This may not be the case for everyone, but once I set my retirement savings goal I have been laser focused on finding ways to achieve it. I would compare it to picking up a new hobby and trying to learn as much as possible in a short time. Instead of buying books and equipment for that hobby, I am reducing spending, increasing earnings, and constantly tweaking retirement savings contributions to my 403b, Roth IRA, Traditional IRA, etc.
While these are not ground breaking new ideas that will revolutionize personal finance as we know it, here is how I have found ways to save more for my early retirement. It may not work for everyone, but I have increased my retirement savings rate by more than 100% in the last year using these tips. I promise not to specifically mention buying fewer lattes at Starbucks as a great savings opportunity (though you could at least limit yourself to going there x times per month or making it at home).
- Look at and evaluate your spending over a 90 day or longer time frame. This is also called a budget and it should be used by everyone! If you do not do this regularly, you may be surprised at your grocery spending, gas consumption, or other categories. Now that you see it, try to make an incremental change (or a couple of them) by setting a small goal to reduce some of those categories. You can then divert those funds into retirement accounts by increasing your 401k contribution by 1%. I did this in early 2014 by reducing purchases on Amazon Prime for things I didn’t really need.
- I really recommend using Mint or Personal Capital. I use them to track spending, watch for fraud, and monitor my investment accounts. It is also helpful when trying to maximize rewards across multiple credit card accounts. I like being able to watch my debt go down and my net worth go up over time.
- Constantly monitor payroll with-holdings. This includes federal and state tax allowances and retirement contributions. Don’t loan the government money when you could be reducing your taxes and end up paying less taxes by pulling up that refund into tax advantaged retirement accounts. There is a good calculator on the IRS site you can use here.
- This should probably be #1, but automate savings. If it can’t come out of your paycheck, set up an auto withdrawal from your checking account and line it up with paydays. This gets mentioned a lot and for good reason: IT WORKS.
- Try to find substitutes for some of your spending habits.
- We used to order pizza several times a month at $22 or so each time. Now we order once a month (maybe twice occasionally).
- I requested some vegetarian options for dinner. We now do veggie stir fry or spaghetti a couple of times a month. Cutting out some meat is good for your wallet (and probably your waistline and health).
- A non-food example is looking around the house before I run to Lowe’s to buy a new tool, gadget, or part. Often times we have something that will work just as well (or that I already bought and forgot I had).
- Find free activities versus paying for them. Using Amazon Prime for a free movie and making popcorn at home costs about $.50. Going to the movies seems to cost about $30 these days. We still go to movies, but mostly wait and pay $1.20 at Redbox (which just announced it was increasing prices).
- Time purchases when you have a discount code, coupon, etc. You can save a lot by planning ahead. You can also decide NOT to make a purchase after taking your time and evaluating the options.
- Use travel/reward credit cards for purchases (but remember to pay off balances every month). Not only do you end up getting 1-3% cash back, you make it easier to track spending by having the information electronically.
- Try to combine or utilize work benefits whenever possible.
- If you can get a cell phone from work, do it! Some employers can get you a 15-25% discount of cell service, too.
- Adding vacation time on to work trips is a great way to travel on the cheap
- Go to work events like picnics, awards, socials, etc. Usually free drinks and free food. When they are kid friendly it’s really a great way to stretch your budget
- Increase your income. Sounds easy right? Photography gigs, eBay stores, part-time job, asking for Overtime, etc. can all be ways to bring in more income. I recently applied to be a secret shopper to bring in a few extra bucks each month. We have also had two garage sales this year. Those in trades like carpenters and plumbers can always do side work, but so can people that do marketing, accounting, etc. Use your skills!
- I should add that working towards a promotion or checking the job market are both great options as well. Changing jobs can sometimes result in large pay increases and that is an opportunity to make dramatic changes to retirement savings without sacrifice.
- Don’t treat found money like fun money. Bonuses, tax refunds, unexpected refunds, birthday gifts, etc should be used to pay off credit card, student loan, or other personal debt, put into retirement savings, or used as cash reserves (emergency fund) in that order. If you are in great shape in those areas, then you can use it for something frivolous. If you are like me, even then you will allocate some of it to Prosper or a taxable trading account as part of the retirement plan.
- An inheritance would also fall into this category, but should be treated as an incredible opportunity to erase lingering debt and shore up retirement savings. Many people buy a jet ski, new car, or an expensive vacation instead of using it wisely. Maybe a small portion can be used for fun, but the use of an inheritance or major financial windfall should be planned out to the penny. College funds, home repairs, and medical bills would be a much better use than a jet ski for sure. Maybe it’s not as exciting, but it sure would help me sleep at night to eliminate what would probably be a source of stress in my life.
- Make conscious decisions about money. Saving more for retirement is somewhat of a lifestyle change for many people. It’s more than spending less and saving more. Making well informed choices like waiting to buy something until you have the cash to avoid credit card interest charges or avoiding adding debt (even at 0%) because it “fits” into you monthly budget is a challenge. The American culture has us all so wrapped up in advertisements and consumerism that we sometimes forget about our long term goals.
- I see a lot of denial and people just ignoring money issues. They will not go away if you do that! There are some incredible stories out there of people doing a turnaround and overcoming what seems to be insurmountable debt (those are a different kind of finance blog though). You can’t make conscious decisions about money if your spouse doesn’t know how much debt you have as a family or if you don’t consult each other on major purchases. Talking about it, making a plan, and then working hard to make those changes is important.
Retirement Savings- Wrapping It All Up
Don’t get me wrong, I still spend money. I could never match what many have done in order to retire early. If I was more dedicated, I would have already eliminated drinking Dr Pepper. It costs too much money and it’s not good for me. My love of golf is already in danger as well. I have a great set of new Taylor Made irons purchased a little under 3 years ago. I have used them less than 5 times to date. I still want to play, but right now don’t have time and golf can be an expensive past time!
I hope this list helps. Many people create these lists and they are often the ‘latte factor’ over and over again. While I may have included some of that, I am definitely writing based on my experience and not just because it was a writing gig I was paid to do.