An average American couple has only $5,000 put aside for retirement. We don’t know whether or not we can’t count on social security when we retire so what else can we do but hope for the best?

Pay off debt

Debt is a huge hindrance in life, whether you’re 20 or 60. Young people should be paying off their debts and staying away from debt as much as possible. Without debt, your disposable income increases and you can use that money for more important purposes. Also, without debt, you don’t have to pay Visa for the “privilege” of borrowing money. On an average credit card balance of $15,310 you can save over $2,000 a year in interest charges alone!

Establish a budget

The first step in paying off debt is to establish a budget (and to stick with it!). For starters you’ll have to calculate all your sources of income – do you do tutoring on the side or sell handmade goods on Etsy? If the income is steady and sustainable, count it in your budget.

Next, go through your bank records and track your spending habits. Calculate how much you spend on rent, on alcohol and on taxis in a month. This isn’t the time to fudge the numbers, be honest with yourself. Once you’ve got your data, use one of the many budget templates online (just Google it) and see what comes up.

Find out how long you’ll live and what your plan will be

As morbid as it sounds, you’ll need to find out how long you’ll live. Luckily the Social Security office has you covered. Using their actuarial tables, you can plug your birthdate into a calculator and see how much longer you’ll live, statistically speaking. For example, a 30 year old woman will live an additional years. If your retirement plan has you retiring at 65, you’ll need to save enough money for 15 years’ worth of expenses.

Wait, what retirement plan? Yes, you’ll need to create a retirement plan to determine how much you’ll need to save. Obviously a person who wants to spend the first five years of their retirement traveling will need more in savings than a retiree who will live in her mortgage-free condo. Determining today the lifestyle you want at retirement will help paint a more accurate picture of whether or not you’re on track for your retirement plan.

Get to know these four: 401(k), Roth 401(k), Traditional IRA, Roth IRA

The government wants you to save money for retirement. This is why they’ve created these four retirement savings programs. 401(k) and a Traditional IRA are the most widely known and are tax-deductible when you invest the money. The accounts have different advantages and disadvantages so you should speak with a financial advisor.

Invest in a diversified and balanced portfolio

This is the part where the other four points all tie together. After establishing a budget, paying down debt, determining how much you need and opening a savings account, you’ll need to actually fund it!

The best way to fund a retirement account is to set up automatic contributions, either through your bank or with your employers. Some employers will also match your retirement contributions so if that’s an option, make sure you aren’t throwing away free money.

Once you’ve got your money in your account, you’ll have to invest it in either stocks or bonds. As a young person, you’ll want to be invested in more risky assets (stocks) since you have a longer time until retirement than someone who is middle-aged. The general rule of thumb is that 120-age should be the percentage of assets held in stocks, with the balance in bonds.

Waiting until retirement age to plan for retirement is unwise. Instead, you should begin to prepare for your retirement as soon as you get your first job. With the government even providing tax advantages to entice people to save for retirement, there’s no reason why you can start to prepare today!