Small-Budget Retirement Planning

Monday, August 7, 2017 | Posted by: Alpha Kappa Psi

If you’re fresh out of school or just starting your career, retirement is probably the last thing on your mind. With new challenges, student loans, and new financial responsibilities, you at times feel like you’re struggling to keep your head above water. The truth is, it’s tough to save when you’re working with a small budget. However, there are still plenty of ways to keep your eye on the long view of savings, even if you’re not swimming in income.

Begin Early

As intimidating as it is, the key to ensuring a comfortable retirement is to start saving right away. Without a lot of wiggle room in your budget, you’ll want to view the race toward retirement as a marathon, not a sprint. Financial experts advise that you would ideally secure at least 10% of your income for savings during your 20's. As you enter into your 30's and 40's, and (hopefully) your compensation continues to grow, you can increase that percentage to create a rainy-day fund.

Use online tools

Living in the app age has tons of benefits, and that applies toward tools for saving as well. There are tons of free sites and apps that will assist you in beginning your nest egg, even if your income isn’t yet quite you’d like it to be.

  • com has become one of the gold standards in the financial applications. It works by syncing together accounts, cards, bills, and everything money-related, to create a real-time visualization of your spending and saving.
  • Acorns provides you with a simple, yet ingenious saving strategy. After giving the app access to your account, it will automatically round up purchases to the nearest dollar, and invests that spare change into a portfolio. You probably won’t even notice the difference, but those small deposits could help you grow your future without ever breaking a sweat.
  • Level Money cuts out all the boring stuff and boils your finances down to the essential question: How much do I have to spend? By linking with your accounts, Level deducts all essential spending, and removes your bank balance, replacing it with a spendable amount for a given month. It helps you to figure out how much you can shill out on non-essentials and having fun, all without worrying about saving and budgets.


Make a Budget

Saving is going to be difficult if you’re not keeping track of your spending to ensure it’s under control. But how much should you be spending on everything?  How much can you spend on entertainment and non-essentials? Experts suggest utilizing the 50-20-30 rule, a proportional rule of thumb that lends itself to minimalist living and small budgets. The rule states you should be spending

  • 50% of your income on essentials, such as housing, food, utilities, and transportation
  • 20% for savings and rainy-day funds
  • 30% for personal and non-essential purchases

This proportion can be tweaked, but sticking to this basic guideline should help in getting your started with saving.

Understand your 401(k)

If you’re working at a midsized to large company, there’s a good chance you can enroll in a company-sponsored 401(k). This essential retirement tool allows you to slowly invest small pieces of your paychecks into a protected plan, all without having any of those contributions taxed. Additionally, your employer may offer to match those contributions, which essentially acts as free money toward your retirement. However, while these contributions are tax-free, any premature withdrawals from the 401(k) means you’ll have to pay taxes. In fact, the IRS charges an additional 10% penalty on top of normal income taxes, so the drawbacks really outweigh any benefits of borrowing against or taking money out of your 401(k).

Talk to a Planner

When in doubt, it’s always a smart idea to head to someone with experience and knowledge in savings and retirement. Sitting down for a chat with a financial planner, even in your early 20s, can get you started down the road toward a safe savings account. Even with a small budget, planners can analyze your finances, create projections, and clue you in to exactly what you’ll need to ensure your comfortable retirement. In fact, they may even surprise you by creating a simpler plan than you would have ever dreamed.

Small-budget living and long-term savings may seem incompatible, but they’re really not. By getting a head-start, using those valuable free tools, sticking to a budget, staying up-to-date on your work benefits, and knowing when to ask for help, you’ll be able to sleep soundly knowing your future life is being taken care of by your present self. What are some of your tried-and-true budgeting strategies? Let us know in the comments!

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