According to the National Institute on Retirement, more than two-thirds of Americans believe that it’s impossible for the average worker to save enough for a more secure retirement.1 With the economic disruption caused by the pandemic, those who’d previously felt confident in their retirement prospects have now had their plans upended by early retirement or needing to unexpectedly draw down their savings. If you feel unsure about your ability to retire comfortably, budgeting can be a tremendously helpful tool.
Here are some easy ways to do it:
This “old-faithful” method breaks down expenses into three different buckets: necessities, discretionary spending, and savings. According to the 50/30/20 budget, 50% of each month’s income should go to cover necessities, 30% goes to discretionary (or non-essential), and 20% goes into savings.
With zero-sum budgeting, you make a plan for every single dollar so that at the end of the month, there’s no money left unaccounted for in your accounts. However, that doesn’t mean splurging on a shopping spree once your basics are taken care of. With all your expenses covered, a wise choice would be to allocate that money to savings. Doing so at the beginning of the month means you are less likely to see it as “extra money” that you could spend on other things.
Budgeting Closer to Retirement
The idea that you should be saving 20% of your income presupposes that you’ve begun saving for retirement early. However, many Americans get a late start on saving, and many aren’t able to put away that much every month. As you get closer to retirement, you may want to aim for saving a higher percentage of your retirement accounts. In fact, your tax-advantaged retirement accounts increase their contribution limits for those 50 and older to encourage this behavior. If you’re struggling to save an adequate amount, consider places you can cut back on spending. Tightening your belt now can go a long way toward reducing financial stress down the road when you’re no longer working. Alternatively, being honest about your budget can help you determine whether you’ll need to keep a part-time job as you move into retirement.
Sticking to a budget can feel restrictive at first, but if you stay disciplined over time, it can also be your ticket to long-term financial stability. By cutting back costs here & there and contributing as much as you can to savings, you’ll be helping ensure that you’re ready to end or scale down your working day. Plus, you’ll have the savings and the discipline you need for a more secure retirement.
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