Albert Einstein is credited with calling compound interest the 8^th wonder of the world.

If you harness that power in your 20s, your path to retirement is going to be much, much easier.

Step #1: Open an IRA

People can write page after page after page about whether a traditional one or a Roth one is better.

With a traditional IRA, you get tax breaks now. So if you’re making a lot of money, go with the traditional one. If you make more than $122,000, you can’t fully contribute to a Roth IRA anyway, so if you’re that fortunate, open a traditional IRA.

For most young folks, you’re likely to be better off with the Roth IRA. You don’t get a tax break now, but you’re probably not in a high tax bracket.

You do get to magically withdraw from your Roth IRA – even the interest it grows over the years – tax free.

Personally, I am team Roth IRA.

To open an IRA, all you have to do is be making taxable income.

Working part time in the school bookshop and get tax papers from them, no problem.

Working under the table babysitting, problem.

You can contribute up to the amount you’ve earned each year.

If you earn $10,000 working part time, you could contribute the full $6,000 (in 2019). I mean, I know the odds of you being able to do that are slim, cause life, but you could.

Life in your 20s is hard. Life in the 1820s? Also hard.If you earn $3,000 working part time this year, you can only contribute a maximum of $3,000.

If you earn $3,000 from that legit bookstore job and $10,000 under the table babysitting. Well, you should declare under the table earnings on your taxes, and if you did, you could contribute the full $6,000, but assuming you forgot you could only contribute a maximum of $3,000 for the year.

The nice thing about being in your 20s, or possibly even a teenager, is that time is so on your side, saying every little bit helps is so true.

But let’s stop talking in the thousands here. Lets say you’re 20 years old, you open an IRA and you contribute $10 a month for the next 45 years.

That’s $5,400 in contributions from you.

At a 6% interest rate (a very possible interest rate assuming we don’t totally destroy the earth and paper money stops meaning anything), you would have $27,060.97 at retirement.

$20 brings you up to $54,121.95.

And $100 a month brings you up to $270,609.75 – assuming these conservative returns and that you never invest another penny.

If the stock market performers spectacularly at 10% (very unlikely), your $100 a month contribution brings you in at just under a million dollars ($948,954.38).

So, open an IRA and start with $10 a month, even if that’s all you can do. The compound interest is really turning each of those dollars in nearly $5.50 in the long run for you.

Ready? Here’s how to open one.

Step #2: See if your job has a 401(k) Match

If you’re already working full time, check in with your HR department and see if your 401(k) has a match.

A match means the company will contribute the same amount you contribute up to a certain amount or percentage of your salary.

This match is now your main goal because you are otherwise throwing away free money. You can even take the $10 away from the IRA if you really have to.

If you make $24,000 a year and the company will match up to 3% of that in your 401(k), you want to figure out how to contribute $720 a year. That’s $60 a month, or $30 out of each biweekly paycheck.

The best way to do this is to set up an automatic withdrawal, so you never even see the money.

If you’re doing really well with your salary, up that amount! You can contribute up to $19,000 a year, which doesn’t include the extra $720 that your company can kick in.

That’s up to $1583.33 a month, which is like a fancy rent payment, so if you can’t go anywhere near that starting out, don’t worry about it.

Aim for that match number and call it a win if you can swing that.

Step #3: Check out Health Savings Accounts

Health Savings Accounts are a little like magic money, but first you want to be getting that 401(k) match and you want to be trickling in at least your $10 a month into your IRA.

You can read a longer breakdown of them here, but if you have lots of medical and/or dental expenses or even just occasional annual purchase of something big like contacts, HSAs can get you some big savings.

If you know you’ll have $1,000 in medical expenses this year, you can put $1,000 into the Health Savings Account and use that money to pay those medical expenses. You can then deduct your Health Savings Account contribution from your taxes.

If you’re doing well this year financially, you can pay those medical bills out of pocket, leave the Health Savings Account alone, and invest that money through the HSA. It will also grow tax free and you can use it for any medical bills in the future and, get this, if you just save the receipts from the bills you already paid, you can deduct that amount at any later date and use the money if you need it.

A Health Savings Account can be a pretty powerful emergency fund.

Step #4: Increase all your savings by at least 1% every year.

So let’s say you’re 22, making bumpkis, and contributing $10 to your IRA, $60 to your 401(k), and $25 to your HSA.

Next year, try to contribute at least $11 to the IRA, $66 to the 401(k), and $27.50 to the HSA.

Also, maybe your saving muscles got a little stronger and you feel you can even do $20 to the IRA, $75 to the 401(k), and $30 to the HSA.

The only thing to watch out for, in a few years, when you’re a saving rockstar, is the maximum contribution limits for each account. When you get to that point, just quickly Google them, because they can change from year to year.

And don’t forget that if you get a raise, you should recalc

Step #5: Automate All You Can

Remembering to make these contributions can be headache, so automate all you can. The best level to automate it at is right from your paycheck. You can usually have your paycheck deposited into more than one account – if possible, have the money go right into your IRA, 401(k), and HSA.

If it’s not possible, set up automatic withdrawals for the day after your paychecks hit in your bank account.

The point is to spend a few minutes setting it all up and then forget it until you go in to increase it a smidge at the end of the year.

Step #6: Calculate Your Net Worth

This is up to you, but a major motivator for me has always been doing my net worth updates every month.

Saving and investing usually just makes the money feel like it’s disappearing at first. I’d think I was “buying” some retirement account or “buying” my IRA – which really didn’t feel like much of anything to me.

Then I started calculating my net worth, and watching it creep up every month made me feel safer and more motivated to keep saving and investing. When I did my first one in September of 2013, I had a net worth of around $30,000 and as of September 2019, I’m a little over $200,000. Tracking has been huge for me.

If you’re like, “there’s no way I’m doing this every month,” not a problem. But I do think you should do it at least every year. You can automate this too and make it easy to just log in and check using tools like Personal Capital or Mint.

Personally, I like the involvement I get from using my spreadsheet.

If you start young, it doesn’t take much to set yourself up for a really kick butt retirement, so many people just procrastinate or wait till they’re at the perfect job or until their loans are paid off or even until they’re out of school.

Starting ASAP will make a major difference for you.

And if you’re way past your 20s, starting ASAP will still make a different for you too.