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For most retirees, it can be relatively difficult to survive on a fixed income. That’s why planning as early as now for your retirement would be the best decision you will ever make.
No one enjoys giving up a high-end lifestyle if they are used to it. When you put your post-retirement life into consideration, only then will you realize the essence of leading a more frugal lifestyle.
When you retire, your financial situation is bound to change drastically. There may be a fall in your income and you may opt to adjust your spending patterns just a little as you get older.
This could be because the loans including mortgages have been paid off. With the money you have left, you may be tempted to spend it all at one sitting – after all, what more do you have to worry about?
If you look at it this way, you may be tempted to spend more than you already have.
A well-known rule of thumb dictates that all retirees need approximately 80% of their preretirement income to thrive in case of a drop in the economy. On that note, here are a few tips and strategies to help you save for a frugal retirement:
1. Open an Emergency Fund
To avoid relying on your retirement savings or credit cards, start building an emergency fund as early as now. Life is always unpredictable so you can never be too prepared.
Something unexpected such as a major car fix, home-appliance replacement or repair, etc., may pop up, prompting you to reach out for the most available cash source.
Borrowing can largely be avoided by having some money on standby in a high rate savings account. Emergency funds provide a one-of-a-kind financial buffer that keeps you afloat in times of financial need.
They also rule out the thought of taking out high-interest loans. This matters a lot if you’re currently tasked with obligations such as these at the moment.
How much you should save largely relies on your income as well as your financial circumstances. A rule of thumb worth putting into consideration is to have sufficient cover for you to take care of up to 6 months worth of expenses.
If by unforeseen circumstances, you lose your job, you can use the money in your emergency fund to cover day-to-day necessities. All the while, your lifetime and retirement savings remain intact.
For a start, begin by putting in little amounts. Saving $500 for your emergency fund can be of great help, especially if you need to work your way around numerous financial scrapes.
As for where to put it, a high-yield savings account will work out just fine. Its safety is federally insured up to $250,000. The money you save here will eventually earn interest, and it will be easier to access in case of an emergency.
2. Examine Your Budget
Have you ever asked yourself where all your income went in just a month? At times you don’t have any extra amount to spare for your savings.
You may have a well-paying job that can secure your future retirement plans significantly, but then you realize that your savings are barely enough to sustain your everyday needs.
When you find yourself in a similar situation such as this, don’t panic. All you have to do at this point is rein in on your spending.
When you create a budget and use a checking account as your personal budgeting tool, your savings are bound to skyrocket in the months to come.
A not-so-secret benefit of budgeting is that you’ll be forced to watch what you spend every month.
You may think that living on a budget is an overwhelming task. If you do it right, you’ll find out that you’ve been spending your income wrong all these years.
Here are three simple steps to get you started on budgeting the frugal way:
Know How Much You Earn Every Month
If you’re not sure how much you earn every month, it’s best if you have a clear amount after you’ve paid your taxes, of course. If you’re earning something on the side, include that money as well.
It goes without saying that your income goes as quickly as it comes depending on how well or how badly you spend it – which leads us to the next point.
Determine your expenses
The second step to making a budget is to know how much you spend every month and how much of it fits within your stipulated budget percentages.
Have a full list of all your expenses such as rent, cell phone bill, internet bill and debt payments (car payment, credit card, student loans, etc.)
If possible, incorporate variable expenses such as grocery shopping, entertainment or gas. Put all your expenses on pen and paper or use Tiller to keep track of your monthly spending.
Choose How You’ll Spend the Remainder
If you’ve known the exact amount you make every month and how you spend it, be wise with what’s left of your income.
You’re better off being a month ahead of your expenses to handle the bulk of unforeseen issues that come your way.
As a matter of fact, you should aim to at least have a month’s worth of income on your account to cover you in case of anything. When you have a cushion, you’re assured of making it through tough times.
3. Go Easy on Your Month-Month Spending
It’s only logical that since you’re saving for your retirement, cutting back on some of the things that are weighing your budget down is necessary.
Looking for areas to cut back on doesn’t have to be such a complex issue. Begin by focusing on what is known as the ‘non-essential needs’.
In life, we have needs and wants. Usually, we put our wants ahead of our needs and end up wasting a huge chunk of our income in the process.
Food, shelter, clothing and utilities are among our core needs. Everything else that comes after this is basically a ‘want’.
You’re more likely to find a lot of stuff to cut back on when you focus on the non-essential categories. Cable TV, for example, is one of the areas you need to rule out of your monthly budget.
