Young adults, read and learn: many Baby Boomers, (e.g. your parents) don't have enough retirement savings. An Employee Benefit Research Institute poll showed that 57% of US workers surveyed had less than $25,000 in savings and investments (excluding their homes). The younger you start, the better. But even if you're over 50, setting aside money starting right now can make a difference. When creating a budget, always include money for retirement, even if it's only a few dollars a week.
It's OK to Start Small - Just Start
Creating a budget with retirement in mind doesn't mean foregoing every last bit of pleasure. Life is happening now, and soul-crushing deprivation can lead to spending binges and a bad attitude. However, simple changes like brown-bagging your lunch three days a week can free up $20 or so you can put toward retirement, and you'll probably eat healthier too.
Look for other little savings opportunities too. When the baby is finally out of diapers, it's almost like getting a pay raise. Put the money you used to spend on diapers toward retirement. These small amounts add up, particularly if you start when you're in your 20s or 30s. Commit to increasing the amount you set aside each year, even by a little.
Fixed Costs Help You Budget More Simply
The more fixed costs you have in your budget, the easier creating a budget will be. If you regularly spend $80 to $90 per week on groceries, budget a flat $100 per week for simplicity. If your utility company allows monthly budget billing so you pay the same every month, look into doing this. After Halloween, determine a reasonable amount to budget for holiday presents and stick with it. The more predictable your expenses, the easier it is to discover where you're wasting money.
Compare Periodically and Save
Consider installing a budget app on your laptop or phone. The best ones help you think of everything, and offer convenient extras like text alert bill reminders, so you won't waste money on late fees. Some budget apps link with your bank account and credit cards and can recommend cheaper bank accounts and credit cards with lower interest rates that you are likely to qualify for.
Periodically evaluating terms on car loans, credit cards, and even mortgages can free up money you can put toward retirement and not even miss. (Keep in mind, however, that closing old credit card accounts can ding your credit history, because it lowers your average account length. The longer you keep a credit account open and healthy, the better it is for your credit score.)
Consider the Merits of "Going Green"
When you give yourself a weekly cash allowance for daily expenses, you'll learn to spend less. For many people, the psychological impact of parting with cold, hard cash makes it easier to pause and think, "Do I really need this?" Creating a budget for your weekly incidentals can help you spend more wisely on everyday expenses, and it feels great to make it to the end of the week with a little left over (which you can also put in your retirement nest egg).
Where to Put Retirement Money
If you have an employer 401K plan, this may be your best way of saving for retirement, particularly if your company matches some of your contributions. 401K contributions come out of your paycheck before taxes, making it nearly painless to save, and helping you keep a lid on your tax rate. Strive to save 1% more in your 401K each year, and eventually you'll be maxing out contributions.
If a 401K isn't an option, you can open your own retirement account. Not all banks and brokerages require minimum initial contributions, and others waive initial deposit requirements when you sign up for monthly direct deposit. Find out how much you're allowed to contribute to your IRA each year, and work toward reaching that maximum. If you're not sure how much you can put into an IRA, there are online calculators to help you.
Creating a budget is the first step toward financial flexibility and reaching your goals. Creating a budget that includes planning for retirement is even better. If you're young it can make a significant impact, and even if you're older it's far better than nothing. Saving for retirement doesn't mean you can't have any fun now; it just means understanding your spending and shifting priorities.
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