New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money? This concern may be legitimate. Some households “live it up” and spend more than they anticipate as retirement starts to unfold. In 10 or 20 years, though, they may not spend nearly as much.
By The Numbers
The initial stage of retirement can be expensive. The Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by pre-retirees, Americans age 55-64. That figure drops to $45,221 for households headed by people age 65 and older.1
When retirees are well into their 70s, spending often decreases. The Government Accountability Office data shows that people age 75-79 spend 41% less on average than people in their peak spending years (which usually occur in the late 40s).
Some suggest that retirement spending is best depicted by a U-shaped graph — It rises, then falls, then increases quickly due to medical expenses.
But in a 2017 study, the investment firm BlackRock found that retiree spending declined very slightly over time. Also, medical expenses only spiked for a small percentage of retirees in the last two years of their lives.2
What’s the best course for you? Your spending pattern will depend on your personal choices as you enter retirement. A carefully designed strategy can help you be prepared and enjoy your retirement years.
1. Bureau of Labor Statistics, 2019
2. CBSnews December 26, 2017
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.
The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.
I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.
Now you’re ready to begin:
Go through all of your bills, and pay anything that is due within the next week.
If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
Print a copy of the chart “Paying Down My Debts” or make your own.
On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.
2. Eliminate Joint Debt
Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:
Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?
Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.
Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?
Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.
Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?
Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.
Wolf: What about other accounts, such as utilities and cell phones?
Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.
3. Find Money to Pay Down Debt
Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.
Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?
Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.
Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?
Food spending (both groceries and eating out)
TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)
Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?
Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.
4. Pay Off Your Debt
The next step is creating a schedule for paying down your debt:
Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
Choose one debt to focus on.
Increase your payment on that debt by as much as you can.
Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
You’ll be surprised at how quickly you can get out of debt with this plan!
Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.
5. Budget Your Monthly Expenses
Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.
I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.
If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.
Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:
Child Care: 5%
6. Set Financial Goals
Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.
Specifically, as a single parent, you need to ask yourself some questions, such as:
Do you need to file for child support?
Do you need to get a higher-paying job?
Is it time to think about going back to school?
Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?
One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?
So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.
So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.
7. Increase Your Net Worth
The next step is to determine your net worth and begin adding to it.
Determine Your Net Worth:
Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.
You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.
Set Up a Savings Account:
Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.
Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.
Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.
In addition, this regular savings will help you increase your net worth over time.
8. Become Even More Frugal
Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.
Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.
Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?
Try These Ideas:
Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
Do not use shopping, ever, to appease your emotions.
Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.
9. Schedule Your Own Weekly Financial Check-In
Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:
Pay any bills that are due.
If your bank statement has arrived, take the time to balance your checkbook.
Check the balances of your checking and savings accounts.
Update your debt list to incorporate any recent payments.
This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
Finally, also make note of any upcoming expenses you need to anticipate and plan for.
Young minds are programmed to absorb and copy the behaviors around them, which means the sooner you instill proper money management skills, the more prone your kids are to become mature and responsible stewards of their own cash-flow in the future.
“Becoming financially literate early in life is fundamentally important to your financial well-being as an adult,” says Micah Fraim, award-winning CPA and best-selling author.
“I was pinching pennies at five years old, calculating the cost of grocery items per ounce, refusing to buy expensive clothes unless they were on-sale and foregoing scoops of ice cream from the ice cream shop, so I could buy multiple gallons at the grocery store,” Fraim says. “Now as an adult, I still have that same mindset and live well below my means.”
The following kid-approved strategies help you teach the core tenets of being financially savvy; in terms they’ll understand and appreciate. Consider how you can use them to teach your little ones to be smart about money.
Find Opportunities for Lessons
At some point, your child will inevitably deplete their allowance on impulse purchases, rather than holding out for the more expensive item they’ve been asking for. Instead of giving them more money, or buying it for them, use this as an opportunity to demonstrate that money is a finite resource, which must be allocated over an extended period. Once you spend, it’s gone until you can make more.
Have a conversation about what else they could have done with that money, or how much longer they would have needed to save to get the big-ticket item they wanted. Perhaps give an example of when you spent foolishly, or better yet, saved enough money to buy something important, like your house or car.
