Saving for retirement can be difficult. You end up saving for decades, other expenses come up, you need to meet other savings goals, or you think that you’ll “get around to it.” It’s easy to put saving for retirement on the back burner. However, there are several money habits that could be hurting your retirement savings. Continue reading to learn what money habits to avoid.
1. Spending Too Much Now By Not Using A Budget
With retirement being decades away, it's easy to keep it out of sight, out of mind. It can also be difficult to prioritize saving for retirement when you are focused on paying bills and reaching your short-term financial goals. However, there are ways to make space in your spending to be able to contribute to your retirement. A few ways to cut back your spending is to cook more at home instead of going out to eat, canceling subscriptions that you don’t often use, curb any shopping habits you have, or choosing a cheaper cell phone plan.
Having a budget can also make it easier to contribute to your retirement each month. With a budget, you can keep track of your spending and have every dollar accounted for. You can incorporate your contributions as an expense to keep it a priority.
2. Procrastinating Saving
You may be waiting until you are making more money, you have decreased your debt, or after an event to contribute to retirement, but this could end up with you continually putting it off. Putting off saving, especially early on in your adult life, can dramatically affect your retirement savings. By saving early on, you can take advantage of compound interest. Even when money is tight, making a small contribution is better than not making a contribution at all.
3. Only Contributing To Pre-Tax Accounts
You may have access to a 401(k) account through your employer that you contribute to for retirement with pre-tax dollars. Pre-tax contribution accounts are extremely helpful since they lower your taxable income in the year of contribution. However, after-tax contributions can also be tax-beneficial. Utilizing an account such as a Roth IRA allows you to withdraw funds tax-free once you're in retirement since you paid taxes on the money you contributed.* This is a great option if you believe your income will be higher in retirement than it is currently.
4. Having To Borrow From Retirement Savings
Times can get tough financially and you may have to dip into savings to get yourself out of a bind. If you borrow from your retirement savings once, you can be okay. But if you continue to rely on your retirement savings to get you out of tough financial situations, you can severely make your retirement savings plan off track.
Instead, build an emergency fund to use in the event of unexpected costs. A great rule of thumb is to save up 3 to 6 months worth of expenses for your emergency fund and to keep it in an accessible account so you can easily use it when needed.
5. Underestimating Your Nest Egg Goal
To properly save for retirement, you need to understand the goal you are reaching for. If you underestimate the amount you need saved, you can be severely off track to reach your nest egg goal. You also need to account for inflation and healthcare costs in retirement. To get a better estimate, you can use an online retirement calculator to give you an amount or use an experienced financial advisor to calculate the amount for you.
Several money habits can easily affect all aspects of your finances, especially your retirement savings. If you are looking for professional advice on saving for retirement or overall guidance for financial planning, LifeBridge Financial is here to help! Schedule a consultation with us today.
*Assuming your distributions are “qualified” per the IRS’ rules.