Retirement Planning

How Much of a Nest Egg Is Enough to Retire Comfortably?

a couple at the restaurant in Spain-to retire comfortably

Most people don’t have any idea how much they are going to need in retirement. It is an important question because your life changes the day you retire. You no longer have a salary that will pay your bills, and suddenly you are on your own.

At this point, you must know if what you have saved will be enough to live comfortably for the next 20 or 30 years. If the nest egg you have accumulated is too small, you might outlive your money.

When you calculate how much you need for retirement, you should match your retirement income to your expenses. For most people, it is easy to calculate retirement income especially for Social Security benefits. While it is harder to estimate your future expenses because expenses will vary depending on your lifestyle.

Until you have a good idea of what your retirement expenses will be and how they match to income, you cannot get a real number of how much nest egg you need for a comfortable retirement.

This article will help you get a better idea of how to calculate your nest egg so you can retire comfortably.

Step 1. Income

Do you know how much you have accumulated in savings and investments to quit your job and live a comfortable retirement?

Unfortunately, people tend to have a vague idea about their retirement income sources and overestimate how long their savings last.

The main sources of your retirement income will be:

Social Security. It is a proven fact that for many people Social Security is the main source of income in retirement. The average Social Security benefit in 2022 was only $1,550. Most people would find it tough to live on that paycheck alone.

If you do not know your number, just go to the Social Security Estimator to find out your number depending on the age you start collecting.

Pension. If you are lucky, a pension can be an enormous benefit because it produces predictable income from your employer.

Retirement accounts. Your 401(k), IRA, Roth IRAs, investments, and bank savings will generate income for you depending on how much you have saved.

Employment. If you choose to work in retirement, full or part-time, you can significantly increase your income number. A part-time job can make your retirement more comfortable if you did not save enough money.

Annuity. Many people are less worried about running out of money in retirement if they have a guaranteed lifetime income. You can turn some of your savings into lifetime income with an annuity. When you buy an annuity, you are exchanging a lump sum of money for a guaranteed lifetime income.

Should You Have an Annuity in Your Retirement Plan?

By the time you are 65, it will be hard to affect most of your income sources besides your job income. If your nest egg is small, you can keep working full-time, find a part-time job, or start a side hustle like Airbnb, blogging, etc.

Step 2. Expenses

Once you calculate your retirement income, you need to estimate your retirement expenses which will typically include fixed and variable expenses.

Look at how you spend your money today. Then take a piece of paper and divide every expense into categories (or buckets) which will allow you to see the big picture. At the end of the month, look at your categories and see how much you spend on each:

Housing (mortgage/rent, maintenance, property tax, property insurance, home improvement)
Utilities (gas, water, electricity)
Vehicle (insurance, maintenance, fuel, car loan)
Food (groceries, dining out)
Healthcare (out-of-pocket expenses, dental, eye exams, and glasses)
Insurance (health, life, liability)
Personal (clothes, education, personal debt, gym membership)
Entertainment (travel, cable, internet, books, memberships)

Keep in mind that your expenses will change in retirement. You have probably heard that you should plan to live on just 80% of your current spending after you stop working. But writing every expense now will help you have a better idea of what you will need in retirement and what you can cut out.

Once you know your sources of income and expenses, you can determine your nest egg number. The final number will be different for everyone. It depends on how old you are when you retire, how long you will live, and how well your investment portfolio will perform.

However, people tend to underestimate how long they live and what their medical costs will be. Also, people forget about unexpected expenses like car repairs, roof and furnace replacements, or financial help to family members.

Step 3. Compare your retirement income to expenses.

You have to have a good idea of what your retirement expenses will be and how they compare to your retirement income.

Consider yourself lucky if your retirement income sources are enough to cover your expenses when you stop working.

Unfortunately, most people’s income sources do not bring it enough to cover their retirement expenses.

Even though many expenses go down in retirement, inflation makes life more expensive for retirees. For most of us, the nest egg number has to be big enough to bring enough income otherwise we need to reduce our spending or adjust our retirement lifestyle.

If your current expenses are less than your income you have enough to retire. But if you do not, you need to figure out how to cover the gap.

For example, after calculating your Social Security, (pension if you are lucky) and a part-time job, your retirement income equals $35,000 a year. Your estimated retirement living expenses are $42,000 per year.

$42,000 – $35,000 = $7.000

The difference is a negative $7,000. This means that you need an additional $7,000 per year to maintain your retirement lifestyle.

How to cover this gap? The withdrawals from your nest egg should cover this shortfall. If you use the popular 4% withdrawal rule, you need to have at least $175,000 in retirement savings to cover the gap.

$175,000 x 0.04 = $7,000 a year

Step 4. How much is your nest egg?

How much of a nest egg you need in retirement depends on several factors.

The biggest factor is how much of your retirement income needs to come from that egg. If you have Social Security and a pension, your nest egg will be only used for additional income and big expenses.