Demonstrate that Income Is Earned
Chores are an easy way to teach children that money must be earned. This tangible incentive for contributing to your household shows them that have to work for what they want, and even do things they may not want to do—i.e. vacuuming and doing the dishes.
The concept of having to earn your money is a positive outcome of rewarding children financially for completing chores. However, some parents find that this method doesn’t necessarily teach money management, making it a bad way to teach children how to be smart about money. The key to avoiding the latter is the set-up.
Susan Borowski, mother and author for Money Crashers, shares how she set this up with her teenage son:
“As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.”
This shows them that they have control over how much they earn, rather than it being a given.
Secondly, keep chores focused on money management with an app like Chore Monster so children can track what they’ve done and earned. This is an easy way to establish a record-keeping system, for both chores and allowance, seeing increases or decreases in money earned over time.
Establish a Record-Keeping System
When your child is consistently earning allowance or money for chores, it’s important that they’re able to account for what happens with that money. The more emphasis you put on this piece of the earning, the more they’ll see the value of managing their funds. They’ll start to notice wasteful spending habits and identify which pitfalls to avoid during their next allowance payout.
Designate a folder where they can stockpile receipts and a notebook where they can track all purchases. This simple method of financial reporting is an ideal precursor to balancing a checkbook, analyzing bank statements, or creating a monthly budget.
Use Visual Aids to Your Advantage
Although the “piggy bank” is a time-honored childhood favorite, this approach to money management doesn’t allow your child to see the positive outcome of their coin stashing. For a more functional alternative, use a transparent mason jar or clear plastic Tupperware container, both of which gives them an unobstructed view of the progressive financial increase that comes from diligent and habitual saving. This tool makes the abstract concept of saving easy to see and understand.
You can also open a bank account for older children. This gives them a chance to become familiar with bank statements, which act as a visual aid. Each time a new statement comes in, they can sit down and look at how much money was put into the bank account and how that’s changed month-over-month. Many banks now offer online portals, as well, where your children can see progress represented in bar and pie graphs; these may be easier to understand and digest.
Encourage Them to Set a Savings Goal
There’s a sense of accomplishment and empowerment in reaching a goal with no shortcuts taken or assistance received. Channel this mindset when encouraging your child to practice economical behaviors. Next time they express interest in the latest gadget, suggest they purchase it themselves and develop a step-by-step plan together, so they feel equipped for the undertaking. This process of setting aside money with a specific goal in mind reinforces the gratification gained from being smart about money and purchasing the item without any help.
It’s never too early to start teaching your kids about how to be financially savvy. Too many people don’t learn about personal finance until it’s too late — like when they’re buried in student loans — so teaching these skills early on is important for setting your children up for success later in life.
This year, we’ll collectively fork out $465 billion on holiday spending. Of all that cash, about 43% is spent on travel, and another 41% on gifts. Saving in those two areas alone can really help make a difference in your wallet.
A few things the airlines don’t want you to know
When you figure that Americans will spend more than $6 million on air travel during the holiday season, the costs can seem unavoidable. But if you follow a few simple rules, you could save hundreds.
Avoid buying a ticket for the Friday before Christmas
Fly on Tuesdays, Wednesdays, or Sundays on off-peak hours
Search tickets for one passenger at a time—airlines tend to jack up the prices when you buy for more than one.
Clear your browser history, or search incognito. The more airlines learn about you, the more they learn about where your spending habits are and the more they can skew the prices based on what they know about you.
Online hacks that’ll help save your wallet
It’s a digital world. And that makes shopping a whole lot easier, but it also opens up the opportunity for huge savings.
Take Honey for example. It’s a Google Chrome extension that tests every coupon code available, so you don’t have to.
Amazon Prime is only $99/yr, and it currently gives you free shipping on a ton of things listed on the site—which has some of the most competitive prices already.
Deal Squad is a site that checks to make sure you’re getting the best price available—you just cut and paste the URL of the item you’re watching.
Go for thoughtful, not pricey
Putting more thought into a gift means you can spend a little less. Say your coworker loves elephants—buy him the elephant socks you know he’d never buy for himself. Same goes with magazine subscriptions. If your dad loves boating, get him a boating magazine—it’s a gift that keeps giving, year-round. Or you can gift what you’re good at—get crafty. Yeah, pecan pie bakers, we’re looking at you. Even if you’ve never tried out a DIY, it’s worth a visit to Pinterest for some inspiration. Sometimes a meaningful gift goes a lot further than one with a high price tag.
