Budgeting Tips on How to Save Money & Retire at a Reasonable Age
Some people don't retire until they're in their 60s or 70s. But if you're looking to retire at a reasonably young age -- perhaps by your mid-50s or even earlier -- the sooner you begin preparing, the better. Being able to retire young calls for good money management and early planning.
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Live Within Your Means
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Living within your means is key to having enough money to pay your living expenses, as well as enough leftover for emergencies. On average, your housing expense should not surpass 35 percent of your income, and transportation costs should not surpass 15 percent of your income. Tally your percentages by dividing your house payment by monthly income, and then make adjustments as needed. For example, if you earn $3,000 a month, but you're spending $1,500 on rent, consider finding a rental property that's within your budget and moving when your lease ends; otherwise, purchase a house that would allow for a cheaper mortgage, in order to save more of your pay.
Start Saving
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Get into a routine of paying yourself first to build a nest egg. Having a nest egg not only increases personal savings and might allow you to retire at a reasonable age. But if you were to lose your job or stop working for a few weeks due to illness, the money you have in savings can keep you afloat. Plan for the unexpected and aim to save a minimum of 10 percent of your income each month. With a monthly salary of $3,000, 10 percent equals $300 a month.
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Limit Extras
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Expensive vacations, unnecessary shopping trips and constant dining out can consume a huge chunk of extra money. These expenses can also result in debt accumulation. Revamp spending habits and cut out some extras. According to the Spending Plan Pie Chart, all extra expenses for the month -- expenses other than debt payments, housing, transportation and savings -- should not exceed 25 percent of income. Therefore, if you're earning $3,000 a month, you have $750 to spend on groceries, entertainment, shopping and other miscellaneous expenses. To avoid overspending, decide how much you're going to spend on each extra expense each month. Keep receipts for your records, and then frequently review your spending to make sure you stay on target.
Eliminate Debt
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Owing thousands of dollars on credit cards can delay retiring, as might a mortgage payment or auto loan payment. Aim to avoid credit card debt by paying off any new charge each month. If you purchase a home, talk to your lender about a biweekly mortgage or a 15-year mortgage loan. Both help pay down the mortgage balance quicker and you'll spend less on mortgage interest.
Get a Financial Planner
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If your employer offers a retirement account, such as a 401K, contribute a percentage of your income to begin preparing for an early retirement. What's more, consider other retirement accounts and savings options, such as opening an individual retirement account or money market account. Get a financial planner to help you prepare. This professional can offer advice on budgeting, saving, investing and retirement planning.
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