In the same way that a marathon runner begins by training for a 5K race, retirement readiness begins with small manageable steps. Take a look at the below steps. You may have already completed several of the items in which case congratulations. Continue to make a commitment to progress this year and please let us know if we can help.
Pick a dollar amount and commit to never make a purchase above that number without asking yourself if you are truly in need of the item. Ask yourself: Is the item more important than making additional progress towards a rewarding retirement?
Pay off credit card debt and high interest rate personal debt. Commit to keep these balances at $0 at the end of each month – after you’ve achieved this step, don’t let it slip away!
Most people find budgeting very difficult but small steps can get you 90% there and that will make a big difference in your finances and future retirement.
- Keep as much spending as possible with one bank and on one credit or debit card. This will enable the use of the banks analytics and budgeting tools.
- Take a look at where you are spending money month to month. Use the categories that your bank recommends and look at your expenses and housing, food, play, transportation, insurance and savings.
- If there are extravagances that you really can’t afford, consider downsizing. A smaller home or a less expensive car can lead to a much more rewarding life over the long term.
- In each category see if you can find a couple of items where you can save some money each month.
- Commit to those changes and immediately set up automatic contributions to pay off the bad debt or increase your retirement savings. If you don’t set up the automatic contributions the money is likely disappear by month end without helping you reach your goals.
Save the equivalent of 3 months expenses for an emergency or for insurance deductibles. Over time this fund will save you a tremendous amount by allowing you to save money on insurance premiums and short term debt.
- Many financial planners recommend six months which can enable you to save money on insurance by choosing higher deductibles.
Re-assess Insurance decisions
Now that you have an emergency fund, look at your deductibles and if you can afford to increase them consider it. As a rule insurance companies collect $1.30 or more for every dollar they pay out in claims. Keep the $.30 yourself for claims that you can afford.
- Consider dropping coverages that are “bets”. If you have comprehensive medical insurance then accident policies or insurance that is for a specific illness are simply a bet on what might happen. Buy insurance for insurance, if you want to make a bet get some friends together and play penny poker.
- Buy insurance to insure against risks you cannot afford. Life insurance is generally a bad investment so unless you find yourself with a permanent need, consider term insurance. Use our tools under the “For Individuals” and then the “insurance” tab to see if you can save money by working with one of our 30 insurance carrier partners.
Take advantage of any retirement plan matching contribution that your employer might be offering as well as increasing your savings to at least a 5% contribution.
- And please don’t judge your management if they don’t provide a matching contribution. Setting up a company retirement plan takes time and additional expenses that employees never see. You need to save for retirement and these plans provide tax benefits as well as “group” pricing, don’t miss out!
Congratulations! If you have achieved the above items you are further along than most. Revisit this exercise at least once a year. Once every 6 months will help you make even more progress!