How To Save For Retirement On A Tight Budget

Saving money, even if you’re short on cash, is achievable. With a smart personal financial strategy, you can develop offense and defense-minded tactics that result in a winning game plan. This winning game plan will result in you keeping more of your hard-earned cash (defense) while putting you in control to make smart money moves that earn interest and contribute to your savings (offense). The article below with the outlined tactics will show you how to save for retirement on a tight budget.

You must indeed save money, but it’s difficult if you’re just trying to get by on a tiny paycheck. After all, you must pay your bills today, so saving for tomorrow isn’t a priority. Even those who earn significantly more than the national median income may struggle to save any money at all, let alone set aside money for retirement or other long-term goals. Funny how that works. The more you earn, the more you spend. So the bottom line is this - unless you make saving a priority, you are likely to spend and not save at all. But you still can save money. Here’s how to get started.

Extra: Learn How To Beat Debt With A Budget

Track Expenses To See Where Your Money Goes

It is possible to save more money for the future if you keep track of your spending and find out how much you really spend. However, you won’t know until you monitor your expenses for at least a month. It is critical to know where every dollar is going in order to stretch your current income.

A bank statement can help you determine how much your necessary expenses—rent or mortgage, utilities, insurance, transportation, and food—cost you. Then, add up how much you spend on items you can live without, such as cable TV or Netflix, restaurant meals, magazine subscriptions, and nights out. Include your credit cards, student loans, and other debts in the tally. Knowing how much of your paycheck is going toward needs versus wants will help you pinpoint how much you can save each month.

Pay Yourself First

To start, you should adopt the perspective that saving is one of your fixed expenses that you pay at the beginning of the month rather than saving whatever is left at the end of the month. In other words, pay yourself first and then learn to live on what is left over.

Setting aside money for yourself first is one of the best ways to pay yourself first. You can do this by setting up an account to automatically deposit your savings so you don’t have to think about it. It’s also important to save for unexpected expenses so you don’t have to rely on credit cards or even retirement savings to pay for them. To construct an emergency fund, take the same approach as you would with retirement savings by establishing automatic monthly withdrawals from your checking account to a savings account so the money is taken out before you have a chance to spend it. 

Setting aside 10% of each paycheck is a good rule of thumb. However, do not be discouraged if you cannot set aside that much now. Even a little monthly contribution can add up to $1 million for retirement if you begin saving at a young age, as your money will have more time to grow. Remember a personal financial plan is “personal”, so start where you are now and don’t compare yourself to others. 

Take Advantage Of Free Money For Your Retirement Account

Employer Contributions

Setting aside 10% of your salary each month is ideal; but if you cannot, aim to contribute as much as your budget allows to take advantage of your employer matching contribution plan (if your employer has one; if not skip to the next section). This is virtually free money that you’re leaving on the table, so why wouldn’t you maximize your dollar this way? Typically a common employer matching contribution plan offers .50 cents to every $1 for up to 6% of take-home pay in most cases. Even if your employer offers less, it’s still free money you should take advantage of.. 

For example, let’s assume your employer provides a 50% match on the first 6% of your annual salary that you contribute. If you have an annual salary of $65,000 and contribute 6%, your contribution will be $3,900 and your employer’s 50% match will be $1,950 ($3,900 x 50%), for a total of $5,850. While this may seem like a minor matching contribution, consider the power of compound interest. That single annual contribution of $5,850 with an average 8% rate of return will grow to $27,267 in 20 years, as compared to $3,900 saved with no matching contribution over the same period that will result in only $18,178, a $9,089 difference. 

The sooner you start and allow more time for interest to accumulate before you hit retirement, the more you will have earned. Consider the effects of compound interest each year you contribute, and you’ll have a hefty sum in retirement. For a more detailed breakdown of what this would look like, simply Google “retirement calculator” and input your numbers. If you don’t have exact figures, even a good estimate is better than nothing, so get focused and have a plan of what you’ll need in retirement.

DIY Contributions

If your employer does not have a matching contribution plan, have no fear.  The Do-It-Yourself Individual Retirement Arrangement, or IRA, is a great way to earn high yields with the power of compound interest that will put your money to work to increase your savings that will sustain you in retirement. The Individual Retirement Arrangement (IRA) is a great vehicle that most personal financial institutions offer. There are some key distinctions between traditional and Roth IRA accounts. Let’s examine both to see if one is more suitable for you.

Traditional IRA

Pre-tax IRAs allow you to claim a tax deduction now while paying taxes on the withdrawals in retirement later. You may not keep money in an IRA forever; you must start withdrawing it at 72 years old (Federal requirement). An IRA is a terrific vehicle for retirement savings, particularly if you are not affected by income limits on contributions.

Roth IRA 

Roth IRAs are my favorite! Since Roth IRAs are invested with after-tax money, your investments grow tax-free and you don’t have to pay any taxes when you withdraw the money in retirement. Furthermore, there are no mandatory minimum withdrawals (RMDs) because you have already paid taxes on the money you put into a Roth IRA.

Your Roth IRA contribution limit is determined by your income level. For 2022, those income limits are $204,000 for married couples filing jointly or $129,000 for singles. You can invest in almost any kind of investment using your IRA, including mutual funds, annuities, or even real estate, in addition to having tax benefits. Speak with your bank or personal financial advisor to get started today.

Save More Of Your Paycheck

Receiving a tax refund when you’re living paycheck to paycheck can be a welcomed windfall. However, letting the IRS keep too much of your paycheck throughout the year is an interest-free loan to the government.