But without a pension from your employer, Social Security will provide only a basic level of income. So, your nest egg (retirement savings) would be another source of income.

Ideally, Social Security and other guaranteed income sources should cover basic living expenses. And withdrawals from the nest egg should create enough cash flow to cover your other expenses.

A good starting point for many retirees and pre-retirees will be a well-known rule of thumb – the “4% rule”. According to experts, no matter how much you have saved, a 4% withdrawal rate will let you take money out of your nest egg for 30 years without fear of running out of money.

For example, if you want to get $20,000 per year from your nest egg, the account should be worth at least $500,000 when you retire.

$500,000 x 0.04 = $20,000 a year (1,666 per month)

Luckily, there are a lot of things you can do to fill that gap.

Step 5. Lifestyle

The lifestyle you plan to live will determine how much you need in retirement.

How expensive is your lifestyle? If you are planning to live in an expensive area, have a vacation home, drive nice cars and travel a lot – you will need more than $1 million saved.

But you can live comfortably with almost any budget if you match your expenses to your income. As I said before, it is hard to control income but there are many things you can do to lower your expenses.

Housing will be your biggest budget item. Housing costs as a percentage of spending will remain around 35% on average.

It is important to decide where you are going to live in retirement. If you plan to stay put and “age in place”, you should figure out how much it would cost to make your home senior-friendly. You should think about the costs of remodeling the kitchen, bathroom and stairs, and even maybe moving a master bedroom to the 1^st floor.

Aging Friendly Improvements for Every Home Remodeling Project

Also, if your housing expenses are too high you can downsize, sell your house, and rent, or move to a less expensive state.

If you are thinking of downsizing in the next few years, be realistic about what it will cost to buy something else and how much you will get for the sale of your house. Moving expenses and any kind of renovations big or small like new carpets at your new house will take money out of your nest egg.

Start watching real estate listings to get a sense of the market. If you are going to sell your home, start getting it ready for the market to avoid the last-minute rush.

Also, take time to think through what you really want your retirement to be. Do you want a small place where you can stay for up to 6 months and then travel for the rest of the year (my kind of dream scenario)? Would you rather have a bigger house for all of the family gatherings and for your kids and grandkids to visit?

You also need to plan for the unexpected. Many events typically come out of the blue. For example, you might have to start supporting a parent or a child, or some medical procedure needs to be covered out-of-pocket.

How Much a Nest Egg Is Enough to Retire Comfortably?

The answer is it all depends on your age, your goals, and your dreams.

The truth is that nobody can predict the future. If you want to retire in your 50s you will need to have a nest egg saved much bigger than if you want to retire in your 60s. And if you’re waiting to retire at 70, your number will be even smaller.

Look at your numbers, calculate your current cost of living and create a spending plan for the future. Then compare it to your retirement income based on different retirement age scenarios. It might take some time and hard work to get there. But knowing that you have enough money to live the life of your dream is incredibly satisfying.

Have you saved enough for a comfortable retirement?

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2023 New Year’s Resolutions for Baby Boomers

by Maggie Leave a Comment

Happy New Year 2023!

Each new year offers a great opportunity for a fresh start and new beginnings. Setting resolutions is a long-standing tradition. However, only about 10% of people achieve their New Year’s resolutions each year. And many people stop working towards their resolutions after just the first two weeks.

When it comes to finances, 2022 was a challenging year. With high inflation, rising prices on everything, and volatile stock markets ‘2022 was the sixth-most volatile year since the Great Depression’.

Almost 81% of Americans are concerned about their financial New Year’s resolutions and believe that inflation makes it harder to meet their goals.

But making New Year’s resolutions is a great way to change your life for the better. The new year can be a great time to think about what is possible in your near future. Also, the new year is a great time to set some good financial goals. But make sure to set some small realistic goals that will help you work towards larger goals.

Even though we all like to set up new goals and resolutions, different generations have different goals for the new year.

If you are a baby boomer, here are my tips and advice to help you make your 2023 New Year’s resolutions.

1. Eliminate any debts.

Why is it so important to reduce or eliminate debt?

Debt is always a slippery slope because the interest will eat massive chunks of your spending money. The faster you can get rid of it, the faster you can get ahead.

That is why the beginning of the year is a great time to sit down and create a debt payment plan.

There are two strategic and popular methods to get out of debt faster. The Avalanche method helps to reduce the debt that carries the highest interest rate. The Snowball method helps to get rid of debt with the lowest balance first, and then move on to the next lowest one.

The way the snowball approach works is you arrange all of your debts from largest to small ones. Pay off your smallest debt first. Then once the smallest debt is paid off, the money you were paying toward it will be applied to your next smallest debt.

With the avalanche approach, you will start paying off the debt with the highest interest rate and then move to the next highest.

How to Pay Off Debt Before You Retire

Goals to get out of debt:

Identify what debt to pay first.
Set up a debt payment plan.
Consider reducing other expenses to pay debt faster.

