Almost half of Americans over the age of 55 don’t have a retirement savings account. That’s according to the U.S. Government Accountability Office. I mentioned this in the last letter.

If you’re in that statistic, or if you don’t have enough saved for retirement, I’m not repeating this for you to be ashamed. I’m repeating this to remind you you’re not alone… In fact, if I go even further and look at how each age group fares, you’ll see most of us are not where we need to be. The median retirement savings for Americans in their 20s is about $16,000, according to the Transamerica Center for Retirement Studies. For those in their 30s, it’s $45,000; for those in their 40s, it’s $63,000; for those in their 50s, it’s $117,000; and for those in their 60s, it’s $172,000.

Having said all that, the average retirement savings is $95,776 across all age groups, according to the Economic Policy Institute. You might think that’s a lot, or you might think that’s very little.

Either way, that number means Americans, no matter how old or young, don’t have enough for retirement. So, again… you are not alone.

You’ll probably hear me say this a lot in these letters: Don’t be ashamed… And don’t waste your energy thinking about the “shoulda, coulda, wouldas.”

What can you do now? The answer to that question is what’s important.

This Is Where You Start I believe all good things begin with a plan. I’ve mentioned this before: A plan is like your blueprint… your road map… your guide. In life, you have to assess your situation before you can face it head-on. Otherwise, you won’t know where to start.

So, the plan is to write everything you spend and earn down. Ask yourself:

Write all this down from smallest to largest.Then, write down the other things you pay for on a regular basis. That’s your food (groceries, dining out, etc.), your utilities (electricity, water, etc.), your rent/mortgage, your transportation (gas, highway tolls, travel expenses, etc.), and whatever else.

Next, write down how much you earn. How much do you take home every month? How much interest do you earn from your bank accounts? It might not be much but every cent counts. So, write it down.

Last thing: Do the math. Add up what you earn every month. Next, add up what you spend every month. Then, subtract what you spend from what you earn.

If every dollar is accounted for, or if you’re spending more than you earn, don’t panic. You’re not the only one. Don’t let it discourage you. Your focus should be on how you can cut back and/or find more money (which doesn’t always come from getting another job).

If you have “leftovers,” to spare, ask yourself: Do I have emergency savings?

If not, you can use what you have left over to save $1,000. You never know when that rainy day will come, so it’s always wise to be prepared with cash. (You can read where I talk about rainy days here and here.)

Now, if you do have at least $1,000 saved up already, great! But we’re not ready to save for retirement yet. Here’s why…

Settle Your Debts Debt steals from us. When we have debt, we’re paying back what we’ve borrowed… and then some (interest).

I explained before in a previous letter how a $1,000 credit card balance, for example, with a 16% interest rate and $30 minimum payment every month would take you seven years to pay off. But paying $30/month on a $1,000 balance should only take 33 months to pay off. But that’s where the 16% interest (and the “stealing” I mentioned earlier) comes in.

That’s how debt works. You end up paying back way more than what you borrowed. And, in order for us to put ourselves in the best position possible for retirement, we have to get rid of the things stealing from our wealth.

So, if you do have $1,000 saved for an emergency, your next step is to tackle your debt. Start from the smallest debt you have and work your way up, little by little (this doesn’t include your mortgage, if you have one). Continue to pay your minimums on all of your debts, but whatever you have to spare is what you’ll pour into your smallest debt, until the balance reaches $0. Then, you’ll move on to the next one. And the next one. Until all your debts are gone. So, if you have four different debts to pay off―two credit cards, a car note, and a student loan―if your lowest debt is a $1,500 credit card balance, you’d start off by using any extra money to add to your minimum payment every month. Careful, though. It’ll take you longer to pay off the credit card, if you still use it. (I explain it all here.) When that $1,500 balance reaches $0, you’d take what you were paying toward the first credit card and add it to the minimum you were paying on your next lowest debt. Check it out below. (This method is called the “debt snowball” and you can read about it here.) Depending on your “debt list,” you may be reading this and thinking, This is going to take me forever! Remember, though: You probably didn’t get into your situation overnight; so, you won’t get out of it overnight, either.

