According to a recent study by GoBankingRates, 69% of adults do have less than a thousand dollars in the bank, at which 34% said they have no savings whatsoever. Things look even more bleak in future, at which a study by the National Bureau of Economic Research show that nearly half of American retirees pass away with less than $10,000 in savings, even more than half for retirees that are single. In order to avoid any hardship during the period when you are supposed to be living life to its fullest in retirement, it is important to build your nest egg now.
Be Prepared for an Emergency
Since statistically both working adults and retirees do not have the available funds to cover emergencies, it will either wipe out what they do have saved for living expenses, or it will be put on a credit card and add to their accumulating debt. At least working adults will have the ability to gain further income to try and replace savings, retirees do not have that benefit, which means it is all the more reason to build up available funds as soon as possible. Experts have said that it is wise to have between three and six months’ worth of expenses in an account for easy access in case it is needed, although some argue that you do not want to have too much cash sitting there as it will not grow as it would in a brokerage account, so some say it should be closer to three months expenses. You never know when you need car repair, home improvement, or even a job loss that you will need available funds to cover until you can gain new employment.
Pay Off Debts
Now that you have a fund built up in case of emergencies, you will not have to worry about your money coming in having to go towards unexpected expenses and the priority should be to pay off outstanding debts. Now that can be broad, from credit cards, to a mortgage, and I understand that can be more difficult to pay off a mortgage that can be in the hundreds of thousands, but that doesn’t mean a plan can’t be in place. Whether you have a credit card balance that you are carrying over every month, an auto loan, or a home loan, you are wasting money in interest, plain and simple, that could be better used elsewhere, more importantly, savings. Making the minimum payment will satisfy interest and do little to bring down the principal balance, so large payment should start to be made to get the balance taken down more quickly. When it comes to a mortgage, you can look at a 15-year fixed instead of a 30-year. The payment will be higher, but you are cutting the terms in half, which is a worthy sacrifice.
Focus on Savings
With emergency and debt worries out of the way, the prime focus should be savings. During the debt payoff period, you should still be contributing to saving, and as you free up money you can contribute further. An employer-sponsored 401(k) accounts are the most popular to contribute to, with the amount varying as to how much you can afford, but if your company offers matching, you should at least contribute the maximum of the matching, as otherwise that could be missing out of thousands of dollars a year. If your company matches 6% of your salary, and that comes to $5,000, you will have $10,000 in there each year, and then every year you can contribute additional, or look to other options such as a Roth IRA, that you can contribute to now and you will not be taxed when you withdraw when you are ready to retire, which could be huge, especially if you expect your income to be higher now compared to what you will receive during retirement.
I understand between your normal monthly bills that you pay, plus food, gas, saving, and a little spending money, it probably doesn’t leave you with anything left. It will take plenty of discipline, but if you can cut corners in some areas such as going out to eat as much, sacrificing not having cable, or curbing the shopping trips, every dollar you free up and put towards savings will definitely benefit you more in the future, growing over the next few decades, compared to spending on impulse purchases now. It is an adjustment to a new way of life, but it is worth it for your financial freedom later.