2. Increase retirement savings.

Sometimes we do not realize how expensive it will be to retire.

Building a nest egg that allows for retirement income to be close to 100% of pre-retirement income is a hard financial task. Unfortunately, very few people are confident in their retirement savings goals. Most people do not have the proper number in mind, and they forget the impact of inflation on their savings.

In terms of total retirement savings, retirees need to be able to live on no more than a 4% annual withdrawal from their retirement assets. You are not ready to retire if you have minimal savings. Social Security is generally not enough for a comfortable retirement. You will need to keep working and saving more money.

When you are a few years away from retirement, being short on retirement savings can be problematic. The best option is to start reducing your expenses, so you can put more money into your retirement savings.

Goals to help you save:

Set a monthly savings goal.
Analyze your budget to see how much you can save.
Reduce your spending in a specific category each month.
Save a portion of your paycheck each month.
Increase your contributions to retirement plans – 401(k), IRA, Roth IRA.

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3. Save more for emergencies.

One of the biggest worries about money among baby boomers is that you do not know what will happen in the future.

You do not know if it would be enough to maintain your lifestyle in retirement and if you would not run out of money later when you are in your 80s or 90s.

When you retire, you do not have the security of your job to rely on and have to live on a fixed income. While you cannot exactly plan for the unknown, you can create a backup plan for emergencies.

In general, every household needs an emergency fund to cover unexpected expenses and it should be between 3 to 6 months of household income. But for retirees (in an ideal world) 1 to 3 years of living expenses should be set aside in cash.

Even though your emergency fund cannot cover everything, it can still reduce the money you have to borrow from your family or use credit cards and increase your debt.

The beginning of the year is a great time to put aside extra money into your emergency fund.

Goals for an emergency fund:

Figure out how much you need in your emergency fund.
Create a separate account (money market account, bank savings account, certificate of deposit.
Set up automatic transfers to your emergency fund each month.

4. Create a retirement budget.

Creating a retirement budget, along with a strategy of how you will draw money from your retirement funds is an excellent New Year’s resolution for many baby boomers.

Start by setting up a budget using the amount of money you will have when you retire plus a Social Security paycheck. Do not forget the emergency expenses like home maintenance, car repairs, and medical bills. See if you can live on that budget.

If you cannot, you need to come up with another plan. Think about downsizing if you are a homeowner or relocating to a more affordable area so you can put that extra money into retirement savings.

Think about how much you want to save and how much to spend in 2023. Sticking to your budget can help to know where your money is going. If you want to save more money for your upcoming retirement, begin eliminating some expenses that may not be important to you anymore.

When you retire, you do not need a lot of things that you did when you were working. The costs of commute, take-out lunches and business clothes will go down. On the other hand, you will start spending more money on travel, hobbies, and activities.

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Goals for retirement budget:

Identify your potential retirement income.
Calculate your future retirement expenses by looking at your current costs of living.
Budget with your spouse or partner.
Calculate your net worth.

5. Reduce your expenses.

One of the simplest parts of your financial life to control is spending.

The beginning of the year is a great time to look at your personal spending and set up new goals. 2022 has been full of change and adjustment with many people preferred to work remote. There is a good chance that your spending habits have changed as well.

How did you do last year? Did you get a full picture of your finances and know how much money you have saved (or not) in 2022?

If you struggled last year, decide how to improve your financial situation in 2023.

Look at your credit card and bank statements and see what expenses could be avoided last year, and plan to cut them this year.

Keep in mind, that balancing your income with your spending is the key to saving more money for retirement.

Goals for reducing your expenses before retirement:

Find ways to reduce transportation costs.
Pay off your mortgage or reduce housing costs by downsizing.
Eliminate high-interest debt – credit cards, personal loans, student loans.
Evaluate your insurance coverage.
Figure out where you will live in retirement.

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6. Manage your overall stress and focus on happiness.

We all know that financial stress is not good for our health. Financial anxiety negatively impacts not only our health, but our mood, home and social life, marriage, and ability to pursue our dreams and passions.

Unfortunately, in the current economic climate, it is unlikely that our financial difficulties will disappear overnight. However, it does not mean we have to give up. Perhaps, we need to take small steps to ease our stress levels and focus on happiness and not money.

Everyone’s dream is to have a happy family and be financially secure. So, if you want to be happy and have a secure retirement, try to:

Stop accumulating stuff – Spending money on accumulating stuff does not bring happiness and might put you in debt. Downsize and de-clutter your home, so you can spend more time enjoying your life rather than maintaining it.

Think about experiences – It is a proven fact that you are happier when you spend your money on experiences than on stuff. Accumulating more stuff does not make you happy but doing interesting things do.

Focus on your priorities – Know what is important to you and stop worrying about the rest.

Express gratitude – Be grateful for the good things in your life. It is easy to focus all your attention on the negatives when you are overwhelmed by financial uncertainty and money worries. While you do not have to ignore reality, you can be grateful for many small things in your life. Take a moment to appreciate the beauty of the sunset, flowers in your garden, a gorgeous sunny day, or just a good book.

