Saving for retirement poses some unique challenges: How are you supposed to prioritize retirement savings against the long list of more immediate goals? How are you supposed to find the motivation to prepare for something that’s decades away? How can you quantify the amount you will need to save when you have no idea what your future will look like? The good news is that you can boost your retirement savings by practicing the same good money habits that apply to smaller savings goals.
Savings thrive when they have long stretches of uninterrupted time in which to accumulate and compound, so it’s in your best interest to eliminate any obstacles that threaten those ideal saving conditions. Focus on paying off any high-interest debt—you know, the kind that sucks up money that could otherwise be going toward your goals. Eliminating roadblocks also means having a healthy emergency fund in place, so that your savings progress doesn’t get wiped out by an unexpected job loss (a good starting point is three months’ worth of expenses).
So your emergency fund is set up and your debt-management plan is in place—now is a great time to see if there are ways to automate your savings at work and at home. Can your employer automatically deduct your retirement contributions from your paycheck? Can you set up your online banking system to regularly transfer a certain amount to your savings account? Look for ways to make the act of saving easier, more consistent and less time-consuming.
Increase Savings Along With Income
As your income increases, increase the amount you contribute to your savings goals. It’s very easy to slip into a slightly larger lifestyle after a raise. It’s equally easy to treat unexpected income as “extra money,” whether it’s a bonus at work or $20 in a birthday card from Grandma. There’s nothing wrong with rewarding yourself from time to time, but limiting your living expenses—even in times where you don’t have to—will free up more resources for your long-term savings goals. More importantly, you’ll be better prepared should your income levels take a hit. Allow your savings to scale up with your income, but don’t let your expenses scale up along with them!