But I don’t want you to get discouraged. There are several people who’ve gotten out of $25,000 in debt, $100,000, $200,000, $3000,000 in debt… in less than three years. And those are just a few examples. So, don’t think that can’t be you! Read “How to Cut Back” and “The Answer to Finding More,” and use it as inspiration to get started. Save Some More Now, if you already have $1,000 saved and all debts paid, awesome! The next step is to have around three to six months’ worth of living expenses saved. Again, you never know when that rainy day will come (and it will come). So, you just want to be prepared… with cash. If you don’t have cash in times of a storm, you’ll end up back in debt. That’s why saving is so important.

And here’s another reason. In case of an emergency, you don’t want to borrow from the retirement savings you’ve worked so hard to build. It interrupts the compound interest that’s been working for you. Compound interest basically means, the money you make makes money. And the money that money makes… makes more money.

I mentioned compound interest before, and I’ll talk more about it in more detail down the line. But just know compound interest makes a world of difference when it comes to saving; so, it’s not something you want to interrupt.

Don’t get too caught up in trying to catch up for retirement to the point where you’re savings rich and cash poor. Save enough so that, in case you’re going through a storm that lasts for months on end, you can make it through, without borrowing from lenders (credit cards, friends/family, etc.) or from yourself (your retirement savings).

But once you do save that up, now you can start saving for your retirement.

Saving for Retirement If you have enough saved and you’re out of debt, pat yourself on the back! Getting started on your retirement means you’re now looking for a 401(k) or 403(b), or an IRA (Individual Retirement Arrangement, more commonly known as “Individual Retirement Account”) to open up… or both (I’ll explain in a future letter). You can find out from your employer about a 401(k) or 403(b). But an IRA is an account you may be able to open yourself with your bank or a brokerage like Vanguard or Fidelity. There are plenty. Or, if you aren’t eligible to open an IRA, you can still open up a brokerage account like the ones I just mentioned (Vanguard or Fidelity)… or other brokerages like Charles Schwab, Merrill Edge, or TD Ameritrade. The list goes on. You can use a service that connects you with financial advisors in your area to find out more about your options. Kingdom Advisors and SmartVestor Pro are a couple. Once you open your account, start contributing.

Contribute between 15% and 20% of your gross income. Your gross income is what you earn before taxes. So, for example, if you make $35,000/year, that’s at least $5,250/year you’ll be contributing to your retirement account. Divide that by 12, and you get about $437 to contribute each month.

One thing, though: You don’t have to stick to 15% or 20%. You can still look for areas in your life you can cut back on to give you room to contribute more to your future. And honestly, if you can’t contribute 15%, just contribute what you can. If that means $5 every month… do it. Your best is good enough, until you get to the next stage.

The last thing I want to mention is to set up your contributions automatically. When it comes to saving, you save more when you pay yourself first. (Technically, it’s second, if you tithe or have made the decision to donate to an organization or give in some other way on a regular basis.) So, if you set this up automatically, you’re disciplining yourself to live off of what’s left, and you’re not giving yourself a choice to spend on less important things.

If you have a 401(k) or 403(b), your employer can do this for you. You can even ask your employer to do this for a regular savings account, if you’re working on saving $1,000 or enough for three to six months, like I mentioned earlier. This way, before you get paid, your savings will already be taken care of.

This might sound like a process… And it is. But life is a journey. It is its own process, so to speak. But through it, we live… and we learn. So, yes… it’s going to take time, patience, perseverance, and most definitely, faith, when you feel like giving up. But in the end, it’s going to take a huge weight off your shoulders when you achieve what you’ve set out to do. So, starting today, get going… even if you’re not starting with much. I don’t care if it’s $1 or one penny. Every little bit counts. You can and you will get to the finish line. Just one step, one day, and one cent at a time.

With gratitude,

Melody C. Kerr, MS

Certified Financial Coach