Saving for retirement is touted by financial advisors as a must for everyone. However, there are plenty of people who reach their 50s without any substantial funds in place for retirement. Because people are living longer and want to continue living the lifestyle they are accustomed to, many people are increasingly turning to binge saving as a way to catch up.
Binge saving is defined in several ways, but a common definition is saving at least 40 percent of your income.
This may sound impossible, particularly for those who live paycheck to paycheck, but there are plenty of ways to start binge saving at any point in your life. Experts agree that starting to save is a good idea even if you have put it off. Learn how to jump-start your savings with binge saving.
Why do people start binge saving?
In most cases, an individual is shocked into binge saving when he or she looks at how much money has been saved. Many individuals realize after checking their expected Social Security payments and current spending habits that their savings will not support them in retirement for long. Someone in his or her 40s or 50s does not have much time to build up those funds, so binge saving is a “catch up” tool to creating a bigger savings account or investment portfolio.
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Although binge saving is often used by older adults closer to retirement, you can start binge saving at any point in your life. It is a great way to grow a nest egg or emergency fund quickly without permanently changing your lifestyle. The key is short-term, drastic changes in how you spend your money to net greater rewards than cutting back in smaller ways over longer stretches of time.
The Binge Saving Starting Point
Getting started on binge saving can be painful. It means no more dining out, no more tickets to the movies or theater and no new clothes or shoes for a predetermined length of time. Many individuals are surprised when they realize how much they were mindlessly spending before they tried binge saving.
First, set aside a chunk of time when you can evaluate your financial situation and your current budget. You need a full day to do this, not an hour after dinner. Gather together all the financial information you have. This should include tax returns, credit card balances, any loans or debts, bank account statements and other information about your current finances.
Compare what you have saved for retirement with what you would like to have as your annual income upon leaving the workforce. There are a variety of online retirement calculators to help you do this. However, a good rule of thumb is you should count on needing 80 percent of your current income for your annual income during the first decade of retirement.
You should also keep in mind that peoples’ lifespans are growing. If you are married, assume at least one of you may live until the age of 95. If you do not have a million dollars in retirement savings, you could experience a severe reduction in your income as you grow older. If the shortfall scares you, do not despair. There are several ways to successfully binge save to increase your retirement nest egg.
Quit Spending
Binge saving is as simple as not spending money. Pay your bills, buy (inexpensive) foods and keep the utilities going. Do nothing more. If you want a date night, cook a meal at home and watch a movie or TV show. Go through your closet and create new outfits by mixing and matching what you have. Find free events to attend. Nix the lattes on the way to work and pack a lunch you make at home instead of visiting the local café on your lunch break.
After cutting out unnecessary expenses, take every dime of what you would have spent and put it into a savings account you set aside for your binge saving. If you do this for a few months each year you will be impressed with the savings. If it can become a lifestyle choice for the entire year, even better.
The key is to quit spending in all aspects of your life, not just one. It is the opposite of power shopping. It is power saving. Having the additional money automatically deducted from your paycheck and put into a savings account, your 401(K) or other retirement account means you are less likely to spend it later.
Edit Your Wallet
It is easier to spend cash on small-ticket items if you always have money in your wallet. If you empty your wallet at the end of the day except for a few small denominations for emergencies, you quickly reduce impulse purchases made because you had ready cash. The same is true of credit cards. Rather than having all your cards on you at all times, remove all but one emergency card and avoid using it.
Try a variation such as always removing ten-dollar bills or five-dollar bills from your wallet and putting those into a savings or investment account for retirement. It may not seem like much, but if you put aside five dollars every day, you are adding $150 to your retirement account every month. Invested properly, this can grow into a substantial improvement in your situation.
Downsize Your Home
Most people downsize to a smaller home when they retire. If your children are grown and gone, why not do this now? It is a simple and effective way to binge save that can give you huge returns over ten or more years. Moving to a smaller home in a less expensive neighborhood saves you thousands of dollars a year.
A lower mortgage, lower taxes and lower utility bills translate to lots of money you can funnel into your retirement account. A good return on the investment can substantially increase your portfolio’s value in less than a decade. A bonus? Easing into a less extravagant lifestyle makes the adjustment to retirement living easier.
Purge Your Belongings
Scaling back on possessions helps you save money in several ways:
- You can sell what you no longer want to others.
- You save money when you downsize your home.
- You do not have to pay to store items you do not use.
- You can write off donations on your taxes.
Go through your basement, attic and garage and take photos of everything you can get rid of. Everything from your collection of purses to an old vase you no longer use can be sold online. Larger ticket items such as furniture and electronics can fetch top dollar on internet auction sites.
You can even hold a yard sale and make several hundred dollars in a few days if you display your items attractively and advertise in advance. Deposit all money made into your retirement account for a quick and painless investment boost.
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