Control your spending
We live in an instant gratification society. By simply putting down a credit card you can make purchases that you may not need or afford. You are inundated each day through the media and commercials with messages encouraging consumption and zero messages for restraint. We are a consumption society, around 70 percent of our Gross Domestic Product (GDP) is based on us consuming. Thus 70% of what makes our economy grow is based on us spending, so everyone wants us to keep consuming, thus companies and the government try to provide us with incentives to do so. Thus how can we resist the impulse to consume? It is not easy, but if you take a look at where this road will take you as you approach retirement you will realize that you need to get on a different track.
Take a step back from the day to day and make a list of your monthly spending. I am sure you can identify several areas where you could carve out wasteful spending that would make little on impact on your daily life.
Increase your savings
Improvements here start with number 1 above. As you control your spending it will free up the funds to add to your savings. The best way is to have funds automatically deducted every month, what you don’t see in your account you won’t spend. Make sure your savings account is a little out of reach. The easier the funds are to get to the more likely you are to raid the account. If it is harder to access you are more likely to make better decisions on when you use it. The goal is to transition to purchasing with saved cash not buying on credit cards.
Your most important savings vehicles is your retirement account(s). IRA’s, 401(k)’s and similar type saving plans will be the cornerstone for creating your retirement income. You should have a target of saving 15% of your income annually into these types of accounts. If you don’t presently, you need to create a plan to increase your deduction each year until you reach this goal. The 15% is what you should be saving plus any matching contributions from your employer.
Reduce your debt
The convenience of using credit cards and incentives like 0% financing are traps that are difficult to avoid. The pain of having to delay a purchase because you really can’t afford it TODAY is hard knowing that you could walk out the door with that new TV or drive off in that shiny new car by just signing on the line and agreeing to make what appear to be affordable monthly payments. It all feels great today, but you have just put a noose around your neck that will be hard to remove.
You need to look at debt for what it is and how it will impact you as you look to prepare for retirement. Interest on your debt is robbing you of funds you would have available to spend in retirement and if you add those dollars up they are significant.
You need to get off the debt treadmill, understand you are the only one who can change your view on debt. The media, corporations and even the government want you to use debt because they need you spending, your future is not of their concern. Understand DEBT is a four letter word and you should think of it that way.
Like anything difficult we generally want to procrastinate until there is a more convenient time to start. The problem is that the more convenient time never seems to arrives. It is important that you draw the line in the sand and get started. Turn you back on the old bad habits that had you headed for a retirement lifestyle not of your choosing but one you would have to settle for.
Cut up all but one credit card (ouch I know that hurts) and work to a point where you only charge what you can payoff each month. Devise a plan to payoff your debt as quickly as possible, this will create the additional cash flow you need to begin saving and investing for a much brighter future. Hold off on buying new big ticket items like a car and instead save those payments to put down on your next one.
Open a savings account at a bank you don’t presently work with and set up a monthly EFT (Electronic Funds Transfer) and have your desired monthly savings pulled out shortly after payday. Do whatever you can to avoid drawing from this account.
Talk to your 401k plan sponsor about how you can increase your monthly allocations and implement a strategy to annually raise your contributions.
Pain is never comfortable, but it is tolerable if you focus on the end result. Any funds wasted today will not be there for you in retirement. You do not want to leave the lifestyle you enjoy in retirement to chance. Put some the ideas discussed above to work, track your progress, celebrate small victories and build momentum with each success. Your retirement lifestyle depends on it.
For some it may look like a daunting assignment but you don’t have to do this alone. If you need assistance in putting your plan together let us know, we can help.