Find ways to be kind and to help others. These efforts help you see beyond your own financial problems to give something back to the world.

Have you thought about your 2023 resolutions yet? Do you have any financial goals?

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2022 Year-End Retirement Planning Checklist

by Maggie Leave a Comment

three women at the table-year-end retirement plan checklist

It is hard to believe that the new year 2023 is around the corner!

I do not know about you but I cannot wait! Financially, 2022 was a challenging year. According to Goldman Sachs, ‘2022 is likely to end up as the sixth-most volatile year since the Great Depression’. The volatile stock market and the daily reminders of high inflation and rising prices on everything will likely make you worried about the cost of your future retirement.

But the most important lesson I learned over the past years, including the global pandemic, is that there are rewards to being prepared. I truly believe that the year-end retirement planning checklist is a great way to look back at 2022 and make sure you are on the right path to achieve your retirement goals in 2023.

Below is a helpful list of 10 tasks to complete before 2022 comes to a close.

1. Create financial goals for the next year.

Do you know how much money you need to retire? What are you going to do about rising inflation? How is it going to affect your retirement income?

How much will it cost to help your parent’s long-term care needs, pay for your healthcare in retirement, or pay for the vacation you really want?

Maybe none of that applies to you today but you want to know how to project into the future. It is important that you know how much you will need to live the life you want in retirement.

What other financial goals do you have?

2. Set a target retirement age.

Retirement is the one common financial goal we all share. We all need to plan for the day when we can no longer work or are just ready to retire.

The target date is the year closest to the year you plan to retire. Age 65 used to be the magic number, the age at which most people retire. Yet that golden age has changed. Many people are working longer. Even though they may want to retire, it is not always possible because they do not have enough money to retire.

Take some time to set a realistic target retirement date. Based on your estimated retirement income and expenses, you can plan your own retirement strategy.

Looking at your target retirement date and retirement income, you can determine if you have enough money saved for the next 20 to 30 years. If it is not enough for a comfortable retirement, move the date and save more in your retirement funds.

Just remember that where you live and how much you can afford to spend in retirement will impact your retirement lifestyle.

How Do I Decide When Best to Retire?

3. Look at your spending.

The end of the year is a great time to look at your personal spending and see where your money is going. This year has been full of change and adjustment. With many people working remotely, there is a good chance your spending habits have changed as well.

How did you do this year? Have you tracked your spending against your budget? Did you get a full picture of your finances and know how much money you have saved (or not) in 2022?

If you have struggled this year, decide how to improve your financial situation for the next year. Are there debts you should be making a priority to pay off? Look at your budget and decide if there were parts that were difficult to stick to.

Look at your credit card and bank statements and see what expenses could be avoided this year. Then set up a budget for the next year and decide on how much money you need to save in 2023 to meet your retirement goals.

4. Get a clear picture of your spending in retirement.

Do you know how are you going to pay for your retirement years?

First, think about your current overall cost of living. Then, think about if you have enough income to sustain your current lifestyle in retirement?

Calculate how much is your nest egg.

When you are near retirement, it is important to know how much money you will need to live comfortably for the rest of your life.

If you still have no idea how much money you will need, look at your current expenses and then evaluate how they might change in the future.

When you retire, you do not need a lot of things that you did when you were working. Generally, the costs of commuting, take-out lunches, and business clothes will go down. However, you might start spending more money on travel, hobbies, and activities.

Calculating your nest egg is easy if you already have a budget and know how much you spend now. The next step is to get a clear picture of how it might change in the future based on your retirement lifestyle.

Retirement Budget in 5 Simple Steps

Another option to figure out how much money you need to retire is to replace 70 to 80 percent of your annual pre-retirement income. For example, if you earn $70,000 per year before retirement, you should expect to live off $49,000 to $56,000 per year.

5. Review the source of your retirement income.

In my year-end review, I always find time to look at our future retirement income.

I usually look at our current Social Security, retirement, and investment funds statements to get a clear picture of our potential retirement income. I wanted to make sure that we are on track to our retirement goals and have enough money to cover our living expenses when we stop working.

When you are working, you typically have a single employer and a single source of income – your salary. In retirement, everyone has different sources of income – Social Security, pension, part-time job, investments, and retirement savings (401k, IRA, Roth IRA, Roth 401k).

To make your assets last through the next 20 or 30 years, use the rule of thumb to withdraw 4 percent of your retirement money annually. For example, if you have $500,000 in retirement funds, you can spend roughly $20,000 ($500,000 x 0.04) per year when you retire. Add this number to your Social Security, pension, and other savings, and calculate if it is enough to support the retirement of your dreams.

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6. Check your progress on paying down debt.

The end of the year is a great time to sit down and check your progress on paying down debt.

Ideally, you should be entering the retirement debt-free, but in the real world that is not always achievable. So, it may be okay for you to retire before you pay off your big debt like a mortgage, cars, and student loans.