If you have signed up to a membership or subscription that is not of any value to you, cancel it. From gym memberships to magazine subscriptions, you could end up saving up to $40 each month.
As surprising as it sounds, many of us spend more than this on irrelevant memberships or subscriptions.
When you play your cards well, you can easily deposit $200 every month into your retirement savings account.
Don’t limit yourself to just one way of saving money. There are tons of them. All you have to do is personalize it according to your financial situation.
This may prove useful especially when you’re looking for the most impactful saving areas in your life.
4. Strive to Reach Your Retirement Savings Goal
Being aware of how much you can set aside every month can make it easier for you to map out your savings goal.
For most working-class individuals, saving money each month is easier said than done – though it doesn’t have to be.
Having a goal or two that you seek to achieve by a specific point in your life will give you the motivation you need to focus on your life after retirement.
As you steer clear of splurging your money on temporary pleasures, you need to try as much as you can to draft an easy-to-attain savings goal.
The first thing you need to do when setting your goals is factoring in your needs. In this case, your emergency fund would be your most relevant need.
Include every other essential need in your life and prioritize one more than the others. Otherwise, you may find yourself in a financial mess whereby you’re overworking yourself to reach your goals all at once.
Take note of your finances and find out if your goals are in line with what you earn every month. Based on your monthly paycheck, do all the necessary calculations.
A frugal approach to spending your monthly income will really work out for you at this point. The more you can save, the easier your goal will be to reach.
Finally, do a personal follow-up of how much you’ve been able to achieve so far and how much more you need to hit the savings mark. If you’ve not raised a certain amount of money by a certain time, don’t beat yourself up about it.
As long as you’re intent on achieving your ultimate retirement savings goal, don’t let some minor setbacks and discouragements hold you back.
5. Delay Your Social Security Payment
As you draw closer to your retirement, delaying social security till 70 can exponentially increase your payment in future.
If you’ve had the idea all along that your overall Social Security benefits are going to be set in stone, rule it out at once.
On average, seniors aged sixty-two and over can receive a retirement benefit of $1,413 each month, which is approximately $17,000 every year.
There are a couple of things you can do to add to your Social Security benefits – the major one is collecting your benefits at a delayed time.
An essential reason to wait first before collecting your Social Security is the fact that you’re not quite ready for it yet. If you’re not ready to retire, go out of your way to save more than ever before in the remaining employment years you have left.
A number of seniors require about 70-80 percent of their initial earnings to lead a stress-free life. If you feel that you’re running low on savings, your next best move would be to maximize your Social Security benefits. This can only be achieved by filing them as late as possible.
The well-known phrase ‘good things come only to those who wait’ holds true for those who choose to delay their Social Security payment.
Before you swiftly decide to claim your benefits, put all the cards on the table and look at what you have to gain from taking that bold move.
Think hard and clear about the bigger lifetime income stream you’d be throwing away by not exercising a ton of patience.
6. Explore Different Ways of Increasing Your Monthly Cash Flow
Of course, cutting back on your monthly spending is a wise move to have something extra to put towards retirement.
However, you need to think outside the box by diverting most of your focus on making more rather than saving more.
Once you’ve done your calculations and realize that what you’re left with is not substantial enough, you need to consider adding something on top.
Always remember that successful saving can only be achieved by earning more than you spend. Therefore, if you’ve already come up with a saving strategy, come up with an even better strategy to increase your income.
For starters, ask your boss for a raise or better yet, apply for a more well-paying job with worthwhile benefits.
Alternatively, you can pick up extra shifts or earn some extra cash filling out online surveys and other online money-making ventures at home depending on how flexible your schedule is.
Other Stuff You Can Try Out:
- Affiliate marketing
- Take your neighbors’ dogs out for a walk
- Deliver fast-food with Uber Eats
- Open your own high-yield savings account
- Download and install the Nielsen App (Bonus $50)
- At Instacart, become a personal grocery shopper
- Make an extra $100 by inviting 3 friends to Ibotta
Based on your skill set, you may also want to look into starting your own freelancing business. For instance, you can put your crafts up for sale on Etsy as you also write some quality blog posts and freelance articles.
From doing these alone, you stand a huge chance of making some impressive additional income.
Throughout your employment life, you’re sure to land yourself a work bonus, income tax refund or other windfalls that can be considered ‘free income.’