Charities need your time, not just your cash
You can give charity a hand without breaking the bank—just give some of your time. And it’s a great way to spend time with your friends and family too. You could volunteer as a group at a food shelter or soup kitchen—or you can look for local opportunities on Volunteermatch.
When Mark Twain’s death was reported in the United States, he was alive and well in London. He responded to news accounts with a note saying, “The report of my death was an exaggeration.”
Last week’s jobs data suggest the same is true of reports that a recession is imminent in the United States. Barron’s explained:
“Thank goodness the mid-February fears of recession that brought markets to their knees – and the 10-year Treasury yield to a low of 1.53 percent – were overblown. Friday’s nonfarm payrolls report was the latest confirmation. It showed that 242,000 jobs were created last month, far more than expected and up from the previous month’s reading, which was itself revised higher.”
The employment data weren’t all positive, though. Average hourly earnings declined when it was expected to increase and the number of hours worked was lower, on average, than it has been for two years.
Regardless, The Wall Street Journal said employment, consumer, and business spending reports helped calm investors’ fear the U.S. economy was losing momentum. Some investors sold bonds, which helped push the yield on 10-year Treasury notes higher.
Investors also were encouraged by last week’s oil price rally, according to CNBC. A better demand outlook, coupled with cuts in supply, boosted oil prices by 9.5 percent in one week.
U.S. stock market performance reflected investors’ renewed optimism. USA Today said, “Stocks have rebounded from their worst start to a year ever, with the benchmark S&P 500 trimming its year-to-date loss to 2.15 percent after being down by more than 10 percent on February 11.” At the end of last week, the Standard & Poor’s 500 Index was about 6 percent below its record high.
Data as of 3/4/16
Standard & Poor’s 500 (Domestic Stocks)
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
DJ Equity All REIT Total Return Index
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
When you envision your retirement, what do you see yourself doing: Traveling to faraway places? Indulging in hobbies you didn’t have time to enjoy while you were working? Or pinching pennies just to cover the bills?
The latter is probably not your ideal retirement, but it will likely be the reality for most people. More than half of Americans are at risk of being unable to cover essential living expenses, according to a survey by Fidelity Investments. That’s because they’re not saving enough now for their future.
Sure, it’s easy to put off saving for a retirement that’s years away. But if your nest egg isn’t big enough, you could spend 20 to 30 years struggling to make ends meet. “I’ve never heard anybody complain about having too much money in retirement,” said Kathleen Hastings, a certified financial planner and portfolio manager with FBB Capital Partners. “It sucks to be old. It’s really bad when you have no money.”
Even if your savings aren’t on track, you don’t have to resign yourself to a life of poverty in retirement. In fact, you can retire rich enough to have a comfortable lifestyle by following these strategies. Click through to find out what they are.
1. Eliminate Unnecessary Spending
You might have more room in your budget to save for retirement than you think. That’s because there might be expenses that could easily be eliminated.
“Look at your bank statement and credit card statement every month,” said Tom Corley, a certified financial planner and author of “Rich Habits: The Daily Success Habits of Wealthy Individuals.” “You’ll uncover certain expenses for things you are not even using, such as club memberships, subscriptions, automatic charges for services you’ve never used.”
Also, periodically re-shop your wireless service, cable TV, internet and other services to see if you can get a better rate. Then, boost your retirement contributions by the amount you save by getting better rates and cutting unnecessary expenses.
2. Start Saving Early
One of the best ways to retire rich is to start saving money as soon as you start earning it. Thanks to the power of compound interest, even small monthly contributions to a retirement account can grow over time to a sizable nest egg. The more time you have, the more your money will grow.
For example, if someone started saving $350 a month at age 25, increased that amount by 2.5 percent each year and earned 7 percent annually, he would have about $1.4 million at age 67. But if that person waited until 35 to start saving, he would have about $654,000 at age 67.
“You give up a lot of money down the road by not saving early,” Hastings said.
3. Don’t Let Saving Be a Choice
“Make sure your retirement savings is happening every week or month automatically, without thought or questions,” said Michael Hardy, a certified financial planner with Mollot & Hardy.
