Category Archives: Money

3 Myths About Saving for Retirement

Unfortunately, there’s a lot of confusion surrounding the topic of saving for retirement. You’d think it’d be something we learn about in school, but most of us just gather bits and pieces of knowledge from parents, coworkers, relatives, or friends. Although almost everyone knows that saving for retirement is important, many people don’t have their facts straight.

Today, I want to break down three of the most common myths about saving for retirement. As a society, we need to do better about educating young people (and old people) about the value of saving early and saving correctly.

Myth #1: It’s Not Worth Saving If You Make Less Than $20/Hour

I can’t count the number of people who’ve told me that they aren’t going to save money for retirement until they’re making at least $20 an hour at a full-time job. So many people graduate from college and start a part-time gig that doesn’t pay well, and as a result, they assume that they’re not ready to save for retirement.

That’s simply not true. The earlier you start saving for retirement, the better, no matter how much money you make. Think about it this way. If you saved just $1,000 a year for retirement (about $83 a month) for three years after college, that money could be worth over $70 grand by the time you retire!

Every little contribution counts, so start now regardless of how high or low your salary is. Don’t wait until it’s comfortable to start saving. Trust me, the sacrifice will be worth it in the years to come.

Myth #2: You Can Only Save If Your Job Offers a 401K

Many people don’t even contemplate the idea of saving for retirement until they see a 401K listed in one of their job benefits. In truth, you can start saving for retirement much sooner, with or without a full-time job.

Even if you don’t have access to an employer provided 401K, you can open an IRA with a bank and begin socking away money for the future. You won’t get a company match, but you’ll get the same tax benefits and compound interest. You are never too young to start saving; I’d even recommend beginning your contributions at age 18. It’s not difficult to open an account, and you can easily learn to invest with something like the Couch Potato Method.

Myth #3: I Need a Million Dollars to Retire

Oh boy, don’t we wish this one was true. Reaching a million dollars in your 401K or IRA isn’t the end-all-be-all of retirement saving. At one point in time, a million could take you a long way after you quit working. Now, that isn’t necessarily true. People are living longer and inflation is changing the value of our dollar.

Experts estimate that depending on when you retire, you likely need 10 to 12 times the amount of your current income. That means that if you and your partner are used to living on $150K a year, you’ll likely want to have $1.5 million or more in the bank before you retire.

If you’re worried that you’re not aiming to save enough, reach out to a financial expert for advice. Don’t just assume that achieving the “millionaire” status will mean you can lead a cushy life once you stop working full-time.

In Conclusion

Don’t believe everything other people tell you about saving for retirement (including me!). Do your own research. Make your own calculations. Whatever you do, don’t leave the task until your 30s or 40s. The earlier you can start, the less you’ll have to worry when you’re old and gray.

4 Things You Might Be Forgetting to Plan for In Your Annual Budget

There are a million things to think about it when it comes to planning your yearly spending. From groceries to rent and electricity, it can be difficult to think of all the expenses you need to anticipate.

To help you cover all of your bases, I’ve come up with five different categories that you might have accidentally skipped in your planning session last January. These are expenses that almost everyone encounters, but many of us forget to plan for them and are surprised when they pop up. Don’t let these things be the tipping scale that ruins your carefully planned budget.

1. Your Car Maintenance and Registration

If you drive a car, then budgeting for vehicle maintenance is a must. According to CAA, just your regular car maintenance can be as much as $800 a year, and that’s assuming you don’t have any serious problems to address. Heaven forbid you to need to change your tires or buy new brakes.

Consider setting aside roughly $50 a month in a separate savings fund marked “car expenses.” That way, when it’s time for your oil change or any other expense, you’ll have a nice nest egg to draw from to cover the cost if you don’t have room for it in that month’s budget.

Also, remember that you’ll need to have your car inspected and registered every year you own it. That’s about $100 extra dollars you’ll fork over during at least one month. Either schedule that payment in your budget ahead of time so you’re not taken by surprise or add a little bit extra to your car expenses savings account.

2. Annual Fees From Credit Cards and Subscriptions

Depending on which credit cards you use and how many you have, you might need to pay hundreds of dollars in annual fees. That doesn’t mean the cards aren’t worth it, but you certainly need to plan to accommodate those fees ahead of time.

In that same vein, think about the various memberships and subscriptions you’re a part of. If you only pay on a yearly basis, it’s easy to forget about the expense until it pops up on your radar. No matter how big or small the fee may be, make sure it has a place in your annual budget so that you can be prepared.

