That way the money is there for emergencies, but hard to get for splurges.
Step 3: Save to at least get your company's retirement match.
To encourage yourself to save, remember the law of 72, said Ronald Oldano, a certified financial planner with Ameriprise Financial in Tampa. At 7.2 percent interest, every dollar you save will double every 10 years. So if you earn $40,000 and set aside 5 percent this year, it will be worth $16,000 in 30 years. Since it comes out of your check pretax, you'll see a weekly dent in your paycheck of about $28.
Step 4: Know your needs.
"Most people think just in terms of retirement. They don't think of saving for a down payment on a house. They are realizing that more and more of their income needs to go toward savings," said Jon Wax, a certified financial planner with Waller & Wax Advisors, an affiliate of Raymond James in Tampa.
Take stock of what you want to do now and in retirement.
Step 5: Make a plan.
Studies show that too few people can sort through complex financial decisions. "The people who have the financial literacy are more likely to engage in planning, and that translates into better portfolios, and that can't hurt," Sonnega said.
Eugenias said a small investor can have an initial consultation with a financial adviser for $1,200 to $2,000, and it will pay off in the first year. There are also free planning tools on Web sites of companies like Vanguard or T. Rowe Price.
Asjylyn Loder , Times Staff Writer