Make contributions to a workplace retirement account, such as a 401k withdrawn from your paycheck. Or, set up automatic deposits into an individual account such as an IRA or brokerage account from your checking account. “This eliminates the chance that you stop putting money into your retirement accounts and also helps to dollar cost average into your investments over time,” Hardy said.
4. Save at Least 10 Percent Annually
Americans who are saving for retirement are setting aside, on average, 8.5 percent of their income annually, according to Fidelity’s retirement preparedness study. But most retirement experts recommend setting aside at least 10 percent — ideally 15 percent — to live comfortably in retirement.
If you can’t set aside that much when you’re starting out, make sure you increase the amount you’re contributing as your income rises so you get to a 15 percent savings rate.
5. Take Advantage of the Employer Match
If your employer matches contributions you make to your workplace retirement plan, make sure you’re contributing enough to get the full match. Otherwise, you’re losing out on free money.
The most common type of match is 50 cents to every $1 contributed by an employee up to a certain percentage of pay — typically 6 percent, according to 401khelpcenter.com. For example, if you earn $40,000 a year and contribute just 3 percent of your salary but your employer offers a 50-cent match, you’re missing out on $600 in free money.
6. Save Your Raise — Don’t Spend It
A pay raise can give you more wiggle room in your budget. But if you’re already making ends meet on your current salary, put any extra you get from a raise into your retirement account rather than your bank account.
“Try not to expand your lifestyle if your salary grows,” said John Sweeney, executive vice president of retirement and investment strategies at Fidelity Investments. “Put all that away instead of deciding to buy a nicer car or bigger home.” Then, you won’t have to sacrifice your standard of living in retirement.
7. Make Catch-Up Contributions
Even if retirement isn’t too far off, you still have a chance of saving enough if you take advantage of catch-up contributions. In 2016, you can add an extra $6,000 to a 401k, 403(b) or 457 plan for a maximum contribution of $24,000 if you’re 50 and older.
And, you can boost IRA contributions by $1,000, bringing the total amount you can set aside in these individual retirement accounts to $6,500.
8. Be Willing to Take Some Risk
“For most people, the key to investment success comes down to three words: Save, save, save,” said Ken Weber, president of Weber Asset Management and author of “Dear Investor, What the Hell Are You Doing?” However, you can’t just stash your cash in a savings account. “You’ve got to take some risk for the reward later on,” he said.
Weber said that for each stage of life, you should be invested with as much risk as you can tolerate. Ideally, you should be putting most of your retirement savings into stock mutual funds when you’re in your 20s and 30s. As you get closer to retirement age, you can lower your risk by investing in fixed-income assets such as bond funds, in addition to stocks. Or, consider a target-date fund that will automatically adjust your allocation of stocks and bonds as your approach retirement.
9. Diversify Your Investments
You shouldn’t put all of your retirement nest egg into one basket, Hardy said. In other words, don’t invest all of your money into a single stock. If you do, you could lose your savings if that stock takes a nose dive. Diversify your portfolio with a mix of stocks and bonds — or, better yet, mutual funds that hold a variety of stocks or bonds or both.
10. Don’t Let Fees Eat Into Your Investment Returns
If you invest in mutual funds, make sure you pay attention to the fees and expenses charged by those funds because they can eat into your returns and reduce the amount of money you’ll have for retirement. For example, if fees and expenses on your account are 1.5 percent, your balance will be 28 percent smaller at retirement than if the fees had been just 0.50 percent, according to the U.S. Department of Labor.
The investments offered in your 401k might have varying fees, so consider switching to lower-fee investments — but only as long as they fit your investment objectives and risk tolerance.
11. Stay the Course
You might think you’re protecting your nest egg by pulling your money out of the stock market during downturns. But what you’re really doing is locking in losses by selling when stocks are down and missing out on opportunities for your investments to rebound.
“A well-constructed financial plan takes market gyrations into consideration,” Weber said. “If you have full faith in your plan, it becomes easy to ride through market choppiness.”
12. Get Tax-Free Retirement Income With a Roth
Contributing to a Roth IRA is a great way to create a pool of money you can tap in retirement tax-free. You have to pay taxes on withdrawals from other retirement accounts, such as a 401k or traditional IRA, leaving you with less money to spend. But all the money you withdraw from a Roth in retirement escapes taxes.
