Everyone knows the feeling: Rushing toward the end of the month and hoping the bills get paid.
Unless you’re financially independent, it’s a normal pattern even at high income levels. Most Americans aren’t sure how they would pay for a major health crisis or home repair, and being a high income earner isn’t any better.
That’s because we tend to spend more as we make more. New job, bigger house. Get a raise, lease a new car.
Meanwhile, all of the normal cost-of-living stuff — food, electricity, clothing — quietly rises in price due to inflation. We’ve enjoyed very low inflation for some time, but there’s no guarantee that will continue.
You know you need to save more, but how? Start by listing every one of your monthly bills, including outstanding debts.
That includes automotive payments, house payments, credit cards, utilities, educational costs (such as school tuition) and everyday spending on food and entertainment.
Now add in your estimated taxes for the year, on your income, your property and investments.
Numbers in hand, there are a few ways to start to save more for your retirement, but let’s start on what cannot be avoided.
You will pay income taxes. The best way to lower that bill is to lower your taxable income by saving more into a tax-deferred retirement plan, such as an IRA or 401(k).
You can’t really avoid eating. Not going out to the movies or spending on entertainment is something you can cut back on, but it’s usually not sustainable.
That leaves revolving debt, such as credit cards, and things like home and car payments.
Let’s assume for the moment you decide to focus on credit cards first. Good plan. Cut back on eating out and entertainment for a while and get your credit card debt out of the way as fast as you can. High interest debt is a killer.
If that works out, go ahead and restore your food and fun budget but reconsider how to kill one big debt in your budget and convert that money into savings.
If you have a car payment, how big is it? Is it two payments? Is it a lease? The typical luxury car lease is easily $500 a month, not counting insurance, repairs and gas.
Consider downsizing one car at a time, and banking the difference into your retirement account. If you have only one car, ditch the lease and buy a used car for cash. Aim to be debt-free on your vehicle.
Now look at your home. Chances are, you don’t want to move. But if a move happens because of a relocation or downsizing, make sure to “right size” your real estate commitment and bank the difference.
You can put yourself on track to save more and a better retirement, just by making a few key decisions and then sticking to a plan.