Start now. Start small. Keep it simple. Keep it going.
Depending on the research study you read, as many as 70% of Americans aren’t saving enough for retirement, and upwards of 75% are living paycheck to paycheck. This means that many won’t be able to retire when they expect, and families facing an emergency – like an accident or job loss – will have to make dramatic changes to keep the lights on. While many choose to ignore the warning signs, as an experienced CPA, I see situations like this all the time.
Saving money is like losing weight
The problem that many people have is they are overwhelmed and don’t know where to start, so they never start. Saving money, like losing weight, requires a lifestyle change, but not necessarily an overhaul. Set a small and reasonable goal, achieve it, adjust if needed, and keep going. Whether saving or slimming, results are measured over the long haul. You’ll step on the scale, or open the account statement, and see small improvements turn into big success over time.
Whether you make $50K or $500K+, odds are that many of you should be spending less and saving more. Here are a few simple tips that will help you increase savings and reduce debt over time:
- Max out 401K contributions. Put in at least put in as much as your company matches. Don’t think about it. Just do it. You’ll get free money from your employer, and you won’t miss your pre-tax contribution.
- Don’t borrow from your retirement account. This is for retirement, so don’t treat it like a line of credit. Too many people fail to pay the loans back, incurring tax penalties while reducing retirement savings – a double whammy.
- Create an emergency fund. For those of you who read my HOA articles, this is like your own personal reserve account. Start small, saving even just $25 per month in a separate account until you have 2 months’ salary put away for emergencies.
- Understand your cash flow. Take a few minutes and make a chart, listing your monthly post-tax salary, household expenses (utilities, food, and clothing), and other expenses (cash, entertainment, etc.). If revenue isn’t higher than expenses, start cutting expenses, one mochaccino at a time.
Not all debt is bad
Most of us have home or car loans, which allow us to make large purchases today and pay in affordable monthly chunks. We use credit cards as a cash alternative, paying the balance off each month while earning a couple of frequent flier miles along the way. This type of debt is normal and perfectly acceptable.
Debt becomes a problem when we use it to finance a lifestyle that is beyond our means. Debt becomes a disease – just like gambling, and about as risky. We try to keep up with the Jones’, even though the Jones’ may also have financial challenges. Mr. Jones can be bankrupt and still drive a Mercedes.
Unlike the government, you can’t print more money
If you’re worried about your saving or spending habits, please give Bach, James, Mansour & Company a call. We would be happy to meet, discuss your specific financial situation, and help you set achievable goals for improving results. Not that there’s anything wrong with working at Walmart, but let’s work together to make that a retirement option rather than a retirement requirement.
Neal Bach, CPA