Brad Tinnon

Brad Tinnon

5 Easy Ideas To Boost Your Retirement Savings

Perhaps you’re doing a good job with saving towards retirement, but you feel like you should be doing more. The only problem is that you don’t have any money left over to save. In today’s blog post, I’ll share with you 5 Easy Ideas To Boost Your Retirement Savings.

HOW TO SAVE EXTRA MONEY

 

IDEA #1: SAVE SOME OF YOUR BONUS AND / OR PAY RAISE

If you get a bonus or a pay raise at work, don’t automatically plan to spend every dime of it. Too often, people look at this as new found money that is not part of their budget and they spend it frivolously. Instead, use at least half to invest. You can do this by increasing your 401k contributions, contributing to a Roth IRA (if eligible) or Traditional IRA, or setting up a non-IRA investment account.

If you were to receive on average an annual bonus and/or raise of $3,000, then consider saving at least $1,500.

IDEA #2: USE A CREDIT CARD THE RIGHT CREDIT CARD

So long as you’re responsible with using a credit card, then use it for as many of your expenses as possible. We recommend the Citibank Double Cash Back credit card as it pays an industry high 2.00% cash back.

If you have expenses that total $6,000 per month, let’s assume that $4,500 of the amount is eligible to be put on a credit card (some expenses like your mortgage cannot be paid for with a credit card). This means that over the course of a year, you would have put $54,000 on your credit card. At 2.00%, you would receive $1,080 in cash rewards annually from the credit card company. 

IDEA #3: CONSOLIDATE OR REFINANCE STUDENT LOANS

Depending on when you went to college determines the interest rate that you pay on your student loans. Additionally those who have income-based loans are finding that as their income increases so do their loan payments. We recently had a friend of ours state that their student loan payments recently tripled. This could cripple someone from being able to make retirement contributions.

If you have multiple student loans, then first see about whether or not you can consolidate them with your current lender or even another student loan provider. You may be able to achieve an overall lower interest rate and possible payment.

If consolidation is not an option, then contact a lender like SoFi to see about refinancing your student loans. They often times have great fixed rates that you can take advantage of.

If you have a $50,000 student loan that is costing you 6% interest annually over a 10 year period, then your payment would be $555 per month. However, if you were able to refinance to a 5% interest rate for a period of 20 years, then your payment would reduce to $330 per month producing a savings of $225 per month ($2,700 per year).

IDEA #4: REFINANCE FROM A 15 YEAR TO A 30 YEAR MORTGAGE

It’s true that if you do this, your rate will likely be higher and you will pay more interest in the long run. But a very important point to understand is that “saving interest is not the same thing as making money”. While the amount of interest you pay may be greater with a 30 year loan vs a 15 year loan, the wealth you build will likely be far greater than the extra interest you pay.

If, for example, you have a $200,000 15 year mortgage financed at 3.75% interest, your payment would be $1,454 per month. A 30 year mortgage financed at 4.25% would only have a payment of $984. This is a savings of $470 per month ($5,640 per year).

IDEA #5: BUDGET YOUR DISCRETIONARY INCOME

One of the easiest ways to budget is to identify your basic living expenses (i.e. expenses that are a necessity and that you must pay for each month – click here for a spreadsheet to help you identify them) and then subtract them from your take home pay. The ending result is your discretionary income. This is really the only number that you need to budget. You then need to determine where to spend your discretionary income. You have lots of choices such as eating out, entertainment, vacation, retirement, college savings for kids, life insurance, etc.

After doing this exercise, you will likely be very surprised to learn that you have quite a bit of discretionary income yet nothing to really show for it. This is why it’s so important to pay yourself first if you have discretionary income. In other words, invest toward the goals that you know are important first (i.e. retirement, life insurance, kids’ college, etc), then budget the rest for entertainment, vacations, etc.

If you don’t do it this way then you will naturally spend all of your discretionary income and you’ll constantly be saying “I don’t have any money to invest”.

EVERY LITTLE BIT HELPS

In case you are thinking that saving an extra $1,000 here or $1,000 there won’t make much of difference for your retirement, think again. If you have a 20 year investment time frame and you are able to save just an extra $2,000 per year at a 7% rate of return, then that would grow to almost $88,000 even though you only saved $40,000 ($2,000 per year x 20 years). That could represent an extra year of retirement income!!

Imagine if you saved $4,000 extra per year or even $6,000. Or, using our examples today, we were able to save an extra $11,000 per year. And if this were invested toward your retirement each year, you would have approximately $500,000 extra by the time you retired in 20 years.

Maybe you can’t find an extra $11,000 to save, but every little bit will help you down the road and will mean that you will have a greater chance of having a successful retirement.

And in case you missed it, check out our blog on Estimating The Size Of Your Retirement Nest Egg

JUST LOOK UNDER THE SOFA CUSHIONS

So just like when you were a kid looking for loose change under the sofa cushions, save money today by looking under the sofa cushions of your bonus, mortgage, credit cards, student loans, and discretionary income.

While these are some easy ideas for how to save extra money, you should proceed with caution as not everyone should implement these. Under certain circumstances, any of these ideas could prove detrimental to your financial life. If you are familiar with personal finance then be sure to think through your situation completely; otherwise, seek the help of a qualified financial professional.

We can all learn from each other, so please share any creative ways that you’ve been able to save extra money.   

 

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If we can be of service to you regarding planning for your retirement, then feel free to reach out to us.

Brad E.S. Tinnon
CERTIFIED FINANCIAL PLANNER™
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2 thoughts on “5 Easy Ideas To Boost Your Retirement Savings”

  1. Avatar

    Great tips Brad! Love how actionable these recommendations are. And the data really helps to showcase the benefit you can get by starting early and the compounding impact of a bunch of small steps on an ongoing basis.

    1. Brad Tinnon

      Thanks David. Appreciate the feedback. And you are absolutely right that investing early is so important. In fact, a person can save a lot less early on, and often times end up with more money than by investing a larger amount later on in life. I like to explain it to people by saying “time is your best friend when it comes to investing”. But as we all know sometimes life gets in the way and makes it difficult for some to invest no matter what their age. So, hopefully some of the ideas in this post can help them to play catch up!

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