Save More to Invest More For Retirement

Do you need to find more money to invest for retirement? This article will help you find more and save more so you can invest more.

Why should you invest in your future?

Do you know what you want your retirement to look like? How will you make that happen?

If you have no idea why you should start saving or how to get started, please start with this article, Why You Should Start Planning Now.

Start investing in your future – NOW. Make sure you can have the retirement you really want, the one you’ve dreamed of having.

Rules for Investing

Most financial advisers will say you should try to save at least 15% of your gross salary. This includes any funds your employer contributes as well. Their contributions also count toward the annual limit the government sets each year. The 15% figure isn’t a hard-and-fast rule, but you should aim for close to that. No matter how much you can invest, you should definitely begin as early as possible in your career. The longer you wait to get started saving, the more you will need to save.

How do you invest more? Usually that means you’ll have to spend less now on everyday things. Maybe defer getting a brand new car or choose to live in a smaller, less expensive house. Doesn’t that make sense? You can’t spend everything you make now and still expect to contribute to your future.

The first step to spending less is figuring out where your money is going day-by-day. Tracking every item you buy is one of the best ways to figure out where the money is going. Are there leaks you weren’t aware of? Impulse spending? Are you living W-A-A-A-Y above your means . . . routinely charging on your credit cards?

“But I don’t have any money to invest. We live paycheck-to-paycheck.” I’ve talked with many people who are in this situation. They are usually surprised to find by doing one of the things listed below they can free up at least $50 per month. And $50 a month is a start, when you haven’t been saving anything towards retirement.

But don’t you have to save thousands to be able to retire?

Eventually, yes. But for now, just plan to come up with some extra cash to put into your retirement so you can get to the maximum allowed per year -15% as mentioned earlier. If you save $50 a month for 25 years and invest it in the market so it earns 8% per year, you’ll add almost $50,000 to your nest egg. Can you find $50 per month? Let’s see. Read on.

A Flex Spending Account

If your employer offers a flexible spending account (FSA), you should absolutely take advantage of it. A flexible spending account is usually for medical and child-care expenses. It allows you to put pretax money into an account and then take it out tax-free to pay for child-care and out-of-pocket medical bills.

There are limitations to what you can purchase – most non-prescription medications are not covered – and how much you can save in the account per year ($2500 in 2017). You must use the money you contribute during the year in which you make the contributions (use-it-or-lose-it rule). Some people are worried about leaving money they’ve saved in the account and losing it at the end of the year. Check with your employer. Sometimes they allow a grace period that gives you until March 15 of the next year to spend your FSA money. They may even allow you to roll over $500 from the account to the following year.

It was never a problem for us when I was working. We used the FSA to pay for all our co-pays, medications and deductibles during the year. Usually we ran out of FSA money before the end of year. I know, sad, isn’t it? What can I say . . . there were four of us in the family. 🙂

You can set the amount you want to save in your FSA during the open enrollment period – up to the maximum allowed by the government for that year. To determine that amount, review your expenses for the past year. How much did you spend for medical expenses and/or child-care? Do you think you’ll be spending the same amount next year? Then base your contributions on your calculations.

If you’re using your FSA to pay for child-care expenses, it’s a little more straight-forward. Your child care is usually a fixed amount each year, so base your contributions on that amount.

FSA contributions avoid federal income taxes, Social Security taxes, and in most states, state income taxes, too.

Pay Less for TV

If you are hooked up to cable, you probably love being able to see every channel at any time of the day on your TV. It’s easy, it’s available, and you don’t really have to think about it . . . until the cable bill is due each month. Your cable bill may be much more expensive than some other options.

Many people are “cutting the cord” – getting rid of cable. They are tired of paying the ever-increasing costs of cable when they are also subscribing to Netflix and other entertainment venues. But, do you have to do without local channels and all your favorite shows if you cut the cord? Nope.

If you have:

• an antenna for local channels
• a streaming-media box, like Roku or AppleTV
• and broadband Web access

you can still catch all your favorite shows – either free or for a fraction of what you’re paying to your cable company. There are many options, like Netflix, that allow you to watch movies and more TV shows than you can even imagine. You’re probably already paying for Netflix or some other service that can substitute for cable.

You should be able to save money by cutting the cord. Of course, the more services you subscribe to, the more you’re going to pay . . . until there’s no more cost savings when you find you have 15 services you’re paying for. 🙂

Still not ready to cut the cord? You could keep your cable and still save money if you get a cable/wireless internet/phone bundle from your cable provider.

Give Yourself a Raise

File a new Form W-4 with your employer to adjust the number of allowances you are claiming.* This may result in a raise. You can claim an allowance for yourself, your spouse and your dependents. Each allowance means approximately $4,050 of your annual income is not included in your withholding (based on 2017 calculations). This pushes up your take-home pay.**

*You should not just make up a number for your W-4. There’s a user-friendly calculator that can help you at Kiplinger.com.