13. Invest in Income-Generating Real Estate
Another way to make sure you have money in retirement is to buy income-generating real estate. The key is to purchase and finance it carefully, said Todd Tresidder, a financial coach and founder of FinancialMentor.com.
For example, one former casino card dealer Tresidder knew worked the graveyard shift by night to pay the bills. But, he bought and improved homes by day to grow equity. He retired early in his 50s with five rental homes and more than $5,000 per month in passive income.
14. Get a Side Gig
You can boost your income — and funnel that extra cash into retirement savings — by getting a second job, doing freelance work or turning a hobby into a money-making venture.
If your side gig is considered self-employment, you might be able to make contributions to a solo 401k or a Simplified Employee Pension (SEP) plan. And, those contributions could be tax-deductible. You can set up either type of account through an investment firm with low fees, such as Fidelity or Charles Schwab.
15. Downsize Before Retirement
“A lot of people live in a myth that they should buy as much house as they can afford” and end up buying too much house, Tresidder said. With the big house often comes a big mortgage payment and high insurance, utility and maintenance costs. “All these things take away from your savings capability,” he said. “Often, it’s enough to fund a retirement. ”
If you have a bigger home than you need, don’t wait until retirement to downsize. Cut your costs now, and save the difference.
16. Relocate for a Lower Cost of Living
Living abroad or moving to a state with a low-cost of living is one way to keep down expenses in retirement. But if you do it while you’re still working, you can beef up your savings to have an even richer retirement. Tresidder said he has clients who have taken jobs with U.S. companies that relocated them to other countries where the cost of living is low. As a result, they’ve been able to sock away a lot for retirement.
17. Find an Employer With a Better Retirement Plan
An employer that offers a 401k match is good, but one that provides a pension that creates a lifetime stream of income in retirement is even better, Tresidder said. Although many employers have shifted away from these so-called defined benefit plans, about a quarter of Fortune 500 companies still offer them to new hires, according to a study by professional services company Tower Watson.
A job with a pension plan can actually beat one with a slightly higher salary, Tresidder said. “If you’re short on retirement, that’s a smart way to go,” he said.
18. Don’t Try to Keep Up With the Joneses
Your friends and neighbors might appear to be rich now with all that they have, and you might be thinking that you deserve those things as well. But spending to keep up with the Joneses will likely hurt your chances of being rich in retirement.
“Establish a lifestyle where you put savings first,” Sweeney said. And find a group of friends who also value saving so you don’t feel pressured to spend.
19. Get Professional Help
Hiring a financial advisor doesn’t guarantee that you’ll retire rich, but it might help increase your chances. The right professional can help you create a comprehensive financial plan and stick to it.
Look for professionals with designations such as certified financial planner (CFP), chartered financial analyst (CFA) and chartered financial consultant (ChFC), to name a few. These individuals must meet strict standards to receive these designations and must abide by ethical codes.
20. Play the Lottery
Actually, buying lottery tickets isn’t a trick to retire rich. In fact, you’re just tricking yourself if you think it is because the odds of winning enough money for a comfortable retirement are so slim.
But if you aren’t going to be responsible for your financial future, then you might as well take your chances on hitting it big, Hardy said. “Without a big win or a sufficient amount of savings, you are going to find yourself working the rest of your life,” he said.
While 2016 is in full swing, if you haven’t thought about a resolution yet, don’t give up. Maybe it’s time to make one that has the potential to stick. If you’re often wondering how money slips out of your wallet, consider becoming the crash test dummy for better spending habits. Test drive some of these ideas below to develop better ones.
Be your own cheerleader.
Patting yourself on the back after following through on a behavior you want to increase goes a long way to help cement a behavior. Ginger Dean, psychotherapist and website owner of GirlsJustWannaHaveFunds.com explains the power of rewards: “When making smart money choices, celebrate them by rewarding yourself. Yes, make rewarding yourself a habit. For example, when you make it through a pay period and adhere to your spending plan, treat yourself to something nice that doesn’t break the bank.” She points out that this creates what we call positive reinforcement, which helps you connect good decisions with positive rewards.
