Most of us find it challenging to take control of our financial future. Whether creating a simple monthly budget, or saving to buy a house, financial obligations can be a huge stress trigger for most individuals. But just a little financial planning can help you save better. We provide a few planning strategies to help you save more money.
Create a Budget
There are really two ways to have more money: make more or save more. We can all make an effort to save more money and in order to determine how much, your first step is to create a budget. Evaluate everything that is coming in and how much of that is going out.
While we can’t pick and choose what bills to pay, a budget can help you scale back where you are spending too much (needlessly), and allocate those funds towards a regular savings account or, even better, a retirement account, like a work-sponsored 401(k).
Keep in mind that scaling back does not mean you have to stop dining out, going to the movies or enjoying simple indulgences altogether. Simply evaluate how much you want to spend and can spend on these indulgences based off of your income and how much you want to save.
Have an Emergency Fund
Always expect that life is going to throw you a curveball or two, and plan for such events.
If you don’t have an emergency savings fund, you aren’t alone. According to a survey by PNC Financial Services, more than 1/3 of individuals between ages 36 to 60 have nothing saved in the event of an emergency. If you’re in that boat, you can turn your financial future around with a little fiscal planning.
So how do you plan to save for an emergency? What you will save is dependent on the following major factors:
- Your income and monthly expenses
- Whether you are single
- Whether you live on your own or have children
At the very minimum, you should have three months of your living expenses in your emergency fund. This will include rent/mortgage, utilities, gas, food and expenses of the like. If your monthly expenses amount to $2,500, then your emergency fund should be $7,500 – minimum.
Don’t let this number scare you – start small at first. Warren Buffet once said, “Don’t save what is left after spending; spend what is left after saving.” Before paying for your bills or fun outings, take a small portion from your paycheck to put towards your emergency funds. Be consistent and with time, you will get there. Once you have sufficient funds saved, don’t touch it!
Save for Your Retirement
A sad fact is, many Americans don’t save enough for retirement. A recent Schwab survey revealed that many individuals believe $1.7 million will be enough for retirement, and many experts happen to agree. Of course, this largely depends on which state you live in, as your spending power reduces significantly if you were to live in Hawaii instead of, say, Mississippi.
While $1.7 million makes for a decent retirement nest egg, few Americans reach it. In the Schwab survey, more than half of the individuals they polled contributed 10% or less of their salary towards a 401(k) or other retirement account. Saving 10% is good if you’re in your 20s. But individuals in their 40s must put away as much as 35% to reach the $1.7 million magic number.
Younger Generations Saving for Retirement
If you are in your 20s, it is important to save and be consistent with your savings. By establishing a self-directed retirement account, such as the Self-Directed IRA, you can make the same contributions as with a Traditional IRA and also make alternative investments you may understand better than Wall Street, such as real estate or cryptocurrency.
Older Generations Saving for Retirement
Individuals who are in their 40s can maximize their retirement saving by establishing a Solo 401(k), which allows participants to make higher annual contributions and save up to $57,000 if under 50 for 2020. If over 50, you can save up to $63,500. Here’s the catch: in order to establish a Solo 401(k), you must be a business owner with no full-time employees or generate some form of self-employment income. If you are not a business owner, you can always take up freelancing on the side or Uber driving to qualify for a Solo 401(k), reach the maximum contribution for that plan and “catch up” in your retirement saving.
Saving may be seem daunting, but the hardest step is getting started. By creating a budget, ensuring you have funds in case of an emergency, and making sure you save for retirement, you will achieve financial wellness.