Are you saving enough for retirement?
You aren’t alone if your answer to this question is an emphatic “No,” or if you are simply not quite sure. Saving for retirement is a major challenge for many people these days and we have pretty low retirement preparedness levels across the board in our country.
Sometimes we spend more time and energy avoiding our finances than is necessary. Instead of spinning our wheels and doing the same things to get the same old results, maybe we should redirect our time and resources to more meaningful actions that could become difference makers.
In the spirit of trying to find ways to make our financial lives seem a little less complicated, let’s take a look at some easy life hacks that can help you build up your retirement savings (and your own sense of retirement confidence):
Put Your Savings on Autopilot and Pay Yourself First
Make saving for retirement easy. It would be nice if we all made rational decisions with our money. But there is a pretty big knowing-doing gap. That’s why it’s important to automate smart saving behaviors whenever possible. Paying yourself first means that you don’t give yourself a chance to make your money disappear in all the wrong places.
Participating in a retirement plan at work (401k, 403b, 457, etc.) is an obvious place to start. Contributions come directly out of your pay. Once you determine how much of your income you want to contribute it is easy to set and forget your savings. Other pre-tax saving vehicles such as health savings accounts (HSA) may also be used to automate the process of saving for retirement. You can take the same approach when saving in an Individual Retirement Account (IRA) by setting up automatic contributions through your paycheck or directly from your bank account after you’ve been paid.
There are other ways to make saving easy. One method is to take advantage of a contribution rate escalator tool if offered by your retirement plan provider. These small automatic increases to how much you save can help you gradually raise your retirement plan contributions over time.
Saving for short-term emergencies is another part of a solid financial foundation. Before ramping up your retirement savings above any employer-provided match, be sure you have some emergency savings in place. And you guessed it…you should also make adding savings to your safety net account automatic.
In addition to setting up direct transfers to savings once you are paid, consider using a debit card that rounds up your purchases and puts that money in a savings account separate from your day to day checking account for living expenses. Another tip to remember when you make cash purchases is to put your extra change in an old-school piggy bank or jar. At the end of the year, the extra savings can go into your IRA.
Don’t Allow Yourself to Get Distracted by Debt
Excessive debt is one of the biggest obstacles on the path to retirement. If you already have some debt-related headaches now is the time to turn that around with a debt reduction plan. But if you aren’t there yet, avoid allowing the debt to derail your retirement plans.
Some forms of debt such as mortgages and student loans can be better than others when they are incorporated into your overall financial life plan. On the other hand credit card debt, high-interest personal loans, and auto loans can create a vicious cycle of debt payments that make retirement appear impossible at times.
Here are a few simple tips to help you avoid the debt distraction:
- Be a little different than the average American and create a personal spending plan
- Always pay off your credit card balances in full each month
- Wait 24-48 hours before making any large purchases
- Try to keep your basic living expenses below 50% of your total household income (see this article on the 50/30/20 budgeting rule for more information)
- Make discretionary purchases with cash instead of credit using an envelope method
Keep Up the Good Habits and Eliminate the Bad Ones
What do you think most Americans do after they’ve paid off a vehicle loan? If you guessed “spend it” you are correct but that’s not the best approach if you want to achieve financial independence.
It’s easy to lose focus on the big picture of our financial life plans when extra income appears in our budget after paying off loans or credit card balances. Instead of spending that extra cash that you’ve already gotten used to not being there, pretend it’s still not there and save it instead. Make “payments” to your retirement account instead of allowing lifestyle creep to hurt your ability to save. You’ll never miss the money because you’ve already gotten used to it not being there.
When you pay off an auto loan, consider keeping your vehicle for a few extra years before finding a replacement. You may even want to set aside some of your savings in a car replacement avoid so you are prepared when it is time to find another ride.
Learn How to Cook
The simple act of learning how to cook can help you save thousands of extra dollars for retirement. You don’t have to be a gourmet chef to put together healthy meals that are easy and taste good. The best part of being more proactive in the kitchen is that you can reduce expenses related to dining out. This helps free up extra dollars that can go to your retirement accounts. A healthy diet also helps improve your overall health and this can significantly reduce your medical costs later on during your retirement years.
Use Automatic Bill Pay
Never miss a bill payment by making the entire process of paying your monthly expenses automatic. If you’ve ever missed payments in the past this can lead to significant savings over time by eliminating late payment fees. Since paying creditors on time is a major factor in determining credit scores the process of making bill payments automatic may also help lower future borrowing costs for mortgages or vehicle loans.
Avoid Spending Future Raises and Bonuses
There is a fine line between living in the moment and planning for the future. It’s okay to reward yourself but remember to do so in moderation and put a hefty chunk of your pay increases or other windfall amounts into retirement savings. It takes a little discipline upfront, but if you never give yourself a raise you can put extra money in your 401(k), IRA, or regular investment account.
How much time are you willing to devote to your financial independence day? You can give your retirement savings a huge kick start with a few simple moves. Just focus on finding extra money in your budget, eliminate costly debt payments, and automate the savings process. Once you automate these smart savings and debt avoidance habits you will gain a lot of positive momentum.