The benefits of saving for retirement including financial freedom and letting compound interest grow are great motivators but if someone feels they don’t have enough money to set aside for the investment, they will probably just put it off.
Wanting to Invest, But Not Having the Means
This was the position I was in until recently. Saving for retirement has always been one of my financial goals but I never had an employer that offered retirement benefits and I had a hard time trying to balance living for now and preparing for the future.
As a mom, my primary goal is to provide for my child and meet his needs and cover his expenses. Then there’s my debt that needed to be taken care of before the interest got out of control. I also have goals to save and build my emergency fund so I don’t sink deeper into debt if any unexpected expenses pop up (as they always do). Given all these expenses, investing was still a priority but it was pretty low on the list and I felt like my budget was tight enough already.
Thankfully, I did manage to open a Roth IRA through Betterment this year, but I know there are many other people who are struggling to stretch their budget to fund retirement contributions. According to CNN Money, at least 75% of Americans live paycheck to paycheck with little to no emergency savings and last year CBS News indicated that 69% of 18 to 29-year-olds and a third of 30-49-year-olds have yet to start putting anything aside for retirement.
Putting off retirement investing is a big mistake that could keep you working for longer that you planned. If you want to invest in your retirement but feel you can’t afford the expense right now, here are four ways to help stretch your budget to make it possible.
1. Trim the Fat
When you create a realistic budget, it’s common to overcompensate a bit or give yourself some extra breathing room by creating a cash buffer. If you aren’t investing though, you’ll need to trim the fat from your budget even more which can eliminate that cash buffer but it’s worth it.
My advice to people who say they’ve already reduced their expenses and trimmed the fat from their budget is: Do it again! How sure are you that you can’t spare any more money?
If you still have cable can you downgrade to a cheaper package? Is your insurance rate and coverage really the best there is? Do you really need that iPhone along with that pricey bill? Instead of dining out three times every week can you adjust to only once a week? Asking yourself how you can stretch your budget can easily free up $15 dollars here, $20 there and so on, allowing you to gather up funds to put toward investing each month.
2. Don’t Go for the Employer Match if You Can’t
If your employer offers a 401(k) with a match program you should definitely take advantage of it. If you contribute enough throughout the year to get the full match that’s basically like earning free money.
However, if you can’t afford to withhold enough to get the match, don’t get discouraged. Receiving an employer match and maxing out your retirement are great accomplishments. If you can’t do these things just yet, remember that contributing something is always better than nothing. Even if you only contribute 2% or 3% of your annual salary to your 401(k), it still counts and you’d be off to a decent start. You don’t have to max out every year (I sure don’t yet) and you can always try to slowly increase your contributions every year.
3. Pay Yourself First and Deduct from Savings Categories
Paying yourself first is the best way to ensure your financial goals are met. Treat your retirement fund like a bill that you have to pay before you count any leftover money for leisure and entertainment.
You could also deduct from pre-existing savings categories to help round up money for retirement. For example, I save around $250/month to deposit into my emergency fund. If I cut my EF savings down to $200/month, that would give me $50 to deposit into a retirement fund. If I trim another $50 from my non-savings budget, that gives me a total $100 to use to invest.
There are quite a few ETF and mutual fund options that you can start using by only contributing $100/month. While something is certainly better than nothing, more is always better. So if you’d like to contribute more than that, keep reading.
4. Find a Side Job
Increasing your income is one of the best ways to stretch your budget and increase your retirement contributions. So if you’re able to, pick up a side hustle or get an extra side job. If you have a special skill, start freelancing and selling your services or products. Alexa shares several ways to earn extra income online and by working at home.
You can also pick up a laid back part-time job and only work once a week. I’d recommend something like product demonstrating because it’s an easy weekend job that pays a lot better than minimum wage and it typically doesn’t require you to have any special training or certifications.
When you establish a side hustle or side job the key is to dedicate all your earnings to retirement. See if you can have your employer or boss withhold your income for retirement or when a client pays you, have them deposit it into your retirement fund.
Do you save for retirement? How did you get started and fit the expense into your budget?