Does an IRA or 401(k) need a boost? Here’s how to increase your savings rate.
the main points
- It is important to save for retirement consistently during your working years.
- Some changes on your part can make it easier for you to increase your savings rate.
How often do you pledge to start putting more money into your IRA or 401(k), only to back out of that pledge when life expenses get in the way? It’s hard to prioritize retirement savings when you have other urgent bills to deal with. And just to be clear, you should definitely set up an entire emergency fund before allocating money for retirement, because if you face a crisis in the near term, you’ll need that money in savings to tap into.
But if you want to put more money into your retirement plan this year, you may need to make some changes to your spending and income. Here are a few things that can work miracles.
1. Choose a few unnecessary items to cut back
You probably spend the money on non-essential items each month, like meals out, streaming services, and social events. This isn’t something to feel bad about – we all do. But if you want to increase your retirement savings rate, you may need to make some changes to your budget.
Take a look at your non-essential spending and prioritize your month in order of importance to you. Then choose a few areas to shrink. You might be willing to give up junk food (or order junk food less frequently), but you’re not ready to give up outings with friends. Every little expense you cut will save more money for your retirement plan, so don’t underestimate the importance of small spending changes.
2. Invest money in your savings before spending it
If you have a 401(k), your savings are already on autopilot because your contributions are deducted directly from your paycheck. IRAs are more complicated, because you generally have to send money into your retirement plan yourself.
But some IRAs offer automatic provisioning, and it’s worth taking advantage of this option. If you arrange for a certain amount of money to move from your checking account to your IRA each month, you will have an easier time achieving your goals.
3. Increase your income with a second job
You may only have a lot of wiggle room in your budget to increase your retirement savings rate. But if that’s the case, increasing your income through a side hustle should help. Since this money won’t be allocated to current bills, you can use your earnings to top up your IRA or make it possible to get more money from your regular paycheck carved out of your 401(k).
Best of all, many of today’s side businesses are flexible. If you’re pressed for time, look for a tool that lets you set your own hours so it doesn’t interfere with your schedule too much.
Saving for retirement is important, because although Social Security will provide you with some income later in life, it probably won’t be enough to live on. If your savings rate needs a boost, use these tips to increase — and achieve the goals you’ve set for yourself.
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