If you’re struggling to find money to save for retirement, maybe it’s time to take a close look at your current spending. If a lot of your hard-earned cash is going toward “wants” that add little or no lasting value to your life, consider the potential consequences for your retirement.
Sixty-four percent of 401(k) plan participants surveyed in 2018 by Charles Schwab said they wish they had spent less in the past on short-term nonessentials and saved more for retirement1. If you have similar regrets or want to avoid having them in the future, it’s never too late to chart a new course
Figure Out Where Your Money is Going
Track all your expenses for one month and put them all into categories (like groceries, restaurant meals, concert tickets, etc.). Add up the total for each category. Then, multiply each total by 12 to come up with an annualized amount for the category.
Now you’re ready to make some decisions. You’ll find there are some expenses you need (think rent or mortgage) and some you can do without (like those magazines you never read). Certain discretionary items may make you happy today, but are you willing to reduce or eliminate spending on them in exchange for greater retirement security?
Small Stuff Adds Up
You don’t necessarily have to take an axe to your spending, because even relatively minor reductions can help you build a significantly bigger nest egg for retirement. Think about replacing some of your go-to pleasures with lower-cost or no-cost alternatives. For example:
- If you’re spending $10 on lunch at a restaurant every workday, that adds up to $2,500 a year if you work 50 weeks a year. Packing your own lunch at $5 a day could free up about $1,250 a year for retirement.
- If you currently take a date to the movies once a week, 50 weeks a year, you might be spending $40 each time on tickets, popcorn and soda. By streaming movies at $10 a week instead, you’ll save around $1,500 a year.
- If you spend $4 each workday on a 20-ounce cup of premium coffee from a coffeehouse. Drinking the office coffee for free will yield potential savings of $1,000 a year.
- If you skip a $40-a-month gym membership in favor of taking daily walks, bike rides, or doing aerobics in your living room, you could save $480 a year.
The Potential Long-Term Impact on Your Nest Egg
Let’s imagine that you manage to cut your spending by $200 a month. If you invest that amount each month at an average annual return of 6.5%, after 20 years, you’ll have a pot of money worth over $98,000 – and maybe fewer regrets to weigh you down.
EY Webinar: Spend or Save? How to Do Both
Join EY for the December webinar, “Spend or Save? How to Do Both” to learn how you can set money aside for tomorrow without sacrificing too many of today’s pleasures. Get tips on reducing discretionary expenses and hear proven techniques for climbing out of credit card debt. Register below for either the December 12 or December 20 sessions:
- Wednesday, December 12 – 11:00 AM ET
- Wednesday, December 12 – 4:00 PM ET
- Thursday, December 20 – 11:00 AM ET
- Thursday, December 20 – 4:00 PM ET
You can also register for the webinars through the EY Financial Planning Center® or by contacting an EY financial planner at 1.877.927.1047. Following the webinar, the EY Financial Planner Line® (EYFPL) will be available to answer questions about your financial planning needs.
"Meals Out, Pricey Clothes & New Cars Top Spending Regrets for Americans Trying to Save for Retirement, Schwab 401(k) Survey Finds." Source: , August 27, 2018.
This article is used with permission of Ernst & Young LLP.