Saving for a Future While Trying to Afford the Now
Everyone knows you should save money for your future: retirement, healthcare costs, inflation—it all adds up. In the meantime, however, spending money on activities you enjoy can be crucial to maintaining your mental health. But how are you supposed to earmark money for your 401k while also splurging on the occasional weekend getaway? Read on for some tips that can help you move closer toward achieving that precarious balance between your financial “now” and “later.”
Where is your money going?
First things first, you must understand (preferably with extreme detail) where your money is coming and going. This is called “cash flow,” and it’s the foundational step toward balancing your present and future money goals. While some people like to check in monthly, Money suggests tracking it weekly (at least at the beginning). That means, for one week at a time, write down every single penny that comes in and goes out of your pocket. Chances are you’ll discover some surprises along the way.
Create a budget
Once you’ve kept meticulous records for a few weeks, look at your expenses and income—and get to budgeting. Having a clearer picture of all those random coffee shop treats or late-night Amazon purchases will help you see exactly where you can shave off some dollars and cents. Be realistic when you come up with numbers to stick to—making a budget that’s too stringent is a set-up for failure. This is also where your weekly tracking comes in handy. If you do happen to fall off the wagon and overspend one week, it should be fairly manageable to make up for it the next week by cutting back a little extra.
Think now about later
When saving for retirement, earlier is better. That’s thanks to compound interest, which essentially takes your money and makes money from it. An easy way to make sure you’re saving enough is to take advantage of any contribution-matching your employer may do. Oftentimes, companies will match up to a certain amount of money you contribute to your 401k. If you don’t max that out, you’re literally leaving behind free money. Even if your employer doesn’t offer a 401k, America Saves suggests looking into setting up something like a Roth IRA that uses “total market index funds with low expense ratios.”
If you think you might be tempted to spend the money you should be squirreling away for retirement, Investopedia recommends setting up automatic payments. That way, a chunk of each paycheck will be taken out before you even receive it, leaving you with a more realistic picture of the money you actually have to spend. Saving automatically, whether the money goes into a 401k or a direct savings account, will remove the middleman (aka: you) from the equation—which ultimately makes saving a natural action you don’t even have to think about.
Another way to painlessly save? Take any unexpected, one-time bump in income (think bonus or tax refund) and throw either all or most of it into some sort of savings or retirement account. You won’t be dipping into your actual budget in order to save, leaving you extra money to spend on the things that make life enjoyable now.
Save for a sunny day
And finally, make sure you leave room in your budget for the unexpected. Or as Money puts it: “Plan for spontaneity.” There wouldn’t be much fun in “affording the now” if there wasn’t some discretionary spending money, now would there? If you put aside money each week or month that’s purely there for random fun that pops up—whether it’s a brunch invitation, manicure, drinks after work, or something else entirely—you’ll be much less tempted to dip into the savings account you’ve worked so hard to build.
These steps can help you get on the path of saving and spending responsibly. Who knows? With enough common sense money planning, you may even be able to achieve that elusive dream so many have had before you: early retirement!