Just make sure you understand the implications of retiring with debt because big withdrawals from retirement funds could push you into a higher tax bracket.

Yet, if you have several years before retirement, try to reduce your debt so you will have more money available for your lifestyle in retirement.

Pay off all credit cards and personal loan debt.

When it comes to debt, plan to pay off high-interest rates debt first. Credit card APRs have increased this year with the average rate around 19 percent. A credit card debt has become the most expensive debt for many people.

By reducing the existing debt and limiting new debt you can minimize the amount of retirement income that you will spend on interest payments. For example, if your monthly retirement budget includes a $350 car payment and a $700 credit card payment, you will obviously be able to spend $1,050 a month less than someone without those bills.

If you pay off a credit card that charges 19 percent interest, it’s like earning 19 percent on a risk-free investment.

Your mortgage.

Once, you paid off your credit card debt, start planning on paying off your mortgage. If you have a low-interest rate, you can plan to pay off the mortgage early by making “extra” mortgage payments each month.

With a mortgage paid off before retirement, you will have the extra money you need to travel in style or spoil your grandkids for years to come. Just remember that taking large withdrawals from your retirement accounts to pay off your mortgage could throw you into a higher tax bracket.

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7. Review your savings progress.

typewriter - year-end retirement planning goals

Did you spend less money this year due to the fear of covid? Did you spend less money on eating out, vacations, or concerts? Did you buy less gas because you worked remotely?

If yes, stash those funds into retirement savings. If you are still working, try to boost your savings rate. It is never too late to increase the size of your nest egg. If you are in your early 50s, you still have close to 15 years of working to save for your retirement.

You should save at least 15 percent of your gross income in retirement accounts such as 401(k), IRA, Roth IRA, or Roth 401(k).

A key factor in any retirement plan is having enough savings to last for the next 20 to 30 years.

8. Check your readiness for unexpected expenses.

Another important key factor in any solid financial plan is having enough savings to fall back on during emergency. To be prepared, put it on your checklist to have two funds – a rainy-day fund and an emergency fund.

Typically, a rainy-day fund is smaller, up to $2,500 for smaller expenses. An emergency fund can be as much as 9 or 12 months of living expenses – $10,000 to $50,000 or more depending on your expenses.

Whichever way you build your financial cushion, be sure you do it. There is no better way to have peace of mind than knowing you have funds to cover expenses when you need them.

9. Review your asset allocation and simplify your portfolio.

As you are getting closer to retirement, it is important to have a clear and accurate picture of your complete investment portfolio.

If your portfolio is spread out among several investment companies, it will become difficult to keep track of all that information. Think about consolidating all your accounts in one place like Vanguard. So, you will get simplified reporting, low costs, and low fees.

The financial markets have fallen sharply this year. Take the opportunity to review your asset allocation and make sure your portfolio is diversified and invested for growth. You should have a mix of stocks, bonds, mutual funds, and other assets that fits your retirement goals.

It can be tempting to stay away from stocks to reduce the risk of losing money in your retirement funds. But stocks provide growth and investing for growth is important. If you retire at 65 and spend 20 years in retirement, you need to have enough growth in your portfolio to make money last that long.

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10. Keep will and trusts up to date.

Another important part of your year-end retirement checklist is the status of your will and/ or revocable living trust.

Keep them up to date and make sure you have suitable executors, trustees, and guardians in place. Additionally, you will want to make sure your list of beneficiaries is up to date as well. If you have welcomed a grandchild to the family do not forget to add his/her name to the list. Also, if there has been a change in the family such as a marriage, divorce, or death, make sure to update your beneficiary list.

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Dealing with Financial Stress Before Retirement

by Maggie 2 Comments

a group of people at the table_financial stress

If you are worried about money before you retire, you are not alone. Many of us have to deal with financial stress and uncertainty at this time of our lives.

It is proven fact that financial concern is one of the most common stressors in modern life. The recent economic difficulties mean that many retirees and pre-retirees are now facing financial struggles and hardship.

A recent study by Finance of America Reverse shows that ‘the majority of retirees and pre-retirees are not financially prepared for retirement and lack sufficient savings to fully retire at age 65.’

Like any source of stress, financial problems can affect your mental and physical health, your relationships, and the quality of your life overall. But no matter how difficult your financial situation appears, there is help available.

By tackling your money problems, you can find a way through financial hardship, reduce your stress levels, and take back control of your finances and your life.

These simple steps can help you ease the stress of money problems and find stability again.

Ignore the financial markets.

The financial markets are down, and the economic forecast looks gloomy.

However, if you look at the stock market history, the market highs were not that long ago. The only thing we know is that the financial markets are unpredictable. But the good news is that we can be relatively certain about the long-term positive outlook for the markets.

That is why we should not pay too much attention to the ups and downs of the markets in the short term and set an investment strategy of a diversified portfolio of mutual funds, stocks, and bonds for the long term.

