Retirement Planning on a Budget
saving and spending (Photo credit: 401(K) 2013)
Everyone has heard the battle cry of the personal financial experts: “Start saving for retirement sooner rather than later!” Those who start saving at 25 have double the money when they retire than those who start saving at 45!” And while this is certainly simple math, the problem is that, for many folks living on fixed incomes, finding extra cash isn’t always such a simple proposition. Unfortunately, not having much in the way of disposable income doesn’t diminish the importance of proper retirement planning. But there is a silver lining in this grey financial cloud – retirement planning is possible even with limited means.
And lets face it, with the security of former fail-safes such as pension plans ever in doubt, the onus is more and more on the average person to ensure they aren’t left out in the cold when they hit their golden years. So with that in mind, here are some top tips for retirement planning on a budget.
Pre plan
To get one’s financial house in order, it’s important to take stock of everything. Those with an interest in retirement planning need to first sit down and get a handle on their net worth. To do this, the Department of Labor advises taking the total value of a person’s assets minus his or her debt. There’s no reason to be discouraged if this figure is in the negative (indeed, many people have negative net worth); the trick is to focus on adjusting spending and savings habits so that negative figure winds up a positive one.
Consider compound interest accounts
Many folks who don’t earn that much probably feel that certain accounts – like Roth IRAs – are only for the super wealthy. Not only is this not the case, but it’s those with limited means who benefit the most from depositing into IRAs and 401k plans. That’s because these accounts offer compound interest. After all, why deposit cash in a standard savings account when certain retirement accounts offer compounded interest that will grow by leaps and bounds.
Save first
The average person is conditioned to deposit his or her paycheck and then allocate funds for such things as rent, mortgage, food and entertainment. The trick to getting a head start on retirement saving is retraining the brain to look at a paycheck as money leftover after a savings deposit. Even if the amount isn’t much, people should still deposit a portion of their checks into a separate account. With time, it is possible to learn this strategy by rote to the point it becomes second nature.
Live frugally
There’s no way around it: most of those on fixed incomes are going to have to make some concessions in order to properly plan for their retirement. In order to offset the amount that goes into a savings account each month many will need to cut down on other expenses, such as eating out or going to events. It may also mean not buying new clothes twice a year but only once, or opting for a vacation every two years instead of every year.
While the above strategies may not solve every finance-planning issue, they should serve as a solid roadmap to those who want to secure their economic futures. Above all, the most important thing is to create a plan and be diligent in executing it.
Jennifer Palmer is a professional blogger that provides financial information on savings and loans. She writes for InstaLoan.com, a leading title loan lender.
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Category: Budget, Family Finances
