We are less than two weeks away from the end of 2020 (which we can all agree, probably can’t come soon enough!). As the year wraps up, now is a good time to review your budgeting and expenses over the past 12 months and see where, and how, you spent your funds. If you had a budget you were working in, did you meet your benchmarks? Did you spend more than intended in certain areas or less? Where there legitimate reasons for overspending? If you don’t have a budget, did you find yourself spending more than you thought on particular items/services? Do you want to get your expenses in order or under control? Use the answers to these questions to help guide you as you prepare your finances for 2021. If you find your expenses or spending habits make you a bit uncomfortable, you may want to consider getting more serious about budgeting. If you need help with getting your finances in order, I encourage you to meet with a certified financial planner or wealth manager who can help you both organize your money as well as place it in a spot where it can grow or help your future.
Have you found yourself out of a job thanks to retirement? Are you living off of unemployment and savings at the moment? While this may not be an ideal scenario, it can be a good time to practice a bit what life will be like in retirement. In retirement, you probably will have to make your savings last, especially if you don’t plan on working or don’t have passive income as part of your plans. You will need to work on skills such as budgeting and planning. If you are living on unemployment benefits you are already doing the same thing as you need the money to last you until the next check. You will need to budget and plan for where and how you spend that money. Obviously, the necessities–such as rent and food–come first and then the luxuries–such as entertainment or ordering out–can come last. In retirement, you will be working to make your savings last. Now, of course, your nest egg should be enough for you to live comfortably in retirement and you should have a plan for how you will spend it. However, there’s nothing wrong with practicing before you get the retirement. This will give you a chance to get an idea regarding what your weaknesses are. Are there certain expenditures you always seem to make but don’t really need? Do you have trouble budgeting? Now is good time to work on those. Times are tough, but that doesn’t mean you can’t use them to your advantage.
We are less than a month away from 2020, which means you need to start thinking about your future retirement account contributions for the upcoming 12 month period. If you have more than one retirement account, this may include deciding when and how much you will contribute to each account. For example, if you have a traditional IRA and plan to max out your contributions, will you be making the contribution in one big lump sum or do you plan to spread that contribution out throughout the year in smaller sums. If you have a retirement account with your employer, do you plan to increase your contribution amount (if you aren’t already maxing out) or do you plan to remain the same? Decisions about how much you will contribute–as well as when you will make the contributions–will be determined by your budget and finances. If, say, you have a goal of paying down a particular debt (i.e. a credit card) or know that you will be making a large purchase over the next 12 months (i.e. a used car for your teenager who just got their license), then you may want to take that into account when deciding when and how much you want to put into your retirement account. Obviously, if you are maxing out your contributions, you can’t increase them, and I’d encourage you to do everything you can to keep up those maximum contributions. However, if you feel that you may need to reign those in a bit, then you can do that too. There’s also the topic of catch-up contributions, if you find yourself of the age when you can do so. If you reach that magic age next year–or did so this past year–you may want to budget that extra catch-up amount into your planning. As always, if you have questions about your contribution amount, you should speak with a certified financial planner or wealth manager.
Many people include traveling as part of their retirement plans. After all, it’s a great time to do so since there are usually no work constraints and more free time. If you plan on traveling during retirement, you should start thinking about where you want to go and how long you want your travels to be. For example, do you want to spend a month somewhere or just a week here and there? How often you travel and how long can have a big impact on costs and your finances. These are things that should be considered while saving for retirement so that you have enough in your nest egg to cover the costs. It’s also important to remember that travel costs can quickly spiral out of control. Travel, especially international travel, can cost thousands of dollars per trip. Furthermore, sudden costs can also add hundreds of dollars to your trips and vacations. Therefore, it’s important that you make efforts to keep yourself on a budget and to keep travel costs under control. You can do so by doing research on where you travel and by having a plan. Such research can give you an idea of what other travelers went through and how to avoid added costs and expenses. It can also be tempting while traveling to splurge. You know, an extra fancy dinner or two or spending extra money on souvenirs for friends and families. Just like so many other things, these purchases can really add up over time. That’s not so say you can’t spend when you travel, but do so intelligently. That means having a budget and making it realistic and building that budget into the overall picture of your retirement savings. I encourage you to travel if that’s what you want to do during retirement, but I also encourage you to think about those travel costs as you save for retirement so that you can ensure you have enough saved up.
The term “budgeting” usually gets lumped together with the term “saving” when people talk about finances. For many, budgeting is a key part of saving because it limits your expenditures by putting the money that you spend under a microscope. However, it may be more helpful to look at budgeting as not so much how you save your money, but rather how you spend it. This includes analyzing where you spend it, how you spend it, and when you spend it. Focusing on your spending can give you a good idea as to what expenses are really important as well as where you can tighten up your spending habits. For example, you may find that there are certain expenses that may not seem like much, but really add up over time. You may decide that you can live without such purchases and thus make an effort not to avoid them. I know, it may seem odd to focus on spending when your budgeting. However, it’s also not good to get all wrapped up in saving while budgeting. And of course, you also don’t want to let budgeting dictate your life, so don’t be afraid to live a little from time to time (and within reason!). So, in summary, when it comes to budgeting focus on your “spending” and don’t get too wrapped up in the “saving” aspects of it. Of course, if you need help with budgeting, you should speak with a certified financial planner or wealth manager.