According to research by Wendy Wood, a social psychologist and provost professor of psychology and business at the University of Southern California, a behavior only has to be rewarded initially to form a habit. So once the habit is established, you can relax and let momentum take over.
Cheat a little.
While it’s great to start the New Year off with a new idea, give yourself a lead and start with a familiar task. Repeat the task on a regular basis. Research shows you won’t have to train yourself to do the task, you just train yourself to do it repeatedly. For example, if you like drinking water when you eat at a restaurant, choose to do it more frequently. Set rules for yourself, like, “When I eat out, I will order water.” Before you know it, a small gesture will become a string of little actions that can have a big impact on how you spend. It can also do double duty for your bank account if you send the money you didn’t spend straight to savings. Once you establish one good habit, move on to another like trimming a little bit of your grocery budget every time you shop. Start with as little as five dollars and put that in savings, as well.
Keep using the Benjamins.
Let your dollars see the light of day and allow the real thing to get some exercise. Fans of carrying cash can do this more so in the New Year if it helps you control your spending. If you know you tend to do major dollar damage in just one swipe of a credit card, then this tip might work for you. Curtail the urge to go on a spending free-for-all when using a credit card as a short term loan and pay in cash whenever possible. Make using cash a habit if you find it keeps you on track. Choose a dollar amount to withdraw on a regular basis and challenge yourself to not to go beyond that amount.
Graduate from a spending spree.
Limit how much time you spend in a store. Research shows the slower you shop, the more you spend. Get what you need and go. Set a timer if you have to or have your eyes stay glued to your shopping list, then pay and skedaddle. This way you can avoid impulse buys and filling every nook and cranny of your shopping cart with items you didn’t plan to get. Side step a budget-busting aftermath and make it a habit to make short trips to stick with your spending plan.
Do a happy dance after checking out.
When you have carried out a small, smart money choice like spending less time in the store, celebrate it. As stated above, positive reinforcement can work wonders for habit formation. So if you accomplished all of your shopping in record time, celebrate your small win afterwards. So when you’re looking to applaud yourself for getting out of the store quickly, think of what Han Solo said in The Force Awakens when Finn and Rey reunited: “Escape now, hug later.”
If you originally couldn’t bear the thought of making a resolution, reconsider. Just know that people tend to stay with activities that are manageable. Consider following some of the ideas above to take a step in the right direction when it comes to spending this year. They can be beacons for long-term financial change and help you meet your goals. They can also help you shortcut your way to success by following research that gets results. Employ one of these tips to establish a money smart habit today.
Written by Karen Cordaway of U.S. News & World Report
“I spent how much?” asks any college student who runs out of money by the weekend.
“The first step to savings is understanding where your money is going,” says Todd Pietzsch, spokesman for BECU, Washington state’s largest credit union. BECU recently launched an online and mobile app called Money Manager. Money Talks News partner PowerWallet offers a similar service.
With these or other free aggregating apps, you can view all of your checking and savings accounts in one place. They let you set up budgets and track your spending by category. You’ll learn quickly that in the absence of home-cooked meals, a couple of pizzas and those Taco Bell runs really do add up.
Making a plan for your money before it’s deposited into your bank account reduces the risk of money mismanagement. Discipline also is required to make a budget or spending plan work for you. But these tools will help avoid spending sprees that you cannot afford.
When you do shop, look for stores, theaters and concert venues that offer student discounts, which may require your student ID. When you sign up for an apartment lease, a gym membership, a cellphone contract or a spring break vacation package, be sure to read all the terms to avoid a ripoff.
Look for banks or credit unions that offer low or no fees for college-student account holders. Also, you may need a bank that has branches at home and at school — or at least one with free ATM service in both places.
Joining a credit union has many benefits. As member-owned, not-for-profit institutions, they may be more customer-oriented than the big banks. Unlike many banks, credit unions frequently offer free checking accounts with no minimum balance requirement to maintain each month.
Credit union benefits may include:
Higher return on a savings account.
Lower interest rates on loans.
Less stringent loan qualification criteria if you’re already a member. But don’t rack up too much debt.
Don’t borrow any more than you absolutely have to on student loans. College is expensive, even before you start paying interest on borrowed money.