Then we can forget about financial markets except for once every 6 months or a year when you need to rebalance your portfolio. If you are 5 to 7 years away from retirement, make sure that you are not carrying too much risk or wasting your money on investments that are not generating a decent rate of return.

Also, make sure that your current portfolio meets your investment goals. If the market caused a shift in your portfolio, you need to rebalance it to maintain the original asset allocation strategy based on your age and risk tolerance.

How to Build the Best Retirement Portfolio

Maintain a detailed financial plan.

Financial stress can be caused by a wide range of different money problems. The important part is to find a potential solution.

A detailed financial plan means that you know:

How much money you have now
How much money you will save by your retirement age
How much money you will need through your retirement years

Many people in their 50s and 60s have had a hard time creating a good retirement plan that accurately reflects how much money they will need in retirement.

But you need to have a clear, big picture of your finances. Knowing exactly how much money you have coming in and going out prepares you mentally and emotionally for cutbacks. You will know what your necessary living expenses are and what you cannot afford.

Moreover, the clarity makes it easier to plan for the future. This knowledge can give you the motivation to save more, spend less, and work longer so you will not run out of money in retirement.

The plan to address your financial problem can include the following parts:

1. Identify your financial problem.

Take inventory of your finances including your monthly income, debt, fixed and other expenses. Having taken inventory of your finances, you should be able to see any money problems you are facing. It may be that you do not have enough income, too much credit card debt, or you overspend each month and do not save enough for retirement.

2. Create a solution.

Come up with a plan for how to address your financial problems. If you are close to retirement you may decide to downsize your home, move to a smaller or more affordable place, downsize your cars, and reduce your car payments. Although, maybe you need to get rid of your debt and save more money in your 401(k) plan.

3. Put your plan into action.

Be specific about how you will follow the steps of your plan. If you want to eliminate debt, start by listing all your debts, then decide which debt will be paid off first, and by what date. After that, carry on with all other debts until it all paid off completely.

4. Monitor your progress.

Do not get stressed and upset by setbacks. We are all human and it is only natural to get stray from your goals. Many things can go wrong in life or something unexpected could happen. Do not be too harsh on yourself. But get back on track as soon as you can.

Here are a few related posts you might want to read:

Reduce Debt.

Why is it so important to reduce debt?

Debt is always a slippery slope -the interest will eat massive chunks of your spending money, making budgeting difficult. When possible, avoid debt by paying it off fast and not creating new debt.

When you carry high-interest credit card debt it affects your credit score and your financial progress. Once your debt is paid, you can focus fully on saving, investing, retirement planning, and other financial goals.

There are two popular methods to get out of debt faster. The Avalanche Method helps to reduce the debt that carries the highest interest rate. The Snowball Method helps to get rid of debt with the lowest balance first, and then move on to the next lowest one.

The way the snowball approach works is you arrange all of your debts from largest to small ones. Pay off your smallest debt first. Then once the smallest debt is paid off, the money you were paying toward it will be applied to your next smallest debt.

With the avalanche approach, you will start paying off the debt with the highest interest rate and then move to the next highest.

Debt is always a big weight on your budget. The faster you can get rid of it, the faster you can get ahead.

Here are other strategies to help you reduce or pay off debt faster:

Refinance a home loan, student loan, or a personal loan
Negotiate for a lower interest rate on credit card debt
Transfer credit card debt to a 0% balance-transfer credit card
Negotiate for a lower interest rate on a home equity line of credit (HELOC)
Make bi-weekly mortgage payments

Create a backup plan.

One of the biggest worries about money before retirement is that you do not know what will happen in the future.

You do not know if it would be enough to maintain your lifestyle in retirement and if you would run out of money later when you are in your 80s or 90s.

usd banknotes on table-dealing with financial stress

When you retire, you do not have the security of your job to rely on and have to live on a fixed income. While you cannot exactly plan for the unknown, you can create a backup plan.

First, start building your emergency fund before retirement as your baseline. Your emergency fund should give you peace of mind because it helps you cover large or unexpected expenses.

Many experts recommend aiming for an emergency fund with 3 to 6 months of living expenses. Sometimes you need to increase the fund for up to 12 months. Even though your emergency fund cannot cover everything, it can still reduce the money you have to borrow from your family or use credit cards and increase your debt.

You should never tap your emergency savings for expenses like leisure travel, holidays, or wedding gifts. These expenses are non-emergency expenses.

A true emergency is a situation when you have:

Major car repairs
Health emergency co-pay or large deductible
Unexpected home repairs
Emergency travel

The next part of your backup plan should include the part when everything goes wrong. When you see that you have options to deal with the worst-case scenario, you will feel less stress.

Your backup plan might include:

Reduce living expenses when times get tough
Find part-time work or start a side gig
Use your emergency fund
Tap into your home equity through downsizing or reverse mortgage

Manage your overall stress and focus on happiness.

