Six out of 10 Americans don’t use a budget or track their spending, according to the 2013 Harris Interactive Consumer Financial Literacy Survey. This statistic jives with HelloWallet’s report from last October, which found that 60 percent of households are accumulating debt faster than retirement savings. No matter what stage of life you’re in, you need a plan to save for retirement. Start with the following tips:
Schedule Planning Time
As people grow older, they’re more willing to pay attention to their finances. Thirty-eight percent of Americans ages 25-32 say they’re too busy to think about long-term financial goals, and that number steadily declines to 13 percent for those over 66, Northwestern Mutual has found. However, the number who feel too rushed by society’s pace to stick to long-term goals grows from 61 to 75 percent over the same age margin. Together, these numbers paint a picture of an aging population increasingly aware of their urgent financial needs but too stressed out to take appropriate action.
To counteract this trend, make a commitment to yourself and your finances. Set aside some time to review your goals, ideally with the help of a professional advisor. Then get in the habit of taking 15 minutes a week to review your budget.
Steer by Long-Term Financial Goals
Use your long-term financial goals to guide your short-term budgeting. Fidelity Investments offers various calculators and tools to help you estimate how much you need to set aside each month to reach your retirement goals. Wells Fargo provides a worksheet to help you break down your financial goals into intervals of one year, two to five years, and five years and over.
Use a Budgeting Strategy
Yes, you need a budget. Consider following financial expert Elizabeth Warren’s 50/30/20 rule: Put 50 percent of your monthly after-tax income toward essential living expenses, 30 percent toward discretionary spending and 20 percent toward savings and debt repayment.
Pursue Saving and Debt Repayment Strategically
According to financial advisor Dave Ramsey, you should initially put the savings and debt repayment portion of your budget toward a $1,000 emergency fund and paying down your credit card balances before pursuing retirement and other savings goals. When applying this strategy, you can save for retirement faster by reducing your debt obligations. If you receive regular payments from an annuity or structured settlement, consider contacting a company that purchases future annuity payments for a lump sum of cash now. You can then use this money to help repay your debt.
Invest Your Savings Productively
To grow your savings, check if your employer offers a 401(k) plan or another retirement savings plan, and start contributing—especially if it’s a matching plan. If not, invest in a traditional IRA or Roth IRA. After that, the next place to invest is an index mutual fund, suggests the Wall Street Journal.
I used to practice bankruptcy law and removing money from annuities can be dangerous because those assets frequently will have bankruptcy protection. If you are absolutely sure that you’ll be able to repay the debt it’s can be a good idea if the surrender charges aren’t excessively large.
A frequent problem with the overly complex assets trusts or say using whole life insurance as a bankruptcy exempt start over fund is that when things turn bad most individuals will cash out any asset in order to save their business during what they presume is a temporary shortfall. They would have been better off just keeping more cash and saving the legal fees and commissions.
Pretty solid advice there! But its amazing how many people aren’t do anything. When I polled my friends, MOST had no real “paper” budget. They just kept track of things in their head.
Good advice. I should pay it more mind myself. LOL. One tidbit I like to pass on to my clients is to planning for future housing. Deciding where to retire and then creating a plan to eliminate housing costs before retirement is a great way to reduce monthly budget costs while guaranteeing a roof over your head. Putting extra on a mortgage now to have it paid off before retirement can be a sound planning strategy.
Very good advice across the board. I check our overall finances quarterly and we work very hard to keep our savings rate as high as possible, although we’re finding it more and more difficult with young children =)
Yes I believe the information. Why because I see it all around me, people don’t want to be bothered with keeping a budget. I started tracking mine just 3 years ago, because I wanted to get more involved with how to manage the cash flow. But people who are not at that level yet see it as they are just fine handling money blindly.
Having a budget to allow you to get saving is a great first step. Once you are in the swing of saving the right amount for your life circumstances it then becomes important to consider what you are investing in, and also the costs or fees associated with those investment vehicles. Low-cost ETF Index funds are a great starting point to consider with your Advisor.
I often use a vacation to slow down and look at my retirement contributions and whether or not I need to adjust them. I’ve found daily life is far too busy but, it is too important a subject to ignore. If I get a special day off for a holiday or something, I find an hour or two to fit in with all of that time with family, friends and being lazy to be proactive on my retirement.
Great advice. Planning and saving for retirement early is a must these days.