The average price of attending a public undergraduate institution in the 2013-14 school year was $12,894; for a private nonprofit, $24,433, according to figures from the National Center for Education Statistics.
In 2010, outstanding student loan debt surpassed credit card debt, and the gap continues to grow. Outstanding student loan balances totaled $1.19 trillion at the end of the first quarter of 2015, up $78 billion from a year earlier, according to the New York Federal Reserve Bank.
While it’s important to establish credit by getting a credit card, think before you borrow. Don’t use new credit unless you can pay it off or if it is an absolute emergency (which does not include the urge for late-night pizza or lattes).
Know this: Nearly 900 colleges have lucrative debit and credit card partnerships with financial firms, according to the U.S. Public Interest Research Group. The deals enable banks to target and profit from over 9 million U.S. students.
A typical trap: A popular sub shop near campus partners with a major credit card issuer to offer a free combo in exchange for signing up for a shiny plastic card that could take years to pay off if misused.
Credit card debt can lower your credit score, limiting your chances of obtaining loans or other lines of credit. A poor score can even get you rejected from an apartment rental.
If you work a part-time gig while going to school, not only will you make money, but you’ll have less time to spend it.
College is likely to be the only time you can afford to explore career options without putting yourself into too much of a financial crunch. So pick up a part-time gig, work-study job or internship to find out which fields interest you. A low-level job in the accounting department may pay peanuts, but it may enable you to shadow professors and get a feel for the industry.
Even if it’s just a little bit, an emergency fund will give you a cash cushion when things go wrong — and they will. A cash stash may be all that separates you from debt.
Among the unanticipated situations you may face:
Delayed financial aid payments: Mistakes occur, and they can hold up the process.
Auto repairs: If your car breaks down and you rely on it for transportation to school, you’ll need the cash to get it back up and running.
Medical expenses: Unless your insurance coverage comes with a low deductible and small co-pays, expect to fork over a nice chunk of change if you need medical care.
Lesson 6: Don’t be stupid
“Keeping up with the Joneses, trashing your credit, spending money you don’t have. It only takes a few seconds to blow it, and it takes years to fix it,” advises Stacy Johnson, Money Talks News financial expert.
Do money troubles have you feeling like your marriage is circling the drain?
Don’t give up on your spouse yet!
Even financially stressed marriages can be salvaged, although it’s not always easy. Your family’s unique circumstances will determine how best to approach — and solve — money problems, but here are five steps to get you started.
You’re upset that he spends an obscene amount with his friends each week, and he may be furious that you nit-pick every purchase he makes. Get it all out.
In my mind, this may be the most important step. You can’t move forward positively until you get rid of all the resentment and anger that linger over past mistakes.
“Bring everything to the table,” advises Anne Malec, a licensed marriage and family therapist and author of “Marriage in Modern Life.” “You need real openness and honesty to address the issue. Both sides need to be accountable.”
Well, you think, this surely sounds like a perfect recipe for a knock-down, drag-out fight. And you’re right. It can go horribly wrong, so you need to go about this carefully.
The best way is to go to a third party – a therapist, a financial planner, a pastor – who can act as a mediator for this emotional discussion.
If you believe that isn’t possible, you need to think long and hard about when and how best to bring up the subject with your spouse. Pick a low-key time and drop the accusatory tone. Use “I” statements whenever possible and take a soft approach to opening the discussion.
I feel frustrated that our bank account is always overdrawn. What can we do about that?
You need to man up, think of the family and stop spending so much!
Regardless of how nicely you put it, be prepared for them to respond with something critical about you and then seriously consider whether it has any merit. Remember you’re probably not perfect either, and you can’t make headway if you can’t admit your shortcomings.
Your budget isn’t done until it includes a little cash for each spouse to spend freely each month.
“Each couple gets an equal amount and gets to spend it without criticism or question from the other,” Malec says.
This is so important because spending is such a huge piece of the financial happiness puzzle. Zero spending cash can make a spouse feel stifled or controlled while unbridled spending can spell bankruptcy.
According to a survey conducted by Edelman Financial Services, 56 percent of those polled said spending was the main reason for money-related divorces. So agree that each partner can spend, within reason, and remember that you don’t get to say anything about how your better half uses their cash, even if you do think it’s ridiculous to blow $50 on pizza and beer.
