What’s Your Financial Resolution?
Another New Year’s Eve is fast approaching. If you’re also heading towards retirement, this might be a time of mixed feelings: you might be excited but concerned about the future, and you’re probably looking for ways to help smooth the transition.
After all, our financial lives can be complicated, and retirement planning is anything but simple.
If you’re feeling the pressure, the New Year can be a great time to take a big step in the right direction. You don’t have to get it everything figured out at once, but resolving to make progress in one key area can help you put the pieces into place going forward.
Here are a few ideas for New Year’s financial resolutions that can help you maximize your chances of retirement success.
Track your spending
One of retirement’s biggest issues is budgeting.
While many people expect to see lower expenses in retirement than they do during their working years, it can be difficult to figure out just how much you’ll need.
Simple rules, like planning to spend 80% of your pre-retirement income, are attractive. Unfortunately, they also fail to account for differences between individuals and the often complicated realities of our lives.
That’s why your first step should be to track your spending – right here, right now.
There are a number of ways to do it:
- Use a free app or online tool to monitor your bank and credit cards expenses
- Use a simple pen and paper, or your checkbook
- Create an Excel spreadsheet
- Collect receipts and keep a running tally
Without knowing how much you spend and where, it’ll be difficult to know how to start planning a sustainable retirement budget. Give yourself a leg up and find out where your money is going today.
Maximize your savings
Nearing retirement, it can be easy to put your savings on autopilot. After all, what difference can an extra contribution really make at this point?
But now is a great time to start gearing up instead of winding down.
While the impact of extra savings might not seem as great as it would if you had 20 more years to go, consider this: your retirement savings may need to last you a very long time. Taking advantage of pre-tax contributions while you can could help you boost your long-term retirement wealth.
Pay your debts
High interest debts, like credit cards, can create significant headwinds for your retirement wealth.
Not only do these debts eat up money that you could have used on actual spending, you’re also paying interest. That means you could end up in a situation where you’re drawing down taxable income from your retirement accounts just to pay off your credit cards.
This is a pretty unproductive use of your hard-earned money.
So, make debt payment a top priority before retirement. Whether it’s credit cards or personal loans, eliminating these non-productive debts will help you save costs in retirement and give you more financial freedom.
But does that mean you should pay off your mortgage, too? When it comes to housing, each situation really is different, as the optimal answer will depend on the terms of your mortgage, the state of your savings, and a number of other factors. Speak to a qualified financial advisor if for help.
Test a downsize
Pushing extra savings to your retirement fund or debt can also give you an opportunity to play with your budget before the big transition. Many pre-retirees plan on downsizing in the future, but it can be tough to know how much flexibility there is in doing so.
Having the restriction of a “lower” income by funneling more to savings can help you test aspects of the idea without committing to them.
For example, you could try relying on one car instead of two, or reduce your budget for certain spending categories. This can be especially effective if you’ve also started to track your spending – with the knowledge of where your money is currently going, it’s easier to design “tests” that will help you hone in on a sustainable budget for retirement.
Pat yourself on the back
Whatever your financial resolution for the New Year, give yourself credit: by thinking about your finances and resolving to address something that’s concerning you, you’ve already made a significant step in the right direction.
After all, financial planning is a journey, and every step you take is an important one. From there, you can truly start to build a more secure retirement.