Many Americans tend to splurge when they get into retirement. After decades of working and saving, they’re reached the promised land and want to make the most of it. That spending usually comes in the form or vacations and luxury items (A new Mercedes anyone?). While it can be nice to treat yourself to a retirement present, you need to be careful about how often you do so and how much you spend, especially during that first year or two of retirement. As I’ve stated in recent blog posts, those first few years of retirement are crucial to setting the tone for the rest of retirement and can have a huge impact on how long your nest egg lasts. This doesn’t mean you have to be super frugal when you first enter retirement, but rather that you should be smart with your money. For example, you know that you want to take a nice (or prolonged) vacation during the first year of retirement, then make that decision a few years in advance. As part of that decision, save money separately for that trip or cut back on certain expenses to free up some extra money for that trip. Also, try to set a realistic budget for the trip so that you don’t overspend. Remember, chances are that once you get to retirement, you won’t have income to make up for any overspending. However, that doesn’t mean you shouldn’t give up on your retirement dreams either, but rather that you should just be smart about them. Budgeting can be a very helpful in making your dreams a reality while also not breaking the bank. If you need help with getting your retirement expenses in order or want to better organize your nest egg so that you can take that trip-of-a-lifetime, then you should speak with a certified financial planner.
Paying down your debts should be an important retirement savings plan. Yes, I know it’s not saving, but it’s vital to your retirement plans. First off, the sooner you pay off your debts, the sooner you can start diverting more money into your retirement accounts. That money going towards debt payments will be much more useful in an IRA or a 401(k). Secondly, your debts won’t go away in retirement and you don’t want them to eat away at your nest egg only you actually get to retirement. Also, keep in mind that debts often involve interest and that the longer it takes you to pay off a debt, the more you will pay. Thus, it’s always a good idea to pay off your debts as soon as you can and to make it a priority during your income-earning years. Even if you aren’t able to pay off all of your debts before retirement, you should make it a goal to pay down as much of it as possible. Yes, you can pay down your debts and save for retirement at the same time. This will take some planning and budgeting. Most likely, you will want to involve a financial planner in such aspects so that they can help you take advantage of your assets or portfolio in paying down debts. A financial planner can also help you discuss budgeting and how be efficient in your saving and paying efforts. So, what are your plans in paying down debt in preparation for retirement?
If you consider yourself a financially responsible individual, then you probably track your expenses. For some that’s done mentally, while others choose to actually track their expenses either with apps on their phone or by writing them down somewhere. Tracking where you spend your money may seem like a tedious endeavor, but it can have a big and helpful impact on your understanding of your finances and what you may need to do to change your spending habits in the future. First off, tracking your purchases can make you more aware of your purchases and expenses–it can bring them to “life” in a sense. Secondly, purchase tracking can give you a good idea as to what you prioritize and consider to be important. Seeing these priorities can help you to make changes in your purchasing habits that better reflect what is truly important to you or to gain a stronger idea as to what your future budgets may need to be. Finally, tracking your expenses can help you to organize your money, build a budget, and become a more savvy consumer. If you take the time to analyze your purchases, you may find that you could be more efficient with your money. For example, if you find that you purchase coffee at a particular coffeehouse and it costs $2.50, but you can also get a cup of coffee at a local convenience store for $1.00, you may want to get in the habit of getting your coffee from the convenience store (yes, I know they may not taste the same). Furthermore, if you are living on a budget so that you can be efficient with your money or build up your nest egg, purchase tracking is most likely a very important part of that process. Keeping track of the money you spend can be vital in retirement as well, especially if you are living on a fixed income and living off your nest egg. Regardless of your reasons for tracking your expenses–or how you do it–what matters is that you get in the habit and keep up with it.
Budgeting is important in saving for retirement, but it can also be very important when you reach retirement. Want to make sure your don’t run out of money? Want to make your nest egg last as long as possible? Budget. Now, this doesn’t mean you have to account for every dollar spent or can’t have any flexibility, but it does mean you should know where your money goes and how your expenditures will affect your overall finances. You should enjoy retirement, but also be smart about how you enjoy it so that you can continue to live a comfortable retirement as long as possible. Therefore, budgeting should be an important part of your retirement and financial plans. There are lots of resources and tips regarding budgeting out there on the internet, so feel free to do some Googling or searching. Also, if you need help regarding how to go about budgeting or tips for making your retirement money last, you can also speak with a certified financial planner.
It won’t be easy, but if you are behind in your retirement savings plans, you can always play catch up. Most likely those efforts will require serious changes to your lifestyle, especially when it comes to your spending habits. You will have to tighten your belt and make some serious decisions about what and where your money is going. How much belt tightening is required will be determined by how far behind you are and what your retirement goals or plans are. When playing catch-up, you will also want to take advantage of catch-up contributions that may kick in. Adding an extra thousand dollars or so a year can go a long way towards beefing up your nest egg over the course of a decade. Aside from saving, you will also want to explore potential avenues for revenue in retirement to supplement your nest egg. This may include pursuing part-time work (if you are capable) as well as investment opportunities (i.e. real estate, businesses, etc.). Lastly–and probably most importantly–you will want to speak with a certified financial planner to discuss ways to catch up and how to effectively meet your retirement goals or, possibly, revise those goals to be a bit more realistic and achievable. Many Americans are nowhere near where they should be when it comes to saving for retirement, so if you are behind, just know that you’re not alone.