It's easy to make small changes that will make a big
difference in your retirement savings, say financial experts Lynnette
Khalfani-Cox, founder of AskTheMoneyCoach.com and Elli Dai, director of
participant services for Wells Fargo Institutional Retirement and Trust.
Recent statistics highlight the need for some changes:
Middle-class people in the USA have a median of $20,000 saved for retirement,
far short of the $250,000 they think they'll need during that time of their
lives, according to a new Wells Fargo survey of 1,001 adults, ages 25 to 75,
with a median household income of $63,000.
Khalfani-Cox and Dai offer these suggestions for boosting
your savings:
• Create a budget. Most
people think creating a budget means they'll be in a financial straitjacket.
They think a budget means deprivation. But a budget helps you set priorities so
you can become more focused and save for your goals. Some people are
overwhelmed by the idea of trying to save more because they have so many bills
and other expenses.
• Cut spending
without feeling deprived. Eliminate the things you won't really miss
so you don't feel like you're going into "severe restriction mode.” You
might stop eating lunch out daily or cancel some cable TV channels that you
don't watch.
Dai adds that if you make one change in how you spend your
money today, however small it may seem, you can make a difference in your
retirement savings.
• Don't make minimum
payments on credit card debt. Minimum payments in the short run mean
maximum payments in the long run. It means so much more money in interest.
Instead, double and triple the minimum payments.
• Negotiate better
interest rates on your credit cards. Don't be afraid to call your
credit card company. It's a competitive market, which means you have leverage.
• Don't dig yourself
deeper into debt. Change whatever financial behavior got you into debt
in the first place, Khalfani-Cox says. This is something to keep in mind during
the holidays. If you spent too much last year and had to dig out of a hole, try
not to do it this year.
Many people end up in debt through no fault of their own,
but they have been hit by the dreaded D's — downsizing, divorce, death of the
main breadwinner, disability and disease. These are five personal pitfalls that
can throw people into debt and limit their ability to save money.
• Turbocharge your
savings. Contribute to your 401(k) plan or other type of employer-sponsored
savings plan, especially if you are getting a match, which is essentially free
money.
• Consider another
turbocharged option. Look into getting an Individual Development
Account. This program is available to low- to moderate-income people who want
to save toward a specific goal, such as a down payment on a home, college costs
or job training. These accounts are supported by non-profit groups, companies
and government agencies and provide matching funds. The savings may be matched
2-to-1, 3-to-1 or even more.
• Sell things you
aren't using. Take a look in your basement, attic, garage and drawers and
get rid of things you're not using. Sell them on websites or have a yard sale.
This money should be earmarked for savings.
• Adjust your
withholding. If you think you're going to get a tax refund, you may
want to adjust your withholding now so your tax refund isn't as large in the
spring. Be sure to increase your savings at the same time so you don't end up
spending the extra money in your paycheck.
• Take advantage of
pretax savings accounts through your employer. These may include
flexible savings accounts, health savings accounts, dependent day care flex
savings accounts and transportation flexible spending accounts. If you're going
to pay for those things, anyway, you might as well use pretax dollars.
• Plan for the
unexpected. Have an emergency savings account so that if you have an
unexpected house or car repair or medical expense, you don't have to stop
saving for retirement or dip into your retirement savings.
• Learn to cook. The
savings come in many ways: less eating out, buying fewer packaged (more
expensive) groceries and possibly eating a healthier diet, which could lead to
lower long-term health care costs.
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