We all know that financial stress is not good for health. Financial anxiety negatively impacts not only our health, but our mood, home and social life, marriage, and ability to pursue our dreams and passions.

Unfortunately, in the current economic climate, it is unlikely that our financial difficulties will disappear overnight.

However, it does not mean we have to give up. Perhaps, we need to take small steps to ease our stress levels and focus on happiness and not money.

Everyone’s dream is to have a happy family and be financially secure. So, if you want to be happy and have a secure retirement, try to:

Focus on your priorities – Know what is important to you and stop worrying about the rest.

Express gratitude – Be grateful for the good things in your life. It is easy to focus all your attention on the negatives when you are overwhelmed by financial uncertainty and money worries.

While you do not have to ignore reality, you can be grateful for many small things in your life. Take a moment to appreciate the beauty of the sunset, flowers in your garden, a gorgeous sunny day, or just a good book.

In conclusion, our ability to feel grateful increases as we age. Regardless of your financial situation, retirement is the time to make the most of your life.

If you want to have a successful retirement, focus on what is meaningful to you. Remind yourself of all that you have accomplished, the valuable skills you can offer, and support from family and friends.

Find time to be grateful for many simple things such as your health, a close relationship with your kids and grandkids, your favorite hobby, or even money in the bank.

Find ways to be kind and to help others. These efforts help you see beyond your own financial problems to give something back to the world.

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8 Ways to Get Your Finances Under Control

by Maggie Leave a Comment

hands holding us dollars-get finances under control

Life can be difficult, and our finances do not always work out the way we want. The cost of living is rising due to the current high inflation. As a result, your expenses are getting maybe too high compared to what you are making monthly.

Living paycheck to paycheck can be a challenge in today’s world. That is why I am bringing you 8 ways to get your finances under control so you can do a better job managing your money.

1. Start by understanding your current financial situation.

The first step for taking your finances under control is to understand your current financial situation.

Gather all your bills together. Log into your bank accounts and mortgage company. Look at your credit card and car payment statements to figure out how much you owe.

Once, you have gathered all your financial information, sit down, and take a look at it. Get a sense of your financial baseline:

How much is your debt – credit cards, student loans, personal loans
How much is your mortgage balance
What assets do you have – real estate, pensions, stocks, bonds, bank account savings, retirement accounts, cars, boats, etc.

Then, bring all your information to one place by writing it down on a piece of paper, or in the spreadsheet document.

2. Make a budget.

Many people avoid dealing with budgeting, but the easiest way to get control of your finances is to make a detailed and realistic budget that you can stick to.

Do not set up unrealistic goals about how much you are going to save or how much extra money you are going to earn. Use your budget to follow your actual finances.

You can budget manually using a spreadsheet on a piece of paper, a mobile app, or PC software like Microsoft Excel or Google Sheets. Another great way to use budgeting tools is to download and print different types of digital products.

If you have not created any budget before, start by using Microsoft Excel or Google Sheets and put together a spreadsheet document. Write out your monthly expenses on the left side of the spreadsheet.

These could include fixed expenses:

Mortgage/ Rent
Utilities
Car payment/ Car insurance
Phone/ Internet

and variable expenses:

Groceries/ Food
Clothes/ Personal care
Dining out/ Entertainment
Activities/ Gym
Travel/ Vacation

After that, divide your spreadsheet document and on the right-side type in the amount you are planning to spend each month and the actual spending on each category. At the bottom add up the total to make sure that you are not spending more than your income.

Spreadsheet software like Microsoft Excel or Google Sheets is designed for budgeting expense tracking. When you enter amounts in each category, the program automatically performs calculations and adds to the total. It’s easy to use and you do not have to have math skills.

Once you have created your budget, make sure you stick to it. Your budget is your financial road map. It shows the real picture of what you can live on and what you can afford to spend each month. If you are constantly going over budget, you need to cut your spending.

You should try to live on the popular 50/30/20 budget rule. The goal is to spend around 50 percent of your after-tax dollars on necessities, no more than 30 percent on what you want, and a minimum of 20 percent on savings and debt payments.

The important thing to remember is that budgeting helps to build wealth over time by freeing up extra money for savings.

To help you get started, here are a few useful articles you may want to read:

3. Track your spending and know where your money goes.

I still think that “going on a budget” feels like “going on a diet” because you have to cut back on many things. That is why many people resist the idea. However, you can feel more in control of your finances know where your money is going and become a smarter spender.

The best way to track everyday spending is really simple. You just need to keep all your receipts for the day, then add up each type of spending by category. Add in the total for that specific day using your spreadsheet document or mobile app.

laptop, notepad - get finances under control

Ask everyone in your family who spends money track their spending for a few months. At the end of each month, look at your spreadsheet and see where your money is going. If your spending is going off the rails, you need to cut back your expenses.

4. Cut expenses and live within your means.

We all love to use credit cards for convenience but sometimes they make it too easy to spend more than we have.

