While the pandemic may have caused household budgets to explode for families facing illness, job loss or other hardships, retirement savings should aim to get back on track as soon as possible. possible. And those who came out of the pandemic relatively unscathed or with improved financial circumstances should take the experience as a call to revisit their spending and savings plan.
“Most people don’t have the big picture,” says John Smallwood, president of Smallwood Wealth Management. “Without a budget and without a comprehensive plan, you are blindly flying towards retirement.”
Smallwood has four budgeting strategies that can help workers fix their budgets or optimize them to help workers save for retirement. Here they are:
● Establish a savings rate and stick to it: Workers looking to live comfortably in retirement should make savings part of their monthly budget, like a recurring bill, instead of just hoping to save some of what’s left at the end of each month, Smallwood says. . Those earning less than $ 100,000 a year should save at least 10% of their income, and those earning $ 250,000 or more should save 25 to 30%, he says.
As workers’ income grows, monthly expenses such as cellphones, internet, cable, and streaming services generally stay the same, so workers are expected to save a greater percentage of their income, Smallwood says.
“If you have a family, it’s hard to live in today’s world and save money if you make less than $ 100,000,” he says. “But the reality is we live in a world where pensions are gone for most people, so we need to make sure that we are in control of our spending and that we are setting aside money that is not being touched. It’s about training yourself to pay yourself first. “
● Evaluate Your Lifestyle. If you’re racking up credit card debt or struggling to pay off debt, your lifestyle is probably overpriced, Smallwood says. By counting your discretionary purchases at the end of each month, you can get a better idea of where your money is going and assess whether these expenses are really worth it for you.
Smallwood says workers are often surprised to find out how much they spend on restaurant meals and other small luxuries, and these expenses often lead people to believe they don’t make enough money to save on a regular basis.
“So many people don’t really know what they’re spending each month,” he says. “Their lifestyle is getting out of hand.”
● Eliminate unnecessary expenses. Many workers pay monthly fees for services they don’t use or receive enough to justify an expense, such as gym memberships, streaming services, satellite radio, and entertainment services. ‘subscription that automatically deliver products to their doorstep each month, Smallwood says. He recommends looking at credit card statements to find recurring expenses that you may have forgotten or really don’t need.
Maybe you’ve signed up for a cable plan or other service at a low introductory rate, but you’re paying a lot more now. Can you justify this additional expense based on your usage and appreciation of the service?
“These discretionary expenses can run up to a few hundred dollars each month or quarter,” says Smallwood. “In most people’s budgets, 5% to 10% is wasteful spending.”
● Stop financial leaks. Workers who make monthly payments on their life or auto insurance premiums pay more than those who pay their premiums all at once, Smallwood says. And over time, that extra expense can be significant.
Smallwood points to a major financial leak: paying too much mortgage interest because you haven’t refinanced and taken advantage of historically low interest rates.
“What’s a good rate today doesn’t necessarily translate to a good rate tomorrow,” he says. “You have to look at where the leaks are in your plan and figure out how to fix them.”
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