How to budget to save more for retirement
Is it worth compromising your lifestyle today for a richer life in the future?
Many people share the same concerns about retirement planning – the volatility of the markets, longer life expectancies, not having enough to live comfortably in the future, and so on. With all these in mind, where can you find the extra boost to help you reach your retirement savings goal?
Not everyone can simply switch to investments with potentially higher returns if it means increased market volatility for their portfolio or going out of their comfort zone in terms of risk. There is a safer option: You could increase your savings and the amount invested each year by budgeting.
Whether to save more or not often raises a question that’s about more than money: Is it worth compromising your lifestyle today for a richer life in the future? For those who are confident that their goals are on track and well-positioned for future challenges, there may be no reason to increase their investment amounts or change current spending and saving habits. But for anyone open to saving and investing more, here are two ways to budget your money today so you can reap the rewards in retirement:
In reverse budgeting, you pay yourself first. You figure out a specific dollar amount you must set aside from each paycheque to reach a certain goal — in this case, retirement savings. The idea is that before you can even spend your money, the chosen amount is saved in the vault. It’s an automatic way to increase your retirement savings and accumulate a bigger nest egg.
With reverse budgeting, tracking monthly expenses is optional. Typically, you don’t need to monitor what you spend unless the pay-yourself-first amount affects your lifestyle or other important investment goals such as education savings.
Don’t think of budgeting as something that restricts your lifestyle; instead, think of it as a way to build your future. In its simplest form, you could track and analyze monthly and special expenses with the intent to reduce costs in certain areas and allocate extra funds towards retirement savings. This may include finding ways to lower monthly fees and costs, such as through bundling phone, TV, and Internet services. On a larger scale, it could mean scaling back vacation plans or choosing a less expensive destination. Your budgeting system can be formal or informal, using whatever resources you have available.
But before you make any significant changes, be sure to review your current savings plan and investment objectives with your advisor.