Saving for retirement, or simply want to boost your nest egg for better security? The strategy is straightforward; set and optimize financial goals, reduce spending and budget, earn and save more money, and increase investments. Let’s examine each of these options:
Set & optimize financial goals – Financial goals are money objectives that are set to achieve important milestones. They can be short-term, such as paying off a credit card, mid-term such as paying off the balance of a car loan, or long-term such as paying off a mortgage or saving for retirement. Financial goals are important because they provide a framework for achievement and can put people on the path to saving money, getting finances in order, and finding ways to put their money to work. Goals must be realistic, doable, and specific. For example, it is likely unrealistic to create a plan to save a million dollars a year if one’s income and ability to earn the money is substantially less. However, it may be reasonable to take $200 out of every paycheck to put towards savings. In 12 months, that will grow to be $2,400. To do that for seven years, one would ultimately save up $16,800, plus interest if that applies. Or one could invest that money in something like a Roth IRA, which generally has no minimum balance other than the amount providers may require for investments. This may enable you to experience tax-free growth of money and tax-free withdrawals later in retirement. Just remember that you must wait five years after your first contribution to a Roth IRA to withdraw your earnings tax free.
Reduce spending & budget – a careful analysis of spending can help you see where money is spent and, in many cases, wasted. Generally, to save more money, one must either find ways to increase income or reduce spending. Looking at numbers of paper is very helpful. By categorizing how you spend your money, comparing needs versus wants, and by judging what spending can be cut, one is likely to discover ways to save money. For example, cooking at home versus dining out may help save money. Gray areas must also be explored. For example, homeowner insurance is required, but if you’re paying a lot, consider shopping around for a better price. Or take advantage of special offers, such as applying for a smart home security discount that can lower home insurance premiums by as much as 20%. Budgeting should never be looked at as a negative, because essentially it is deciding how to best spend and save your money. Thus, it puts you in control of your own finances.
Earn & save more money – There are many ways to increase income, but some main ways are to work harder and/or longer hours, change careers, or ask for a raise. It’s crucial to save for one’s future and it’s equally comforting to have money saved for emergencies. Always track where your money goes and eliminate wasteful spending and live by new principles that can help you achieve your financial goals. To save more, a person should not live beyond their means. In other words, the money going out should never exceed what is coming in, as that can only lead to debt. To save more, get creative. Don’t pay for expensive services or goods you struggle to afford, such as a fancy haircut or buying the latest fashion. In some cases, simple cutbacks can help make a long-term difference. For example, if you’re prone to buying a frou-frou coffee and pastry daily, cut back to once a week and throw the difference into savings.
Increase your investments – Find new and clever ways to build your investment portfolio. Many financial advisors will tell their clients to have at least six months’ worth of expenses saved and to have that money available for emergency use in an account is free of harsh withdrawal penalties. It’s also vital to have a long-term savings exclusive for future use, so that the money you need to depend upon for survival is there come retirement. In many cases, a qualified financial advisor can direct you toward the best ways to invest your money to achieve your objectives. A good advisor will explain what risks are involved and will understand your ability to tolerate risk. Whenever possible, take advantage of employer-sponsored defined-contribution retirement accounts, such as a 401(k) plan. In this case, employee funding comes out of an employee’s paycheck and may be matched by the employer to grow your money.
While it’s optimal to start saving money at a young age, it is never too late to be smart with your money. In fact, since people in the U.S. are living and working longer than ever before, even postponing retirement in some cases, it’s a great idea to be on top of finances and continually reevaluate what actions are best to take to make the most of your money.