4 Secrets to Saving 20% of Your Income

If you’re nearing retirement, chances are, you’ve already spent decades trying to balance your expenses. According to this survey, 1 in every 3 US citizens do not have any savings for retirement. Furthermore, only 1 in 4 people aged 55 or above, have saved close to $300,000. Hence, it is extremely difficult to plan for retirement, especially with the numerous loans, college fees for children, and credit cards bills that pile up.

However, with the right strategy and planning, it is possible to save enough for a good retired life. Here are 4 secrets to saving 20% of your income for when you retire.

1. Plan to Save

Budgeting helps you keep track of your expenses and cash outflow. To save effectively, start by calculating your annual gross salary, before taxes or expenses. Figure out the 20% you need to save by multiplying your annual gross salary by 0.2.

Then, identify how much you need for utilities, down payments, taxes, loans, medical emergency funds and other such expenses. Ideally, this amount must be lesser than your gross salary, preferably around 80% of your income. If the amount rolls over the 80% limit, you may need to start reducing unnecessary expenses. This may mean re-evaluating how much you spend on credit cards and other avoidable expenses.

2. Avoid Financing Lifestyle with High-Interest Debts

Funding an extravagant lifestyle on credit cards, and living beyond your means can accumulate considerable debt over the years. Hence, in order to save sufficiently, you need to avoid financing your lifestyle with short term debts.

Loan re-payments or credit card installments can accumulate over the years, especially if you spend more than your earnings every month. Ideally, aim for a healthy credit score and pay off any debts that are less than your income. In terms of loans, only opt for those that help you build assets like a home, and fall within your budget.

Careless spending could potentially cut short your post-retirement plans. If it is hard to stop yourself from spending carelessly, then adopt the rule of 50/30/20 in your daily life. This way, you will spend 50% of your income on necessities, and only 30% on discretionary expenses. Save at least 20%, and never dip into your savings to finance short term expenses.

3. Take Advantage of 401(K) or Similar Programs

Most employers sponsor saving plans that help you save for your retirement. These involve saving a portion of your salary – a portion that your employers match equally over the years. Over time, this can accumulate into a significant amount.

In today’s society it’s becoming unusual to have a steady employer.   In those cases, use similar options include programs like the Roth IRA, where you can contribute up to $1000 after turning 50. A financial advisor will guide you on how to maximize your profits, while staying within legal boundaries.

The point is that you should have a plan to reduce your debt AND a plan to invest your savings.

4. Work on Your Health

Often, the secret to saving sufficiently for your retirement is as simple as being careful of your diet and health. With a healthy lifestyle, you can avoid developing, or having to pay for, medical conditions that can prove to be very costly in terms of treatment.

If All Else Fails, Seek Assistance from a Financial Planner

Hiring an experienced financial advisor or retirement coach, especially one who specializes in personal finances, is a smart move. Such financial advisors can help you assess how deep you are in debt, and how to swim your way back to liquidity.

Policy changes and updated tax reforms can be difficult to understand – and this is one of the main reasons people hire financial advisors.

In addition to specializing in planning effectively for your retirement needs, financial planners can also present a realistic picture of your savings. They can help guide you towards good investments, and may also assist with issues such as taxes, bonds, and insurance. If you have big plans for your retirement, hiring a financial planner is the right move.

Following a strict budget, taking advantage of savings programs, and having the support of a financial advisor can help you make the right financial decisions. With careful spending and professional guidance, you can certainly pay off your debts and fast track your savings – with enough savings, maybe you can spend your retired life sipping margaritas on a beach in the Bahamas.