Being strategic about saving for retirement means thinking about the saving and spending rules of retirement while you plan. First off, individuals should think about retirement in a flexible manner and start saving as early as possible. Remember, saving a little early versus saving a lot later can help you adjust your saving strategy over time.
One important thing to remember when thinking about retirement is to set a goal of how much you will need to retire, then build a savings plan based on that goal. But how does one know how much money they will need to survive 20 years down the road? Some experts estimate that your savings goal should amount to 10 to 12 times your current income. This goal also depends on how long you intend to spend being retired as well as where you intend to retire. Financial advisers state that most people now need at least 100 percent of their preretirement income each year for at least the first 10 years after they stop working as spending really doesn’t slow down in early retirement. If this number seems exorbitant, consider setting your goal at 80% of your pre-retirement income after you finish working.
With a goal in mind, you can commence saving. You don’t have to wait until you have a lump sum of disposable income to deposit in your savings account before you start saving. Our great grandparents and grandparents saved a penny at a time until they reached their goal- one drop at a time can still fill a bucket. Think about ways to curtail spending to double up on saving so that small amounts can grow into larger contributions over time.
Keep in mind that the goal is to do what you can, to be strategic, and to push your savings rate as high as is comfortable. When in doubt, contact your relationship officer at the Bank for more information and advice.
Why You Need a Personal Budget
In today’s world there are very few people who take the time to create a personal budget. Some people do not see the value in doing so; other people simply have no desire to restrict their spending habits. People have reached a point in our society where they buy on impulse with no thoughts to the consequences. In order to reverse this trend people need to become more responsible with their patterns of spending. One of the best tools to help an individual accomplish this behaviour is the personal budget. A personal budget is a financial plan which sets limits on the amount of money that will be spent on each category of expenses in a given month. A good budget will take into consideration such factors as: the amount of income being received, outstanding debt, retirement savings, and an emergency fund. Many people have no idea exactly where or how they spend a good portion of their money. How many times have you taken money from the ATM only to realise a couple of days later that it is gone? Many times it is difficult to remember how exactly you spent the money, and often times this money is wasted on frivolous purchases. A budget will help prevent this from happening by making a person accountable for the money that they spend. If a person only has $50 left for monthly food expenses then they may decide to forgo purchasing that fancy $3 drink. Another great benefit is that a budget portrays an accurate idea of how much an individual can actually afford to pay for various consumer items. Whether it’s a house, a car, or a new TV, a person will be able to determine whether or not a certain purchase will fit within their monetary constraints. This acts as a safeguard against getting in over your head financially. It is important to realise that simply creating a budget is not enough. This in and of itself will do a person absolutely no good if he does not discipline himself to stick to it. At times this will be very difficult, particularly if a person has established the habit of freely spending without a second thought. However, the long-term benefits of financial freedom, debt free living, and a comfortable retirement far outweigh any potential difficulty.5 Pitfalls That Could Destroy Your Budget
With all of the advantages that are associated with living on a personal budget it is no wonder that many people are beginning to implement this system into their own lives. For a great number of individuals the results over time have been nothing short of amazing. People are beginning to work their way out of debt while at the same time meeting their expenses, and placing money into savings. However, it is important to realise that there are potential pitfalls that may be encountered along the way. If people are aware of these hazards then they are far less likely to be negatively affected by them.Credit Cards
These little pieces of plastic can often cause a great deal of temptation and trouble. It is not uncommon for a person to make an unwise purchase, which they would not otherwise make, because they had a credit card handy. The solution to this problem for many people is to get rid of their credit cards and begin paying by cash or cheque. Some prefer to keep one card for emergency situations but it is best to keep this out of reach, and not in their wallet or purse.
Impatience
Problems often arise when people set financial goals but do not have the patience to complete a savings program. For example, let us say that an individual begins setting money aside for a new car. However, after a couple of months they happen to find a car that they love, and instead of waiting, they go ahead and make the purchase. This could potentially create some serious financial strains. It takes real discipline to prevent impatience from breaking your budget.
Lack of adjustments
A budget is created using a set of expenses and income figures that are current at that time. As these figures change it is important that the budget is adjusted to reflect these changes. Failure to do so could lead to some major deficits.
Holidays
Unfortunately, many people do not consider holidays at the point that they are creating their budgets. As a result, a proper amount of money has not been set aside for gifts, food, etc. These items should be factored in and saved for throughout the entire year.