Try as hard as you can not to spend any free income that comes your way. Any extra buck that goes into your retirement fund is worth something.
Also, part-time jobs can really come in handy even after your retirement. The additional income flow will keep your retirement account active as you also feel connected and stay active through social interactions with fellow retirees.
7. Avoid Using Your Credit Cards and Pay Off Your Debts
Want to enjoy your retirement life? Strive hard to make your fantasy debt-free life into a reality right now.
Most of us think that we either need to pay off debt or save for retirement – never both. If you can budget your income wisely, there’s no reason why doing both isn’t a possibility.
If you can begin reducing your high-interest credit card debt as early as now, you’ll have even more money to deposit into your retirement fund.
Also, if you can manage to pay off your debts early enough, you’ll never have to worry about catering for debt payments ever again in your retirement.
Among the best ways to clear your debt is to cut your daily/monthly credit card usage. Most people find it more convenient to tap and swipe our credit cards than it is to count a few dollars from our wallets or purses.
Keep in mind that there are additional fees and interest charges you have to account for in the near future.
Therefore, to be on the safe side, stick to cash payments exclusively. Consequently, the amount of money you can set aside for your retirement can turn out to be even more than you expected. There are a few debt repayment strategies you can try to get you started on your debt-repayment journey.
8. Seek Expert Assistance
If you’re not really sure of how to go about saving for retirement individually, it wouldn’t hurt to get in touch with a credit counselor.
Any non-profit credit counsellor within your area would be more than happy to review your finances with you and recommend a plan to help you become debt-free as early as now.
The sooner you pay off your debt, the sooner you can start thinking about saving for retirement.
Based on your financial situation, your credit counsellor will present you with a wide range of personalized options.
Aside from having to choose which plan you’ll be comfortable with, you will also get a well thought of plan that will ensure you pay off your debt swiftly.
Credit counsellors’ main priority is to ensure that your journey to financial freedom comes to a successful end.
To achieve this, most of them will provide a few or a lot of money management and budgeting tips. These are sure to go a long way in getting your finances on track.
When you finally get a hold of your finances and you begin putting something aside for your retirement, don’t be in a rush to let go of your financial planner.
Assuming you have a ready saving plan, a financial planner will assist in preparing you for what lies ahead. He/she will walk you through various modes of retirement savings, including a Registered Retirement Savings Plan or a Tax-Free Savings Account.
9. Don’t Think Twice About Switching Jobs
If the next job offers a retirement plan as an integral part of the package, then go for it. Most companies will provide a retirement matching plan.
In this plan, your retirement contributions will be matched up to a specific amount, which will be deducted directly from your paycheque.
If your company already offers this kind of retirement plan, ensure that you take part in it, because you’re basically signing up to free money.
If it doesn’t, don’t be sure to open up your own retirement savings account. Start your savings account and automate your payments in such a way that they will coincide with the days you receive your payment.
How much you contribute towards your plan matters a great deal. Also, without you noticing it, you’re actually nurturing some good financial habits.
The moment you begin building your nest egg, ensure your money remains untouched until a few years from now when you finally get into retirement.
The worst thing you can ever do is spending it before it has accomplished its intended purpose. You’ll be hit with a withdrawal penalty and the compound interest that you build up over time won’t be as significant.
10. Automate Deposits Into Your Retirement Savings
Last but not least, one of the best (and easiest) saving strategies for retiring the frugal way would be to link your retirement savings with automated deposits.
When you have established a clear budget and you have a rough idea of how much you can set aside for your retirement every month, you can automate a certain payment for that specific amount. This way, making a contribution won’t slip your mind.
Another advantage of automating payments is that your retirement fund receives your deposit money directly without a chance of you having to spend it in any way.
In most cases, you won’t even realize that there’s a certain amount of money missing from your account.
Kick-Start your Retirement Plan Today
The mere thought of planning your retirement as early as now may seem highly unlikely, especially if you’re struggling to cater for your present needs.
In the real world, you would ideally begin saving for your retirement at an earlier point in your life to have ample time for your financial seed to germinate.
The bigger your retirement fund, the more the wider your options for saving for your golden years. For now, think long and hard about how you would want your retirement to be, and how far you’re willing to go to make it a reality.
Write down your goals along with the amount of money you’ll need, and let the savings begin.
If you’ve not really had a reason to save, your forthcoming retirement is reason enough. With the tips mentioned above, you now have a better understanding of how to save for retirement, even on a fixed income.