Content Highlights
A
Financial Warm-up
Your Savings
Fitness Dream
How's Your
Financial Fitness?
Avoiding
Financial Setbacks
Boost
Your Financial Performance
Strengthening Your Fitness Plan
Personal Financial Fitness
Maximizing Your Workout Potential
Employer Fitness Program
Financial Fitness for the Self-Employed
Staying On Track
A Lifetime of Financial Growth
A Workout Worth Doing
Resources
Savings
Fitness:
A Guide To Your Money and Your Financial Future
Boost
Your Financial Performance
"Spend" For Retirement
Now comes the tough part. You have a rough idea of how much you need to save each month to reach your retirement goal. But how do you find that money? Where does it come from?
There's one simple trick
for saving for any goal: spend less than you earn. That's not easy if
you have trouble making ends meet or if you find it difficult to resist
spending whatever money you have in hand. Even people who make high incomes
often have difficulty saving. But we've got some ideas that may help you.
Let's start with a "spending plan" - a guide for how we want
to spend our money. Some people call this a budget, but since we're thinking
of retirement as something to buy, a spending plan seems more appropriate.
A spending plan is simple to set up. Consider the following steps as a guide, but you may want to use a computer program.
Income. Add up your monthly income: wages, average tips or bonuses, alimony payments, investment income, unemployment benefits, and so on. Don't include anything you can't count on, such as lottery winnings or a bonus that's not definite.
Expenses. Add up monthly expenses: mortgage or rent, car payments, average food bills, medical expenses, entertainment, and so on. Determine an average for expenses that vary each month, such as clothing, or that don't occur every month, such as car insurance or self-employment taxes. Review your checkbook, credit card records, and receipts to estimate expenses. You probably will need to track how you spend cash for a month or two. Most of us are surprised to find out where and how much cash "disappears" each month.
Include savngs as an expense. Better yet, put it at the top of your expense list. Here's where you add in the total of the amounts you need to save each month to accomplish the goals you wrote down earlier on the 3"x 5" cards.
Subtract income from expenses. What if you have more expenses (including savings) than you have income? Not an uncommon problem. You have three choices: cut expenses, increase income, or both.
Cut expenses. There are hundreds of ways to reduce expenses, from clipping grocery coupons and bargain hunting to comparison shopping for insurance and buying new cars less often. The section that follows on debt and credit card problems will help. You also can find lots of expense-cutting ideas in books, magazine articles, and financial newsletters.
Increase income. Take a second job, improve your job skills or education to get a raise or a better paying job, make money from a hobby, or jointly decide that another family member will work.
Tips. Even after you've tried to cut expenses and increase income, you may still have trouble saving enough for retirement and your other goals. Here are some tips.
Pay yourself first. Put away first the money you want to set aside for goals. Have money automatically withdrawn from your checking account and put into savings or an investment. Join a retirement plan at work that deducts money from your paycheck. Or deposit your retirement savings yourself, the first thing. What you don't see you don't miss.
Put bonuses and raises toward savings.
Make saving a habit. It's not difficult once you start.
Revisit your spending plan every few months to be sure you are on track. Income and expenses change overtime.
Avoid Debt And Credit Problems
High debt and misuse of credit cards make it tough to save for retirement. Money that goes to pay interest, late fees, and old bills is money that could earn money for retirement and other goals.
How much debt is too much debt? Debt isn't necessarily bad, but too much debt is. Add up what you pay monthly in car loans, student loans, credit card and charge card loans, personal loans-everything but your mortgage. Divide that total by the money you bring home each month. The result is your "debt ratio." Try to keep that ratio to 10 percent or less. Total mortgage and non-mortgage debt should be no more than 36 percent of your take-home pay.
What's the difference between "good debt" and "bad debt"? Yes, there is such a thing as good debt. That's debt that can provide a financial pay off. Borrowing to buy or remodel a home, pay for a child's education, advance your own career skills, or buy a car for getting to work can provide long-term financial benefits.
Bad debt is when you borrow for things that don't provide financial benefits or that don't last as long as the loan. This includes borrowing for vacations, clothing, furniture, or dining out.