Thanks to the power of compound interest, starting saving as young as possible is the best decision for your personal finances. But there is never a time that is too late to start saving. If you are in your 40s or 50s and are behind where you want to be, follow these steps to get on track for improved savings for retirement.
Cut Your Overhead
The first place to focus when trying to save is your spending. If you live paycheck to paycheck, getting onto a budget and managing your spending is vital. Even if you live comfortably, you can always find areas to save on your monthly bills.
Using a service like Trim can help you cut your monthly subscriptions and a budgeting app like Mint can help you manage the rest of your spending and stick to a budget. “A penny saved is a penny earned” doesn’t sound as nice as “a Benjamin saved is a Benjamin earned,” and if you are not on track to meet your retirement goals, you have a lot of Benjamins to save to catch up.
What you earn minus what you save is how much you have available for savings. Now that you cut your monthly recurring spending and are keeping an eye on other expenses, we can look at the “earn” side of the equation.
If you make $20,000 per year, you will never be wealthy even if you budget and stretch every dollar as far as possible. You can only cut your spending so much, but your earning power is unlimited.
Whether you want to earn more to get out of debt, improve your savings, or just live a better lifestyle, you have the power to earn more on the side. In 2014, I earned $40,000 on the side while maintaining a full-time job. If I can do it, you can do it!
Pay Yourself First
Once your earning and spending are optimized, it’s time to look at where your money goes every month and rethink your attitude on how you pay the bills. Most people pay their monthly bills, pay for other expenses as they go, and save what’s leftover. Instead, you should fund your savings first and pay for your other expenses with what’s leftover.
This habit can revolutionize how you save. By setting your savings goals first and ensuring you reach them, you know you will have enough money for your most important needs in the future. If you don’t have enough cash leftover at the end of the month after paying yourself first, return to steps one and two and look at ways to improve your monthly cash flow.
Make Retirement Savings Automatic
If you have to go to the bank or login online every payday or at the end of each month to fund your savings, you have big obstacles in the way of reaching your goal. If you take away the work it takes to save and make it automatic, you can’t forget, get too lazy, or come up with another excuse not to save.