Over 40 and Don’t Have Enough Savings? Try These 2 Strategies
If you feel like you haven’t saved enough and you’re worried about the future, you’re definitely not alone. Research suggests the average savings for families between 44 to 49 is only $6,200, and that most families have little or no retirement savings at all.
You may feel like there’s no cash left over to save each month, or maybe you know you’d have a surplus for saving if you paid attention to your spending, but can’t seem to get organized.
No matter where you stand financially, know you can change your situation. But it won’t happen unless you make time to sit down with your finances.
Once you do, there are three things I’d suggest doing. The first is to figure out where you stand (by calculating your net worth, see below). And then set your intention on two activities: Paying yourself first and power-saving. Together, these can make a huge difference. (More on this in a minute).
Like any worthwhile endeavor, building your savings won’t be without some work on your part. You’ll need to get more aggressive. You may need to make some sacrifices and shift your priorities, But imagine how great you’ll feel eliminating that sense of chaos and overwhelm. Finally being in the driver’s seat—taking charge and seeing progress. That alone brings a sense of relief as you shift from total uncertainty to more confident. And you gain momentum every day that you stick to it.
It comes down to socking away as much as you possibly can while spending purposefully on enjoying your life. Which means getting serious about what spending is the most necessary and brings you the most Life ROI (happiness and life satisfaction) and what doesn’t. So you can ditch or get super-frugal with the unimportant stuff.
The first step
Take a snapshot of where you stand right now. The best way to do that is to figure out your net worth. (Here’s a worksheet you can use).
Once you know where you stand, the next step is to really focus on your saving.
Next step: Know how much you need
Get a ballpark figure on how much you’ll need for retirement. According to Fidelity Investments, this is roughly how much you should have in order to be on track for retiring at 67:
By age 40, you should have 3X your annual income.
By age 45, you should have 4X your annual income.
By age 50, you should have 6X your annual income.
By age 55, you should have 7X your annual income.
By age 60, you should have 8X your annual income.
By age 67, you should have 10X your annual income.
Maybe you don’t want to retire at age 67, maybe you want to retire earlier, or know when you’ll be able to based on how much you save. Here is a calculator I like by Bankrate.
Note: The general rule of thumb is that once you retire, you’ll need an income (from sources such as savings, investments, social security, pension) of about 80% of what you were earning or living on prior to retirement. But that figure can go up or down depending on whether you’ll be scaling back in retirement or spending more—for example on travel and other activities.
This calculator from Nerd Wallet can give you a ballpark of how much you may need to save to reach this goal.
Now, comes the power saving
That is, saving more aggressively. The problem is, we love spending. Our brain loves spending. Which doesn’t help our cause. What can help is to make saving a game. To see it as a challenge. And you can do this by tracking your progress weekly or monthly (some people do it daily). At the same time you want to have spending money for enjoying your life. But not overdoing it.
The goal is to move through what I call the 4 Levels to Financial Freedom. (Not exactly as fun as moving up the levels in Mario Brothers, but the reward will be infinitely better):
Level 1: In the Black. You spend less than you earn and have enough money to pay your expenses and still have positive cash flow. You don’t incur debt to fund your lifestyle.
Level 2: Financially Stable. You have no credit card debt and you have a savings cushion/emergency fund in case you need it. You could quit your job and be okay for at least a year.
Level 3: Financially Secure. You have enough money saved and invested to pay for your bare necessities without you ever having to work again.
Level 4: Financially Independent. You have enough money saved and invested to live your current lifestyle without ever having to work again if you choose. You are free to make choices based on what makes you happy, and not based on money.
So where will this money come from?
It’s probably a given that you’ll need to shift your priorities, shave your expenses, or earn more. If you don’t, it will be difficult, if not impossible to get into a secure, sustainable financial position, or be able to save. As a coach, what I’ve found in working with people (and what financial planners always see) is that there’s always spending to be found beyond the necessities that’s doing nothing for you. It’s not bringing you long term benefits or joy and it’s not leading you to your goals. As an example, I know someone who was spending hundreds on junk food every month, but he didn’t realize it because (a) he was using a credit card to pay for it so it didn’t register in his mind; and (b) he was seeing those expenditures as tiny blips—a few dollars here and there, so he figured maybe it was $40 max. Nope. It was more like $400. This is too common a scenario not to look closely at your spending.