Debt is a fact of life. Debt comes in many shapes and forms including mortgages, personal loans, overdrafts, credit, debit and store cards, and hire-purchase (HP) agreements. Even if you manage to avoid any of these necessary evils, you are likely to be in debt to the telephone company, the utility companies etc. Each time you require new credit-to secure a mortgage or if you request a new credit card, for example-the provider of the finance will want to assess what kind of risk you represent, and whether you will pay off your debt. To help make their decision, they will try to find out as much information about you and your money as possible.
It pays to take control of your debts before they become unmanageable, and to take action sooner rather than later. If your debts are mounting up, take a look at both sides of your finances (income and expenditure) and try to draw up a plan. Then put it into action. You may be able to:
It should go without saying that you must cut out all luxuries, but see whether you can go further. You will need to be ruthless, but the quicker you clear your debts, the better. If you have goods on hire purchase and have made half the payments, return the items, since if you are up to date with your payments, you will not owe any more money.
Show all your creditors your budget and plan of action, and make them an offer. Ask them whether they will accept reduced payments for a period while you put your affairs in order. See whether they will delay charging interest while you clear the debt. Make regular payments, even if they are smaller than demanded. This shows evidence of your intent, and is more likely to gain sympathy from the creditor than paying nothing at all. If you come to agreement with one creditor, write to others with details. They may also agree to a compromise about payments, or freeze interest for a period. The golden rule is not to hide from your problems and to be proactive-draw up your own budget, stick to it, and always make small payments, even if the company does not agree to your plan.
Some debts are more important than others are. Try to maintain mortgage payments, as failure to pay will hit your credit ratings for years afterwards, and prevent you from obtaining a mortgage again. Water and electricity are essentials, so negotiate with the utilities. Provide your plan of action to all other creditors, making sure that you stick to it. Finally, make sure that you keep copies of all correspondence.
Do not borrow more money at higher rates of interest to clear debts that you cannot afford. Do not draw up an unrealistic budget. Try to avoid bankruptcy.
Draw up a budget, and stick to it. Keep your creditors informed in advance of any changes to your plans or agreed payments. Get advice.
Borrowing for a home or college usually makes good sense. Just make sure you don’t borrow more than you can afford to pay back, and shop around for the best rates.
Don’t use a credit card to pay for things you consume quickly, such as meals and vacations. There’s no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. If there’s something you really want but it’s expensive, save for it over a period of weeks or months before charging it so that you can pay the balance when it’s due and avoid interest charges.
Handling Arrears
It pays to take control of your debts before they become unmanageable, and to take action sooner rather than later. If your debts are mounting up, take a look at both sides of your finances (income and expenditure) and try to draw up a plan. Then put it into action. You may be able to:
- See whether there is any scope to earn more money
- Do additional work at weekends or in the evenings
- Rent out a spare room
- Sell anything you do not need
Controlling your expenditure
It should go without saying that you must cut out all luxuries, but see whether you can go further. You will need to be ruthless, but the quicker you clear your debts, the better. If you have goods on hire purchase and have made half the payments, return the items, since if you are up to date with your payments, you will not owe any more money.
Dealing with your creditors
Show all your creditors your budget and plan of action, and make them an offer. Ask them whether they will accept reduced payments for a period while you put your affairs in order. See whether they will delay charging interest while you clear the debt. Make regular payments, even if they are smaller than demanded. This shows evidence of your intent, and is more likely to gain sympathy from the creditor than paying nothing at all. If you come to agreement with one creditor, write to others with details. They may also agree to a compromise about payments, or freeze interest for a period. The golden rule is not to hide from your problems and to be proactive-draw up your own budget, stick to it, and always make small payments, even if the company does not agree to your plan.
Getting your priorities right
Some debts are more important than others are. Try to maintain mortgage payments, as failure to pay will hit your credit ratings for years afterwards, and prevent you from obtaining a mortgage again. Water and electricity are essentials, so negotiate with the utilities. Provide your plan of action to all other creditors, making sure that you stick to it. Finally, make sure that you keep copies of all correspondence.
What not to do
Do not borrow more money at higher rates of interest to clear debts that you cannot afford. Do not draw up an unrealistic budget. Try to avoid bankruptcy.
What to do
Draw up a budget, and stick to it. Keep your creditors informed in advance of any changes to your plans or agreed payments. Get advice.
Some debt is good.
Borrowing for a home or college usually makes good sense. Just make sure you don’t borrow more than you can afford to pay back, and shop around for the best rates.
Some debt is bad.
Don’t use a credit card to pay for things you consume quickly, such as meals and vacations. There’s no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. If there’s something you really want but it’s expensive, save for it over a period of weeks or months before charging it so that you can pay the balance when it’s due and avoid interest charges.