Should my girlfriend be saving for retirement

[skives]

My girlfriend makes just under $10,000 a year. Should she be saving for retirement and an emergency fund or just the emergency fund? She has no emergency fund.

[disneysteve]

What exactly is her situation? $10,000/year is well below even minimum wage if she's working a full-time job. Is she a student? What is her living situation? Still home with parents? How old is she?

I'd say she needs to be building savings for now, EF and money to get out on her own once she gets a real job.

[swanson719]

The emergency fund always comes first. When life happens, you can use cash, not retirement accounts. While it's saving when your young for retirement can make you thousands more than doubling your contribution even 5 years down the road, it's still much better to have the cash in hand when it's needed to get in the habit of relying on credit cards. She does need to up her income, unless she's in college. Even then, $10,000 isn't much for a full time student either. A summer internship and 20hrs a week thru the year will cover that much.

[skives]

She is not working full time right now and makes $7.40 an hour for 20 a week. She is trying to find a job as a cook the career she wants. She auctually waiting to hear about a job.

[swanson719]

Minimum wage and part time. Why doesn't she pick up a second job delivering pizzas or something? I understand trying to find your dream job, but you gotta put food on the table in between.

[creditcardfree]

I think she should establish an emergency fund of $500 to $1000 and then start looking at establishing a roth ira, unless there is a 401K available with a match. If possible start with 10% of gross income. If she needs to start with less, make it a goal to increase the percentage by 1-2% per year.

[jIM_Ohio]

always spend less than you earn.

She should build an emergency fund- $500 or $1000 is a good start.
She should be investing for retirement- 10% of her gross pay $1000/yr or $80/mo is enough.


Some detail as to WHY:

1) savings is more of a habit than a I have enough money issue
meaning if people waited until they had enough money to save, they probably would never save a dime, therefore start the habit, even if the real goal is not realistic when you start.

2) If your girlfriend starts with saving $10/mo and within 6 months gets to $20/month and within a year is at $40/month and within 2 years is at $80/month that is progress.

The goal should be $80 and she should try to do it now, but starting the habit is more important than the amount.

3) Savings is always expressed as a percentage of gross income, and I suggest 20% as the number to shoot for. 10% is a good starting point.

Logic #1
GF makes $10k a year (10%=$1000) if she does not save, the habit is not started. Depending upon her salary increases, actually getting to 10% will be tougher the more she makes.

Lets say she gets a FT job making 35k as a cook (that is 3k per month gross). If she was not saving before, she would need to find $3500/year (more than 1 months pay) to meet the total 10% goal of before. This will appear as a large sum to someone which has never saved. Realize the true goal is 7k (20%) and see that by not starting at lowest salaries, getting raises can make saving even more intimidating.

If she gets promoted to head chef within 5 years making 50k, she realizes she needs to start and sees the 20$ (10K) number and freaks out, and does not start- even at 5% or 10%.

Logic #2
she makes 10k and saves 10% ($1000). She sees how to do things.

Gets same promotion and decides to increase savings from 10% to 15%. 10% of 35k is $3500- she would have done this from habit anyway- she really is only saving an additional $1700, which is just under $125 extra per month- relative to the $3000/mo she has grossed, this amount will not seem so big.

Gets same second promotion and bumps from 15% to 20%. 15% of 50k is $7500- she would have saved this anyway from habit, she is only "losing" $2500/yr or $200/mo from the 15k or $1250/mo her raise is now providing her.

Start savings as early as possible
the habit is more important than the amount
with the goal to increase percentage to target as soon as reasonable and soon as possible.

[xpirtdesign]

I wouldn't recommend your girlfriend to start saving for retirement on the job she has now its probably going to be a job she will quit soon anyway. But she should save a little for emergency but what she should really do instead of thinking about saving is to concentrate on her career.

[MonkeyMama]

Not necessarily - not much income to save there.

My question is, how old is she?

However old she is she needs to focus on earning more income - 100% agreed.

[getforfree]

If she doesn't have a retirement plan at work where her contributions would be matched, it's not worth it right now. If she would run into any small emergency and ends up cashing it out, she would loose some of her $$ to penalties and stuff. If the company matches at least 30-40c for every $1, than it's worth it. Because if the company gives her extra 40% on everything she contributes, it's more than the penalties and taxes she ends up paying if she has to take it out, expecially if her income is low now, and she is in a small tax bracket.