Let’s face it: Saving for retirement is hard. There are so many other things you’d rather spend your money on, and it’s tough to put money away knowing you won’t see it again for decades.
There are plenty of tips out there for saving more money, from skipping the morning coffee to using an app that tracks your spending. But there’s an even easier way to contribute more to your retirement fund that takes only a few minutes — yet 76% of people don’t do it.
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Break out the pen and paper
Most people have a general idea of what their retirement goals look like. But having a vague idea of what you need to retire and having a concrete plan to reach that goal are very different things, and that plan can have a serious impact on your retirement savings.
Writing down your financial goals sounds easy enough, but a study by Charles Schwab found that most people don’t do it. Only 24% of the people surveyed said they wrote down their goals, while 40% said they have financial goals but don’t write them down, and 36% said they have no goals at all.
The simple act of writing your plan down can, believe it or not, make a big difference. People who write down their retirement goals are 60% more likely to contribute more to their 401(k) plans than people who don’t have a written goal, the study found.
Putting your goals into writing sounds simple, but it can be overwhelming if you’re not sure where to start (which is likely why so many people avoid doing it altogether). But it doesn’t have to be complicated if you break it down into a few easy steps.
1. Establish your priorities
Most people have multiple financial goals, including saving for retirement, buying a home, or contributing to a child’s college fund. You can save for all of your goals simultaneously, but you first have to prioritize those goals.
Consider how much time you have to reach each goal, how much money you’ll need for each one, and how often you’ll need to save to get there.
For example, say you have 30 years until retirement, five years until you want to buy a new home, and 10 years until your child heads to college. Calculate roughly how much you’ll need to reach each goal (check out this retirement calculator if you’re not sure how much you’ll need), then break it down to see how much you’ll need to save each month to reach each goal.
If after you crunch the numbers you realize you can’t afford to save as much as you want to reach all your goals, you’ll need to prioritize. Is having a house more important than a comfortable retirement? Could your child go to a less expensive college (or pay his or her own way)? Once you have your priorities in order, write them down and stick to them each month to make sure you’re really saving as much as you can.
2. Create a budget
It’s hard to know exactly how much extra cash you have to put toward your goals until you map out all of your expenses. If creating a budget from scratch sounds agonizing to you, download a free budget template so that all you have to do is enter your information and let software do the math for you.
Also be sure to consider all of your expenses — not just the monthly ones. Expenses like property taxes or car insurance may only be paid yearly or quarterly, but they’re substantial, so your budget needs to account for them.
Once you know how much money you have left at the end of each month, you’ll be able to break it down by goal and figure out exactly how close you are to reaching each goal.
3. Automate your savings plan
If you know how much extra cash you have to put toward your financial goals, have your bank automatically transfer the appropriate amount of money to your various savings accounts at regular intervals. If you never see the money sitting in your checking account waiting to be spent, it’ll be far easier to save.
Opening multiple savings accounts is also a smart idea because each goal can have its own account, making it easy to see how much you’ve put toward each goal. It also makes it easier to stick to your goals, because you won’t be as tempted to fudge the numbers by movings funds where they don’t belong.
If you have, say, $4,000 in your savings account that’s to be used for a new car and an emergency fund, it’s difficult to keep those goals separate when all the money is together in one account. You may tell yourself that half the money is for the car and the other half is for emergencies only, but if you see a car you just have to have before you’ve saved enough to buy it, it’ll be tough to avoid sneaking some cash out of your emergency fund — even when you know you shouldn’t.
Saving for retirement (or any other goal) can be a challenge, but writing down your goals makes it more manageable. And in the process, you just might be able to save a little more, too.
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