Turning 40 brought one big scary reality into view for me: Retirement. I floated through my 20’s and 30’s not worrying about retirement. I did start a 401K….then borrowed against heavily. I rolled my money over when I changed jobs….then closed the account, took the cash to pay bills, and suffered huge tax consequences. There has always been a little voice in the back of my mind telling me to get ready for retirement but, it wasn’t until I hit 40 that I begin to feel time ticking.
If you have any kind of job stability, 40’s are generally your peak earning years. While some people may feel like they have a late start on retirement savings, it’s never too late. Even if you’re in your mid-forties, you have almost 20 years or more to save for retirement. You can save a lot of money in 20 years.
Social Security or “my kids” are not good retirement plans. Also, thinking “I’m not going to retire. I’ll just keep working” is not a good plan, either. What if you get sick?
Knowing this, you will need to have something in place for what is eventually coming. So, where to begin? How about knowing where your money is going, now?
Create a budget. The best thing you can do to prepare for retirement is to get your spending under control now. If you can’t manage your money now, how will you manage it in retirement? Most people are broke because they spend more money than they make. And, too often, people do not have a good understanding of how much money they are spending because they don’t keep track of it. Creating a budget will not only help you reign in excessive spending, but it will also give you an accurate picture of how much you can save every month.
There isn’t one right way to create and maintain a budget. You can find books and articles that promote a wide variety of techniques and systems. Some will work for you, some will not. The first thing I did when I created a budget was to look at how much money I was spending. My husband and I use our debit cards for everything. This made it real easy for me because all I had to do was look at bank statements. I categorized everything we spent, then took a look at how much money we were spending in each category.
This was a real eye-opener. The scariest part was how much money we spent on food. Not only did I go to the grocery every week, but we were also eating out several times a week ( which explained our ever-expanding waistlines too). If you choose this method, it’s also important that you look at your credit card statements and that you go back several months. Some expenses (such as auto repairs, or fees for a child’s activity) don’t happen every month but they do happen often enough that you can plan and budget for them.
Once you have a good picture of how much money you are spend, set some limits. Food was an obvious one for us. I set a limit on how much I would spend at the grocery store and how much I would spend eating out. For us, it wasn’t realistic to say we would never eat out. It was more realistic to set a limit and plan for it.
After you create a budget, the next question is how are you going to keep that budget under control. There are plenty of computer and smart phone applications out there to help you manage and track your budget. Some people like to follow a plan similar to Dave Ramsey where they take out enough cash to cover the expenses and when the cash is gone it’s gone. I chose a different method that I picked up from a friend: multiple bank accounts. I set up a grocery account, a vacation account, a savings account, etc. I even set up an account for my son. Every time I get paid, I instantly transfer the money into its respective account (I set up automatically-scheduled transfers with my bank). Yes I do carry around 4 or 5 debit cards and I have 4 or 5 check books at home, but this method made it easier for me to budget my money and stay honest about where money was coming from. It also was great to save for stuff like vacation and school fees that seem to nip away at my money before.
Regardless of the approach. Know where you’re money’s going. It’s an important first step in planning for your retirement goals.
In my next post, I will be addressing the importance of paying of debt so, be sure to follow this site for the latest updates.