Six out of 10 Americans don’t use a budget or track their spending, according to the 2013 Harris Interactive Consumer Financial Literacy Survey. This statistic jives with HelloWallet’s report from last October, which found that 60 percent of households are accumulating debt faster than retirement savings. No matter what stage of life you’re in, you need a plan to save for retirement. Start with the following tips:
Schedule Planning Time
As people grow older, they’re more willing to pay attention to their finances. Thirty-eight percent of Americans ages 25-32 say they’re too busy to think about long-term financial goals, and that number steadily declines to 13 percent for those over 66, Northwestern Mutual has found. However, the number who feel too rushed by society’s pace to stick to long-term goals grows from 61 to 75 percent over the same age margin. Together, these numbers paint a picture of an aging population increasingly aware of their urgent financial needs but too stressed out to take appropriate action.
To counteract this trend, make a commitment to yourself and your finances. Set aside some time to review your goals, ideally with the help of a professional advisor. Then get in the habit of taking 15 minutes a week to review your budget.
Steer by Long-Term Financial Goals
Use your long-term financial goals to guide your short-term budgeting. Fidelity Investments offers various calculators and tools to help you estimate how much you need to set aside each month to reach your retirement goals. Wells Fargo provides a worksheet to help you break down your financial goals into intervals of one year, two to five years, and five years and over.
Use a Budgeting Strategy
Yes, you need a budget. Consider following financial expert Elizabeth Warren’s 50/30/20 rule: Put 50 percent of your monthly after-tax income toward essential living expenses, 30 percent toward discretionary spending and 20 percent toward savings and debt repayment.
Pursue Saving and Debt Repayment Strategically
According to financial advisor Dave Ramsey, you should initially put the savings and debt repayment portion of your budget toward a $1,000 emergency fund and paying down your credit card balances before pursuing retirement and other savings goals. When applying this strategy, you can save for retirement faster by reducing your debt obligations. If you receive regular payments from an annuity or structured settlement, consider contacting a company that purchases future annuity payments for a lump sum of cash now. You can then use this money to help repay your debt.
Invest Your Savings Productively
To grow your savings, check if your employer offers a 401(k) plan or another retirement savings plan, and start contributing—especially if it’s a matching plan. If not, invest in a traditional IRA or Roth IRA. After that, the next place to invest is an index mutual fund, suggests the Wall Street Journal.