For many people, saving for retirement is a daunting prospect. However, there is no need to despair. Saving becomes easier as you develop the proper habits. Saving for retirement is something you won’t regret: what you decide today will greatly impact your quality of life after retirement.
You may feel like your current budget can’t accommodate retirement savings, but small financial sacrifices can help. You may find saving easier than you first anticipated.
Here are few simple steps to get you started:
1. Start assessing your spending habits
You need a reality check: start by recording your monthly expenditure. Keep a running total of everything you buy, from TVs to takeaways. You may soon discover that you are wasting money on items you don’t actually need.
You might be able to create some breathing room in your budget by analyzing your spending habits. In fact, your monthly satellite TV subscription likely costs more than most minimum monthly unit trust investment or retirement annuity contributions. Numerous financial service companies offer investment minimums of less than $50/month.
2. Formulate a budget
You should draw up a budget once you have a handle on your spending habits and potential cutbacks. This helps you understand what percentage of your income should go to fixed expenses and how much you’re left to play around with. Next you should prioritize your expenses. You will need to decide how important saving for retirement is to you.
Ultimately your goal is to consider retirement savings a fixed expense and commit to investing each month. You’ll be amazed at how fast you will adapt to having a little less disposable income.
3. Identify your goals
A budget tells you what your current financial situation is. The next step in the plan is to identify your goals. Retirement savings may be one of your goals, but you could also have others, like saving for your children’s education, or renovations to your house.
4. Determine how much you will need to save each month
To meet the goal of an income of 75% of your final salary, research shows that you need to have saved twice your annual salary if you’ve been working for 10 years, five times if you’ve been working for 20 years and seventeen times if you’ve been working 40 years.
When you plan to retire will influence the amount you are required to save in order to meet your monthly targets.
You should then consider how much risk you are willing to take – equities are higher risk, but tend to yield higher returns, but it may be a bumpy ride since returns may fluctuate. Finally you will need to consider whether you need access to your investment before you retire. These elements will determine how aggressive you will need to be in order to reach your goals.
5. Do your homework
Thorough research into investment managers and their offerings will help you be more confident when it comes to decision making and safeguard you against jumping ship at the wrong time. Partnerships are very important when it comes to successful investments. When picking an investment manager make sure that your objectives align, your value systems should resonate and make sure that you trust them. Making the right choice could set you on a path to a long, successful relationship.
6. Automatically increase future contributions
Consider automatic escalation when signing up for retirement savings. Research shows that committing in advance to future increases to your savings contributions reduces the risk of it feeling like a sacrifice, since it will be deducted before you’ve had the chance to enjoy the increase in your income.
7. Avoid procrastination
Every month you spend instead of save either pushes your retirement date further away or increases the amount you will need to save in the remaining months. Investors in their twenties, who put off saving for 10 years, could reduce their end amount by 40%.
It is important to acknowledge future financial needs and make concrete plans to meet your goals. It is a discipline that will be hugely beneficial to you and your family.
You may find all of this very daunting, but rest assured that there are excellent independent financial advisors who can help you to analyze and adjust your expenditure to make room for retirement savings.
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $80,000-$100,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). I even have all of my favorite tools on a resource page - I hope they help you too. Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!