Juggling financial priorities
How do you keep retirement savings on track when you have many day-to-day expenses? Consider these suggestions.
At almost every point in your life, you'll grapple with competing financial demands — the furnace breaks down, the car needs new tires, taxes are due. The trick is not to let life's inevitable expenses get in the way of saving for retirement.
"What you're doing is building a foundation for your future," says Robert Payne, senior financial services representative with the Principal Financial Group® in Greensboro, NC. "And the foundation should include saving for retirement, creating an emergency fund and getting out of debt."
Prioritize your financial demands
Build an emergency fund. To prepare for the unexpected, start by accumulating at least one month's income in your account, then work toward a goal of keeping at least six months' worth of living expenses readily available. "Also consider adding life insurance and disability insurance to cover you if something bad happens," adds Payne.
Payne suggests earmarking 10 percent of your paycheck for your emergency fund until it's sufficiently funded, adding more as your pay and living expenses increase. And whenever you tap the fund, make rebuilding it a priority.
Keep saving for retirement. Funding retirement is every bit as critical as building an emergency fund — and the most common mistake people make is waiting to save. "Few things in life have the impact of compound earnings," says Payne. The longer your funds have to grow, the more you potentially may have available to you in retirement, he adds.
Consider setting a goal to ultimately contribute the maximum amount to your organization's retirement plan – or at least the minimum necessary to receive the full employer matching contribution if that's available. And if you've fallen behind and are age 50 or older, look into making catch-up contributions to the retirement plan (if an available feature) or an Individual Retirement Account (IRA).*
Start saving as early as possible, and contributions to your account will be automatically payroll deducted. "Continue to increase your contribution each year over time," suggests Jeri D'Lugin, JD, CLU, AEP, senior financial services representative with The Principal® and Payne's business partner. "Most people won't notice that big of an impact on their budget, but it has the potential to add up."
Reduce high-cost debt. You'll probably have car and home payments for most of your life, but you can eliminate credit card and other high-interest debt. Whenever possible, pay more than the minimum due to pay off this debt quicker. "Getting out of debt gives you a cushion," says Payne. "It gives you the choice to purchase rather than to finance."
Budget for future expenses. Once your emergency fund and plan for retirement are on track, set something aside each month for foreseeable expenses such as a new roof or a special vacation. One way to "find" that extra money: Whenever you pay off a car or other installment loan, continue putting the same monthly amount into a savings account so you'll be ready for the next big expense.
Use our calculators to determine how much money you'll save by creating a sound budget, postponing purchases, or paying off your credit card balances early.
Contribute to a college fund. You may choose to open an education savings plan or a Roth IRA to save for your children's or grandchildren's college costs. But always put your own savings first, says Payne: A student can often find financial aid for college, but there are no loans available to pay for your retirement expenses. "Keep in mind that funds in a retirement plan won't count toward your student's financial need," he adds. "And that may make more funding sources available for college."
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