Next you want to focus on the key component of this strategy: Pay Yourself first.
This is the best way to save that I’ve found.
This feels counterintuitive for most people. But it works (for your business finances as well). Instead of seeing what’s left over for saving after expenses are paid, you take out your savings first. For every income check you get, it means right off the top squirreling away 20% to your retirement savings (20% is often too much of a bite when first starting out, so start with a percentage that works. But aim for increasing it every 6 months or as you can with a goal of 20%). With what’s left, pay your estimated taxes (if you’re self-employed) and fixed expenses. What’s left over is what you have for spending on everything else.
Here’s why this works: You’re forced to make your spending fit the dollars you have left. And reducing your spending is one of the most powerful things you can do for your financial freedom quest. It means more cash flow even as your income rises.
On the other hand, if you spend more than you earn, it’s not sustainable and it will take you down a debt rabbit hole. Something someone said once really stuck with me: If you spend more than you bring in, you simply cannot afford your lifestyle. If you find yourself there, it means making some shifts. You may hate the idea at first, but you’ll probably feel great about it in the end. It means simplifying, and simplifying your life has positive effects on our health, happiness and well-being.
- **Make your savings one of your non-negotiable monthly expenses.
- Consider having it automatically whisked out of your checking account each month straight to a retirement account. Or if you’re building an emergency fund, then a savings account that is hard for you to access. (Some tips on automating from Discover Bank here). Or from serious detail on automating, go here to see Ramit Sethi’s automating sequence).
Having trouble finding money to save?
Whether you’re 5, 6 or 7-figure earner, to my mind this is a must so that you’re spending in the right places: A “Yes and No” spending list. (Okay, really a budget, but I’m calling it a list). This is where you have a specific list of what spending is necessary and brings you the most ROI (long-term joy or moves you toward your goals) and what doesn’t. If you look at your credit card statements for the past few months, what have you spent on that moved you away from your goals and brought you no ROI? Those would go on the “No Spend” list.
Most people’s idea of a budget is all wrong. A budget isn’t about denying yourself. In fact, you want to make sure you don’t deny yourself or it won’t work. A spending list/budget is really a GPS to your goals. It’s a LIST in which you tell your dollars where to go every month so they get you to your goals, while enjoying your life at the same time.
Otherwise you can be spending yourself into a whirlwind in the opposite direction of your goals.
And though I see experts denouncing budgets here and there in favor of other systems (in some cases probably because we know humans don’t like them), for me, this list is a must. It tells me my money is going where I want it to go and not just disappearing to places that don’t get me to my heart & soul goals or financial security. That’s why successful business owners and corporations live by their budgets. They are GPS’s for your goal.
Granted, it’s not fun taking the time out of your already hectic schedule to figure out where your money goes. Maybe it can take a couple of hours. But once you do this (especially if you create it in Excel, which can even do the adding for you), you don’t need to do it again. It just takes adjusting and maintaining regularly, which takes very little time. And I guarantee, you will feel much better for it.
And most importantly, a budget is meant to be flexible. Your wants, needs and circumstances don’t stay the same year after year. So adjust and change as you do.
Track your progress.
This is so important. Not only does it inspire you to keep going and growing, but it provides immediate feedback on whether you need to adjust course. The best way to do this is by tracking your net worth. (There is a net worth tracker template in the free packet that you get by subscribing to The Money Post here or you can probably find one easily through a Google search).
Know that it’s not too late to start saving. And the pay yourself first/power-saving strategy can work by creating healthy money habits that, done consistently, can add up to huge progress. It turns your income into a tool for your best life and that’s the way it should be.
Do you have questions or experiences to share? We’d love to hear from you below.
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