Did you play a team sport in school? Do you remember what that was like?
You may have had one particular teammate who didn’t do such a great job. They might make a mistake and cost the team a point, but assuming you were a good team player, you’d still pat them on the back and tell them it was OK.
You need to have that same team attitude with your spouse. Don’t think of them as an adversary or an obstacle you need to overcome. Instead, play to their strengths and be their biggest fan, even when they make mistakes.
“A person who doesn’t want to talk about [money] may feel uneducated about money, may feel anxious about money or don’t want to be held accountable,” Malec says.
You need to figure out what’s going on with your spouse and develop a game plan to address it without making them feel like a total loser. Malec adds that those who become defensive or angry over money probably didn’t see healthy financial discussions growing up and may just be modeling bad behavior they witnessed as children.
Saving a financially stressed marriage involves a lot of hard work and compromise, but for those who come out the other side in happier marriages with better finances, the sacrifices are well worth the rewards.
If you’re a senior citizen, one of your primary financial goals should be to make sure the money you’ve saved lasts as long as you do. Of course, the most obvious ways to do this are to save as much as possible before you retire, and to use the money from your nest egg wisely. With that in mind, here are three smart ways you may be able to lower your expenses in retirement, and make your savings last as long as possible.
Take advantage of senior discounts
Don’t be afraid to ask for a senior discount when you’re out shopping or dining. Many establishments offer senior discounts, and not all of them are advertised.
Just as a reference, according to theseniorlist.com, there are about 100 restaurant, retail, and grocery store chains that offer senior discounts, and some are quite generous. To name just a few, seniors are entitled to
15% off at Belk on the first Tuesday of each month
20% off at Rite Aid on the first Wednesday of each month
10% off at Chick-Fil-A, or a free drink or coffee
10% off at Wendy’s
5% off at Kroger one day per week
Finally, keep in mind that this just refers to the discounts offered by large chains. Thousands of local and regional businesses offer senior discounts as well. Many are offered to people as young as 55. So, whether or not you consider yourself to be a “senior citizen” just yet, those 10% and 15% discounts can add up to hundreds or even thousands in savings each year.
You can join AARP as early as age 50 at a cost of just $16 per year, and your membership can pay for itself many times over. For starters, many businesses offer additional discounts to AARP members beyond what is discussed above, such as 25% off at Papa John’s and 20% off at Denny’s.
Many travel discounts are available, such as 15% off from Starwood Hotels and Resorts and 5% off from Norwegian Cruise Lines. In addition, AARP runs its own travel center in partnership with Expedia, where members can enjoy discounted rental cars, flights, and hotel rooms that aren’t available to the general public.
AARP members are entitled to other potentially money-saving resources including:
Free tax help — the AARP Foundation’s Tax Aide helps 2.6 million taxpayers with their returns each year
Financial planning and estate planning resources
Free webinars covering topics such as Social Security and Medicare
Member-exclusive insurance programs offered through companies such as The Hartford and New York Life
Spend your money wisely
One of the smartest ways seniors can save money is with some responsible tax planning. Specifically, many seniors have their retirement savings spread among several different types of accounts, and the order in which you tap into these can make a big difference.
Any money you have saved in a traditional (taxable) brokerage account should be the first place you turn to withdraw money to meet your expenses. Tax-advantaged accounts like 401(k)s and IRAs should be left alone for as long as possible in order to take advantage of tax-free compounding (you don’t pay capital gains or dividend taxes each year in these accounts).
Once your taxable accounts are exhausted, then and only then does it make sense to tap into retirement accounts. First to go should be your tax-advantaged accounts, such as traditional IRAs and 401(k)s. These have required minimum distributions beginning when you are 70 1/2 years old, and your withdrawals are taxable, so it makes sense to use these next.
Finally, any money you were wise enough to save in Roth accounts should be used last. Roth accounts have no RMD requirements, and all withdrawals after age 59 1/2 are tax-free. So, it makes sense to take advantage of the tax-free growth in your Roth IRA for as long as possible.
The point here is that order matters when it comes to your retirement savings. If you’ve saved money in several account types, by tapping into your savings in a strategic manner, you can save yourself thousands of dollars in taxes over the course of your retirement.