Money Management:Saving for retirement as a hairstylist
When you first start your career as a hairstylist you probably don't think about how hard it would be to stand behind a chair doing clients at 65 years old. I know I didn't. Retirement doesn't cross the mind of most people until they are in their 30's and by then it's honestly a bit too late. Most people should be saving at least 3% of their wages annually in their early 20's and that number should increase to 10%-15% once you are in your early 30's. The good news is that it's never too late to start saving. Any savings is better than none at all so if you are ready to secure your financial future, read on!
There are may types of retirement plans but I am going to focus on the two main options; traditional and Roth IRA's.
Traditional IRA-Traditional IRA's are categorized in many different ways. There are 401K plans, 403b, simple IRA's and a few others. There are some differences to each style, however the overall setup is very similar. Essentially these accounts are retirement funds that can only be accessed under certain circumstances. These types of accounts can, and should be, invested into stocks or mutual funds allowing your savings to hopefully grow overtime. Traditional IRA's are usually setup through your employer and the money that you decide to deposit into the account is pulled out before your taxes are calculated which also reduces your annual taxes owed. Keep in mind however that because you aren't paying taxes on the money now, you will owe the tax when you withdraw the money later in life.
Traditional IRA Matching-If you are lucky enough to work at a salon that offers IRA matching at all, congratulations. An IRA match is essentially an instant raise and if it is offered to you, you should absolutely be taking advantage. Generally, your employer will offer to match up to a certain percentage of your gross earnings at each paycheck and then will deposit your savings matched with their contribution into the IRA for you. For example, if you make $1000 each paycheck and your employer offers a 5% contribution match, you could choose to contribute up to $50 each paycheck towards your IRA and your employer would put an additional $50 into your account. Amazing, right?!?
Roth IRA-Roth IRA's are also savings accounts that can be invested into stocks and mutual funds, however deposits made into these accounts are done post tax. This means you wouldn't get the benefit of reducing your annual taxable income. The nice thing about Roth IRA's is that because the money is deposited post tax, you won't need to pay tax on the money when you need to access it later in life.
Which type is right for me? If your employer offers IRA matching, the choice is obvious and you should sign up for whatever plan they offer. If you are a booth renter or your employer doesn't offer an IRA plan, a Roth IRA is most likely for you. There are income limits on the Roth IRA plan so if you make over $100,000 annually, you should double check your eligibility before opening your account.
It is never to late to start saving for the future. Add "open my retirement account" to your agenda this week! xoxo