3. Birthday, Wedding, and Christmas Gifts

Did you know that, during the holiday season, the average American spends $700 on gifts and goodies? If you haven’t made room for that in your budget, you can easily go overboard buying presents for your friends and loved ones. Many people wind up facing credit card debt in January after the holiday season ends, and that’s a terrible way to start the new year.

My suggestion is to do the same thing as you do with your car expenses: create a savings account that you contribute to throughout the year. If you put about $50 away every month, by the time December rolls around, you’ll have more than enough to cover most of your holiday expenses.

The holiday season isn’t the only gift-giving occasion to plan for. Think about family birthdays, weddings you’ll attend, and any other big presents you’ll need to purchase. The more you can prepare, the less dramatic those expenses will seem when they roll around.

4. Tolls and Gas

Depending on where you live, you might spend a substantial amount of money on toll roads. Those small trips may seem insignificant, but over the course of a year, the small fees can add up. Look at your toll account from last year to see how much you spent and fit that amount into your budget for this year.

According to the US Energy Information Administration, the average American resident can spend anywhere from $400 on gas annually to more than $1,300. It all depends on where you live, so although I can’t tell you how much you need to budget for gas, I can tell you that you should. Figure out what your monthly average is and try to pay attention to how accurate that has been this year.

In Summary

As you can see, many of these things are the expenses we think very little of. Gifts for friends? Just swipe the credit card. Toll road fees? We barely even acknowledge those. Vehicle expenses? Just hope the car keeps running.

Over time, these costs can all add up, throwing your budget off course. Try to incorporate them in your budget ahead of time so that nothing takes you by surprise. After all, you’d rather be over-prepared than under-prepared.

Why Prioritizing Is Infinitely More Powerful Than Budgeting

When people ask me how to be smarter with money, I often tell them to track every dime, nickel, and penny. That response is typically greeted with a groan and an eye-roll. Why? It’s not fun, and it doesn’t magically make money appear in your pocket.

What people don’t understand about “budgeting” is that it isn’t just about understanding where your money goes and deciding how much you can spend on drinks, food, or clothing. Budgeting is a boring term that scares people away, so let’s call it what it really is: prioritizing. It’s the process of deciding what’s important to you and what’s not.

Today, I want to show you why prioritizing is the number one thing you can do to stretch your dollar and feel like you have money to save.

Let’s Talk About Where Your Money Is Going

If you’re like most Americans, your top spending categories are housing, transportation, and food. If this is you, then I have good news! There’s nothing wrong with that. Most of us want to live in a pretty house and eat out once a week or so. We want to drive nice cars and avoid walking to work every day. That’s all very understandable.

However, let’s talk about where most Americans’ money is not going. According to the Stanford Center on Longevity’s report, most of us aren’t saving at levels that will allow us to retire fully at age 65 in our current standard of living. Yikes.

Let’s say I walked up to you on the street and asked, “Which is more important to you: having money to live on when you’re old or living in the nicest house you can afford right now?” How would you answer? Would you prioritize your comfort now or later?

This is what I mean when I say that budgeting is prioritizing. Every dollar you spend is a dollar that’s not going toward something else. If you’re low on vacation funds, where is that money going? If you can’t afford holiday gifts, can you think of other things you’ve prioritized instead?

This might sound harsh, but in my experience, people fail to realize that choosing what is important to you is the most essential, influential part of building your budget.

How to Prioritize When You’re Living Paycheck-to-Paycheck

If you live paycheck-to-paycheck, you’re certainly not alone. Roughly 78 percent of American workers do. Therefore, it would be extremely irresponsible of me to imply that saving money is simply a matter of prioritization. For many of us, saving is somewhat impossible.

However, I would urge each and every one of you to take a hard look at where your spending is going. When I say hard, I mean hard. This should make you feel uncomfortable.

Did you know that over a 40-year period, the average American spends more than $22,000 on alcoholic beverages? Think about how much that amount could be worth if you had invested just HALF ($11,000) of it over the course of 40 years. That’s an extra $275 invested per year, and at an interest rate of three percent over four decades, it would be worth double in an IRA.

What about your housing? The rule of thumb is to never spend more than 30 percent of your budget on housing, and yet most Americans spend at least 37 percent. That seven percent may seem tiny, but think about what seven percent of your salary is. If you make $40,000, that’s almost an extra three grand more than what’s recommended.

My point is this: cutting costs and prioritizing saving in your budget doesn’t have to be huge. Can you drink half as many alcoholic drinks as you do? Cut down on your housing expenses by seven percent?

Every little bit of meaningful effort counts. Decide what is important to you, then act on that, not on what people tell you to budget.