Five years might not seem like a long time to ramp up your retirement savings, but you can significantly impact your finances with a few savvy strategies.
You don’t need to be wealthy to increase your savings, but you do need to understand what the rich do, and that’s how this article will help you make the most of what money you have. Financial literacy is not only about learning to create money. It’s also about knowing where to cut costs and make your money work for you.
We picked 15 straightforward financial strategies you can implement to maximize your retirement savings.
1. Avoid Costly Investments
Investing your savings in actively managed mutual funds might seem tempting, but the fees can be significant, and there are better ways to invest your retirement funds.
Diversification is preferable for any investment, and for that, you might consider index funds a more affordable option for building your savings. Discuss the options with a financial advisor to find the best plan.
2. Avoid High-Interest Debt
If you’re paying high interest on debt, it’s better to allocate money to your retirement savings. Credit cards often have notoriously high interest and are best avoided.
If possible, clear credit cards and high-interest loans. It’s worth asking your debtors for a discount to clear the debt. They are often amenable to the idea.
3. Consider Boosting Your Income with a Second Job
Consider starting a side hustle in your spare time, like creating digital products or arts or crafts to sell online or adapting whatever skills you have to earn extra income.
Alternatively, look for a part-time job in your local area or search online for a remote opportunity. The additional revenue can be allocated to your retirement savings.
4. Diversify Your Investments
It’s wise to diversify your investments across a range of market sectors that do not correlate with each other. If one investment returns poor results, the others may do well, counteracting any losses.
In time, a diversified investment strategy is more likely to produce a better return for adding to your retirement savings.
5. Reinvest Your Dividends
Instead of taking the income from your dividend-paying stocks, consider reinvesting to compound your wealth. Focus on maximizing long-term results rather than short-term gains. Ask your advisor to set up an automatic reinvesting service to help you resist the temptation to spend the dividends.
Remember to set short and long-term goals for your retirement investments.
6. Invest Your Money Aggressively
Avoid the temptation to sit on cash. If your money isn’t drawing interest, think about investing more aggressively so that it works for you. You don’t necessarily have to invest in high-risk opportunities; instead, explore a range of investments with proven growth.
Talk to your investment advisor, who can steer you in the right direction.
7. Make Wise Tax Decisions
Become tax-savvy to avoid getting stung with unnecessary taxes. It’s not about looking for tax loopholes. Instead, it’s about maximizing your income by understanding what you can and cannot claim as a tax expenditure.
Arrange an appointment with an accountant who can advise you on how to lower your tax bill. Add the tax savings to your retirement funds.
8. Claim Your Full 401(k) Match
If you are in full employment and your company offers a 401(k), increase your contributions regularly, such as when you get a pay increase. As your employer matches your contribution (always check what percentage that is), you can significantly increase your retirement account by keeping your eye on the goal of building your savings.
9. Make Additional Contributions to Your Retirement Plan
After age 50, you can put extra money into your retirement savings annually at the end of each calendar year. For example, the annual catch-up contribution for 2024 is $7,500. Talk with your financial advisor about setting up this additional payment, and commit to yearly contributions for the next five years.
10. Bank Your Raises
If you get a promotion with a pay increase or an annual pay rise, instead of spending that money on a better car or house, invest it wisely in your retirement savings. If you’re over 50, you could put it aside for catch-up contributions or invest in stocks, shares, or other investments. As tempting as it is to improve your lifestyle, a little thrift today ensures a better retirement fund.
11. Save Cash Bonuses
Perhaps you get a tax refund, or your boss gives you a hefty bonus for doing an excellent job, and your immediate response is, “Yippee, let’s take a holiday in the Bahamas.” Consider adding some or all of it to your retirement savings. You don’t need to sacrifice your quality of life now, but those sudden cash bonuses present the perfect opportunity to boost your retirement savings.
12. Follow A Budget
Budgeting might seem tedious, but knowing how much comes in and out of your bank account significantly affects your spending. Without tracking monthly costs, it might seem like you haven’t enough spare cash to put into your retirement savings. Still, do you need the Alien’s Weekly subscription or the gym membership you’ve used twice?
13. Automate Your Savings
One of the challenges of being human is our intentions often don’t correlate with our actions. You might plan to save a few dollars each month, but then life gets in the way. Automating your savings takes away the headache of remembering to do it. If you have a 401(k), the most efficient way to save is to set up automated payroll contributions with your employer.
Otherwise, set up a monthly standing order with your bank for payment to your retirement account.
14. Reduce Spending on the Little Things
A few dollars a day on coffee, a magazine, or a cream bun seems like it won’t make much difference to your spending. Still, these small costs add up over time. A $5 coffee five times a week is $1,300 a year. In five years, that’s $6,500 that could have compounded in your retirement savings.
Take a moment to calculate all these seemingly menial expenses and make changes where possible.
15. Cut Back On Large Expenses
If you live in a house with multiple rooms you rarely use, would you consider downsizing and using the money to build your retirement savings?
Living in a smaller house reduces utility and maintenance costs, and you can still enjoy an excellent quality of life. If you drive a gas-guzzling high-end vehicle, consider buying a more economical car and freeing up that extra cash.
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