You can keep more of your money each month—and use it to boost savings—by adjusting your tax withholding. Your human resources department at work can provide you with a new W-4 form so that you can claim more allowances, resulting in less taxes being withheld from your paycheck. The IRS Withholding Calculator can help you determine how many allowances to claim so that you don’t end up with either too much or too little withheld from your paycheck.

Withholding adjustment could put about $200 back into your paycheck every month if you received the average refund in 2021 of $2,767. If you invested that amount every month at a 7% interest rate starting at age 25, you would have more than $600,000 by the time you reach age 65.

Cut Back On Non-Critical Expenses

Make sure your paycheck covers essential expenses and savings contributions by cutting non essential expenses if you discover you are spending on things you don’t need. Picture how much you can save by cutting out little items like coffee and bagels every morning can be useful. If you gave up buying a coffee and bagel twice a week, you would save an estimated $40 per month. By investing that amount each month with a 7% annual return, you would have $32,402.87 after 25 years.

Ask yourself the hard questions, and be honest with your answers. What can you cut back on now to add more to your retirement savings to draw upon at retirement age? 

Increase Your Insurance Deductibles

Boosting savings can be accomplished by reducing insurance costs. However, lowering the premium on certain policies can be achieved by increasing their deductibles. You can lower your premium by as much as 40% by raising your auto insurance deductible, according to the Insurance Information Institute. By raising the deductible on your home insurance policy from $500 to $1,000, you can save as much as 25% on your premium. Insurance premiums are just one of the many expenses you could eliminate in order to free up money for savings.

Setting aside money pre tax through payroll deductions to a health savings account (HSA), in addition to opting for a high-deductible health insurance plan, is one way to lower your health insurance premium. You can use the money in an HSA to pay for out-of-pocket healthcare expenses.

Reduce Your Bills

First identify expenditures such as Netflix, cable TV, phone service, or gym membership fees, and then ask yourself if you need each of those services. If not, get rid of it. If you must pay a bill, look for ways to reduce its cost. Check out a great online resource to do this HERE with Rocket Money. How it works is you connect your subscriptions, bills, and utilities, and it will find comparable, lower-priced options. They advertise helping consumers save up to $900 a year, so if you’re looking for extra savings, be sure to take a look at Rocket Money.

Another way to reduce payments and increase savings is to negotiate with your creditors. For example, if you are a responsible credit card user, you may ask your card company to lower your interest rate. You may be able to reduce your monthly federal student loan payments by qualifying for an income-based repayment plan. Consider lowering your wireless data plan costs or taking these other steps to lower your monthly expenses. 

That cellphone plan? Take Verizon for instance. I paid approximately $120 a month with Verizon for two lines, but by switching to Visible (which operates on the Verizon Network), I reduced my monthly bill by $70 where I now only pay $50 a month.  That’s $840 a year in savings. Even more, that’s $20,160 in retirement savings from when I started at age 39, not accounting for interest earned!! Now estimating an 8% annual rate of return of my yearly $840 contribution in a Roth IRA with compound interest, I stand to make $56,082.40 by the time I reach the age of 63!!! 

The quality and value I receive with Visible is identical to Verizon in terms of service (strong signal and unlimited text, call, and data). The point here is to scrutinize where you spend each dollar, and look for areas to cut back or switch providers for essential services. If they’re non essential, let them go.  You’ll reap the benefits, trust me!

Savings: Home Gym For Less Than An Annual Gym Membership

Bonus Savings: Home Fitness Gym for Less than $16 a Month

Save Money With Technology

There are several apps that can help you save money. As home energy costs continue to climb, even a simple investment in a home thermostat like Nest can add to your retirement savings. According to Nest, their thermostats saved US customers 10-12% on their heating bills and 15% on their cooling bills. If your energy bill is usually $225 each month, using a Nest 3rd Generation Learning Thermostat can save you $27 a month, or $324 annually. To break that down even further, consider a 35 year old who saves that extra $27 a month in a Roth IRA at an annual return rate of 8%. By the time he reaches the age of 63, that’s $30,889.78 in retirement savings!

Another great tool that enables passive savings to a retirement account of your choice is with Acorns. Simply visit their website, enter your email, set up an account, and you can start investing spare change. The way Acorns works is it will round up to the nearest dollar any spare change in your accounts so that your savings are set up automatically without paying any mind. It's an easy way to automate savings with spare change that will add up to big savings over time.

Why not let technology do the work for you by putting your savings on cruise control? 

Earn Money With Technology

With the right technology and tools, you can learn to become a great stock trader and have greater earning potential than by keeping your money tied down in a low-yield savings account. Take Trade Oracle for instance. They provide investors the missing edge required to compete against the corporate giants, hedge funds, and institutional investors with decades of experience. 

Trade Oracle’s state-of-the-art trading technology gives you the signals you need to make decisions that aren’t just based on speculation but quantified knowledge with a measure for accuracy. For someone looking to take ownership of their offensive game plan with the insightful power to invest their own money, Trade Oracle is the top investing platform available for non-licensed brokers. But be cautious of becoming your own trader. If you have some experience in trading, Trade Oracle will provide the competitive advantage you need to be successful, but if you do not have any experience as a day trader, you may want to consider a less riskier option. 

Conclusion

It is possible to save money, even if you don’t think you have much extra right now. With a clever personal financial strategy like the one outlined above and applying a critical look at your personal finances and spending, you can develop an offensive and defensive game plan that results in a successful strategy to build your retirement savings. Focus on your finances, scrutinize each aspect of your budget, and apply a bit of discipline by staying on course, and you will have enough money to live comfortably in retirement. 

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