From “carpe diem” to “YOLO”, people have long embraced a notion of carefree, in-the-now existence. This philosophy does have some merit — if we’re talking about trying new things and seeing new places.
But living in the moment only gets us so far in matters of limited resources, like money.
In fact, many Americans harbor strong regrets about past spending, especially when it comes to short-term pleasures like pricey clothes, dining out and new cars. In a recent survey, people said they wished they had spent less on all of those items in order to save more, specifically for retirement.
Read: Want to make millennials mad? Talk about saving for retirement
Most of us know how tough it can be to save for the future while trying to juggle expenses and manage debts in the present. It’s estimated that 41% of U.S. households carry some credit card debt, and 44.2 million Americans are living with student loan debt. If you’re struggling to meet your basic financial obligations, it can seem nonsensical or even impossible to focus on something like retirement, which could be decades away for you.
But the thing about financing retirement is that there are no loans and no do-overs. If we can learn anything from those survey respondents — and the potential for invested money to grow over time — it’s that the earlier you start saving, the less challenging it can be to accumulate a nest egg to achieve the lifestyle you want in retirement.
While it’s easy to talk about the importance of saving in the abstract, getting started is another matter. Here are some practical ways to begin paying your future self even while working within financial constraints you might face today.
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First things first
One of the biggest issues people face when trying to save, especially for a faraway goal like retirement, is knowing how to prioritize. Debt payments have due dates, but there is no ‘retirement collector’ stopping by to remind us monthly that we need to put money into our 401(k) accounts.
In conversations with 401(k) participants, I always say that saving enough in your workplace retirement plan to take full advantage of any matching dollars offered by your employer should be your top financial priority. Why? Because it’s like getting paid to save. And not doing so is like leaving money on the table.
Next, it makes sense to pay off high-interest debt, like credit cards and car payments. If you are able to make more than the minimum payments on some of your credit cards, try to do so first with the card that has the highest interest rate. Let me put this in perspective: Imagine you have a $6,000 balance on a credit card that charges 13% interest, and let’s assume you don’t rack up any additional charges on that card. If you make $120 monthly payments, you will incur $2,689 in interest, and it will take you six years to pay off the total balance. If you can manage to make $300 monthly payments, you’ll incur just $800 in interest and pay off the balance in two years. In this scenario, you’d save $1,889 and unburden yourself of that card’s debt four years sooner.
Next, I suggest tackling these monetary priorities in order: creating an emergency fund that can cover your basic expenses for three months, should you ever need it; contributing the maximum amount to your retirement accounts, such as 401(k)s and IRAs; saving for your child[ren]’s education, if applicable (keep in mind, they also have several options for helping to finance college); saving for a down payment on a home, again, if applicable; paying down lower-interest debt; and continuing to invest beyond your retirement accounts.
Read: Get real about retirement: 8 ways people fool themselves
Put a plan in writing
Once you have your priorities sorted, take the time to write them down. Most Americans don’t have a written financial plan, but data show that those who do have one are more likely to exhibit positive investing and saving behaviors. “Planners,” the study found, are more likely to be regular savers and to effectively manage their debt.
Putting pen to paper can help you take stock of your current expenses and show you plainly whether you can cut back on certain categories of your spending, like entertainment and meals at restaurants, to allocate more to specific goals, like building an emergency fund or saving to buy a house.
Get by with a little help
Creating a financial plan is challenging for just about everyone, but fortunately, there is plenty of help available. Many employers offer access to professional, third-party financial advice as part of their 401(k) plans. This can help with a number of retirement-focused objectives like setting an appropriate savings rate, determining where to invest and developing a plan that takes your total financial picture into account.
In addition, many companies offer more holistic financial wellness programs that can help with budgeting, setting goals and saving adequately to meet them.
They say hindsight is 20/20, but most of us recognize when we’re spending money that we’re either contributing to our long-term happiness or success, or meeting a short-term need or desire. Of course, the latter is sometimes unavoidable, but we often splurge on nice-to-haves without fully appreciating the cumulative effects of our discretionary spending. Whether it’s on your own or working with a professional, creating a clear plan can help you see where shortsighted spending might be hindering your long-term plans. Saving for retirement is no easy feat, but saving little by little and over the course of your career is one sound strategy for making it more manageable.
Catherine Golladay is senior vice president for 401(k) participant services and administration with Schwab Retirement Plan Services.
The information contained herein is proprietary to Schwab Retirement Plan Services Inc. (SRPS) and is for informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or investment advice; please consult with your accountant or investment adviser for how this applies to your specific situation. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information provided herein may be subject to change. None of the information contained herein may be copied, assigned, transferred, disclosed, or utilized without the express written approval of SRPS and its affiliates. 0818-8XRN.
