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Find 'extra' money for retirement funds using sensible approach

by on February 22, 2018 8:40 AM

Last week, I met with a friend and her husband who were starting their first retirement account. The husband has a new job where he is now eligible for the company’s 401(k). As we started to go through the details of setting up his plan and its investment options, I asked him how much he was going to contribute. There was an awkward silence, and I could tell he had no idea how to let go of some of his income.

Retirement savings is a huge step toward your future, but once you are used to a certain amount of income, it can be hard to part with any of it. My friend's husband was fully aware of the importance of funding a retirement account early, and I was glad to hear that it was a priority for him. However, with a baby on the way and health care now taking up more of each  paycheck, he was nervous about lowering his take-home amount.

At a young age, it is easy to assume you have time until retirement and say you will start next year, or when you get a raise, or when you get your student loans paid off. But, in reality, you need to start now. If you have a job and plan to retire, you should be saving. So, where do you find that “extra” money?

I know most people have a hard time saving because the first things they think of to cut out of their budget are things they need to do or love to do. They think they need to make a drastic change. I’ve found that this is not a realistic way to save money. It reminds me of all the fad diets you hear about. People jump on these diet programs for a month or two and lose a significant amount of weight, then fall off the wagon and resume their old habits. Soon, the weight is back and they look for the next fad. This method fails in the long term for weight loss and for saving money. What is needed is a sensible approach.

If you normally eat out three times a week, don’t decide that starting in March you will quit eating out altogether. Chances are, you eat out with friends or your husband or wife and cutting out restaurants will cut out quality time that you enjoy. If you normally get Starbucks coffee every morning on your way to the office, cutting off your Starbucks purchases completely will have you driving to the nearest location in the middle of the night three weeks later.

Make sure the changes  you are make aren’t going to limit the social interactions you are accustomed to. You can save significantly and avoid the sense of deprivation by just cutting down and possibly choosing a cheaper option.

Even saving in small increments adds up tremendously over time. That is why it is important to find a plan that you can stick to and either cut out or modify smaller things that aren’t as important.

I feel that having a written budget is absolutely necessary when the goal is to spend less and save more. When you start writing out everything you spend money on, it opens your eyes to unnecessary purchases. Also, having your plan written out makes it easier to follow and stay on the planned path.

I found that sitting down with a notepad and pen and making a list of all my normal bills and common spending for a month was a good place to start. I then spent a month tracking all my spending. Each day, or sometimes each week, I sat down and wrote out all of my spending. At the end of the month, I was able to evaluate the necessary purchases and where to start trimming. Then, I laid out a budget for the following month. I got quite detailed and created spending “buckets” for entertainment, groceries, clothes, etc. Now, each week I allocate my spending to each bucket and make sure I’m on track.

Another way to help save a little is to take a look at your recurring bills and see if there are any that can be lowered.

Many people are switching from cable and satellite TV to streaming devices, and I think this is a wonderful way to save a little each month. If you find you can’t let go of the local news channels or sports broadcasts, call your provider and let them know you are thinking of switching or cutting down on your channels — they may have specials or lower prices available. Take a look at your cell phone bill, too.

If you have a data plan and aren’t using it up each month, you could possibly switch to a lower plan to save a few dollars each month.

My biggest savings came when I started planning meals and packing lunches. Grabbing fast food or eating out each day for lunch really adds up. Consider planning your own menu for the week before heading to the grocery store and only buy what you need to prepare those meals. Take a list and stick to it. And, of course, don’t go to the grocery store when you are hungry.

I’ve shared this statistic with my readers before, but I feel it’s worth mentioning again. Saving early is so important. According to American Funds, saving just $50 per month could generate up to $75,000 over 30 years. However, 20 years of contributing $50 per month would only generate up to $29,000. That is a difference of $46,000. Saving just a small amount regularly over the long term will make a big difference in your overall financial picture and could be the key to a more comfortable retirement.

Brittany N. Cox is an associate adviser at Nestlerode & Loy Inc.

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