**Just so you know, I’m not a tax accountant and I am not telling you how many deductions you should claim. Talk to a tax accountant if you have questions.

Trim the Cost of Car Insurance

You should re-shop your car insurance each year. What was the lowest cost last year may no longer be the lowest. Using a comparison web site like Insurance.com, you may find a better deal. Another option could be working with an agent. You can find an independent agent at Independent Insurance Agents and Brokers of America (IIABA), or you can also contact an agent who sells for a single company, like Allstate or State Farm.

Boosting your deductible from $200 to $500 can reduce your collision and comprehensive premiums by as much as 15% to 30%.

Save on Life Insurance

Competition seems to be keeping premiums for term insurance low. You may be able to lock in a lower rate or the same rate for a longer period. Check out Insurance.com to see each company’s underwriting standards. If you contact AccuQuote, agents can steer you to companies that are more compatible with your health conditions and family history. 

Pay Off Your Credit Cards

By now, if you have had credit cards for any period of time, you know several things:

• If you make the minimum payment on a credit card, it will take YEARS to pay off and you will pay an exorbitant amount. For example, on a balance of $1000 with an 18% interest rate, if you make the minimum payment, you will pay nearly $3000 and it will take you almost 15 years to pay off. And that’s $1000. Most credit cards have a much higher balance.
• The more credit cards you carry with a balance, the lower your credit rating (in general), which affects many things, like your insurance rates for cars, your ability to purchase a home, etc.
• The more you are paying on credit cards, the less money you have to save for retirement.

There are a few things you can try to pay off your credit cards. Consider transferring the balance(s) to a card with a 0% introductory rate . . . if you are confident you can pay off the balance during the introductory period. After the introductory period is over, the rate can and will go up substantially to anywhere from 14% – 21%. You can also call the credit card company to find out whether it will lower your existing interest rate.

Two Ways to Pay Off Cards

If you do have multiple cards with balances, there are a couple of ways to attack paying them off:

Focus on Highest Balance

1. Make a list of your credit cards and the balances for each. Put them in order, highest balance at the top of the list, lowest at the bottom.
2. Focusing on the card at the top of the list, add extra to your payment each month. Let’s say the minimum due for that card is $35, but you add $50 to it each month. You’ll continue paying $85 each month to that card until it is paid off.
3. The minimum amount due on the card will begin to drop as you pay it off, but don’t fall for that trap. Continue paying whatever you’ve committed to ($85 in our example) until the card is completely paid off.
4. ALWAYS continue making the minimum payments on your other accounts.
5. When you pay off the highest rate card, cut it up, mark it off the list and pick the next card down the list and start paying it off.
6. Add the amount you were paying on the first card ($85) to the minimum due for the second card ($30) and commit to making that payment ($115) each month until that card is paid off.
7. Repeat until all cards are paid off.

Snowball Effect

1. Make a list of all your cards and their outstanding balances. Put them in order with the least owed at the top of the list and the card with the highest balance at the bottom of the list.
2. Start at the top of the list (the one with the lowest balance) and focus on paying it off first. Maybe the minimum amount due on that card was $35, but you’re going to add $50 (or whatever you can) to that amount and pay $85 per month until it’s paid off.
3. The minimum amount due on the card will begin to drop as you pay it off, but don’t fall for that trap. Continue paying whatever you’ve committed to ($85 in our example) until the card is completely paid off.
4. ALWAYS continue making minimum payments to the other accounts while you’re focusing on the first card.
5. When you get the first card paid off, cut it up and cross it off your list.
6. Then take the amount you were paying on it each month, $85, and add that amount to the minimum due on the next card on the list. Maybe the minimum due for the second card was $25, so now you’ll be paying $85 + $25, or $110 per month to the second card.
7. When you get that one paid off, repeat the process until you have all the cards paid off.

At the very least, you will free up $50 and maybe a WHOLE lot more that you can put in your retirement account each month.

*When I’ve needed to pay down debt, I always chose the “Snowball Effect” instead of “Focus on the Highest Balance.” For me, it was a matter of motivation. Every time I paid off a card and crossed it off the list, it kept me going to pay off another and another until I was credit-card free.

Next Steps

I’ve given you several ideas for ways to free up money that you can put towards your retirement account. Pick one or two and start working on them now. You should find these are easier than getting a part-time job to supplement your income. However, if you can’t make any of these ideas work, you may have to consider getting a part-time job. You simply cannot allow yourself to get close to retirement age and figure out you don’t have enough to retire . . . EVER. Retiring with only Social Security income is not really an option anymore. I doubt you could live on that alone.

If you have questions about how to figure out what your retirement looks like right now, please check out my book titled Do You Have What It Takes? Planning for Your Best Retirement. This book can help you find all your sources of income and whether you are on track to enjoy your best retirement.

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