If you leave your credit cards at home and go shopping only with cash in your wallet you will spend less money. If you try shopping with cash for a while, you will be aware of how much you spend regularly. People who do this typically spend 20 percent less.

One of the best ways to cut your expenses is to save on luxuries like dining, entertainment, and international travel.

Today we live in the world of high inflation and rising prices on food, housing, and energy. Many families may need to reduce their expenses in other areas to make ends meet.

If your budget is still out of balance, it might mean more sacrifices. To keep your budget on track, you may want to cut back on frequent expenses:

Delivery memberships
Streaming services like Netflix, Spotify, and HBO max
Your cable bills
Gym membership and exercise classes
Data storage subscriptions like iCloud and Google Drive
Unneeded insurance
Costly gifts and seasonal expenses
Pricey cellphone plan
Takeout meals
Full-priced items
Playing lottery

However, do not try to remove all luxuries or things that make you happy.

Being too strict with yourself can cause depression which leads to budget frustration. If your budget leaves no wiggle room, it is impossible to follow it for a long period of time. Do not set up yourself for an overly restrictive or unrealistic plan.

5. Build an emergency fund to keep finances under control.

Everyone needs an emergency fund. Your emergency fund should give you peace of mind because it helps you cover large or unexpected expenses.

Once you have your spending under control you can start building your rainy-day fund.

Many experts recommend aiming for an emergency fund with 3 to 6 months of living expenses. Sometimes you need to increase the fund up to 12 months of living expenses. Even though your emergency fund cannot cover everything, it can still reduce the money you have to borrow from your family or use credit cards and increase your debt.

You should never tap your emergency savings for expenses like leisure travels, holidays, or wedding gifts. These expenses are non-emergency expenses.

A true emergency is a situation that demands immediate action:

Major car repairs
Health emergency co-pay or large deductible
Unexpected home repairs
Emergency travel

As I said before, having enough money to fall back on means that you do not need to rely on family or credit card debt to cover emergency expenses.

Most people hold their emergency funds in bank savings accounts for easy access.

To start your emergency fund, you can use automatic savings plan to stash some money. If you do not already have a savings account, open one at the same bank where you have your checking account. Then link your savings and checking accounts, so you can transfer money between the two.

The checking account is for your everyday spending to cover the bills and any extras.

The savings account is where your savings will grow over time. Set up automatic withdrawals to pull the amount you need each week from your checking account into your savings.

However, if you want to use online banks like Capital One 360 or Ally Bank you can get a better interest rate than your local retail bank.

Also, you can open high-yield savings account that you cannot dip into it often.

Best High-Yield Savings Accounts

6. Reduce or pay off your debt.

If you look at your budget and do not know how to make headway, it’s time to be honest with yourself.

The hard truth you have to face is that you cannot take your money under control because you are probably in debt. That means that you are spending more than you are earning.

Why is it so important to reduce debt?

Debt is always a slippery slope -the interest will eat massive chunks of your spending money, making budgeting difficult. When possible, avoid debt by paying it off fast and not creating new debt.

There are two strategic and popular methods to get out of debt faster:

The Avalanche method helps to reduce the debt that carries the highest interest rate.
The Snowball method helps to get rid of debt with the lowest balance first, and then move on to the next lowest one.

The way the snowball approach works is you arrange all of your debts from largest to small ones. Pay off your smallest debt first. Then once the smallest debt is paid off, the money you were paying toward it will be applied to your next smallest debt.

With the avalanche approach, you will start paying off the debt with the highest interest rate and then move to the next highest.

Debt is always a big weight on your budget. The faster you can get rid of it, the faster you can get ahead.

Here are other strategies to help you reduce or pay off debt faster:

Refinance a home loan, student loan, or a personal loan
Negotiate for a lower interest rate on credit card debt
Transfer credit card debt to a 0% balance-transfer credit card
Negotiate for a lower interest rate on a home equity line of credit (HELOC)
Make bi-weekly mortgage payments

The process of paying down your debts can be satisfying. It will work as a big boost to see progress on your payments.

7. Invest your money and save for retirement.

We all know that it is important to save money in your bank account for emergencies. Having enough money to cover unexpected issues is critical. However, we do not want to keep all our extra money in bank accounts because interest rates are not high enough even to keep up with inflation.

Investing allows us to set aside money that grows steadily and can increase over time. While we might not see great gains in the short term, this is a great way to prepare and save for retirement.

If you have a workplace retirement plan like a 401(k), use that for your retirement savings with automatic withholding. If you do not have a workplace account, consider alternatives like IRA, Solo 401(k), and after-tax money accounts like Roth IRA.

8. Stick to your financial goals.

When you are trying to get your finances under control you need to stick to your goals and give them time.

Keep a close eye on the progress you are making. Keep in mind that paying off debt, tracking spending, or reducing expenses is not going to happen overnight. Take small steps toward the final outcome.

Each person’s financial goals are different. Start your process by identifying your top priorities. Then figure out how much money you need for each goal and how much time you need for reaching it.

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