Not having enough money for retirement is a big crisis in America. The financial strain of entering those golden years without any golden eggs forces many people to work longer than intended, downsize more than they expected, or take somewhat desperate options to generate lump sums of cash. If they are fortunate, they can depend on well-to-do children or other family members for support. In most cases, however, the family members who provide the support feel the impact on their own ability to save for the future. The cycle continues.
When I first realized I might not reach the level of savings I wanted for retirement, it lit a fire under me to be more proactive about managing and building my funds. Many people don't realize until it's too late that they have insufficient savings for a comfortable retirement. Others may realize it early enough yet not think they can do anything about it because of tight finances or an inconsistent income.
Obviously, it's much easier to plan your budget, savings, and retirement when your income is consistent. If you're paid on commission, work gigs, have difficulty finding steady employment, or own your own business, it can be significantly more challenging to save regularly for your retirement.
Try these strategies to build your retirement savings even if your income changes from day to day:
- Start slowly if you like but get started. Many people falsely think that it's a waste of time to save small amounts of money. Even if you can only save $10 each month, it's a start. Attempt to add to that amount each month. Getting into the habit of saving money is the most important first step. I recommend saving a portion of your income each time you get paid.
- Save automatically at regular intervals. Many people who have consistent incomes take advantage of direct deposit, which makes it easy to send part of your paycheck off to a savings or brokerage account before you ever see the money. With an inconsistent income, you can still mimic a similar system. Set up your checking account to automatically transfer a specific amount to a savings or investment account at regular intervals consistent with how your money tends to flow. For example, if you typically make a minimum of $1000 every two weeks, transfer a part of that money automatically every two weeks. Remember that you can cancel or reschedule a payment if you're unable to swing it one month.
- Put your money to work. Many individuals leave the money in their checking account while trying to use mental accounting to earmark the amount they are going to save. This rarely works. Plus, if you're earning interest on your savings (and I hope you are), then you're losing money while your funds sit around in your checking account. Put your savings dollars to work; make your money earn more money by generating interest or increasing in value. Personally, I started boosting my savings with a high-yield money market account, buying mutual funds, and then investing in real estate (I'll talk more about my journey in another post):
- Keep your savings in a high-yield savings or other interest-bearing account.
- Put your money in investments such as bonds, stock funds, real estate, or precious metals.
- Save more when you can to build your reserves. Some businesses are seasonal while some others are particularly inconsistent. When work has been slow for a while and then it picks up, it's natural to want to enjoy your newfound bounty. Or you may have hundreds of dollars of expenses you want to pay down. Avoid falling into the trap of spending everything up as soon as your dry spell is over. When things are going well, save as much of that extra income as possible. Having reserves to get you through slow times can give you stability and help take the pressure off.
- Cut unnecessary expenses. This is a good rule for everyone. Even if you're earning $1 million per year, it's unwise to waste money on unnecessary items and services. This is not to say you shouldn't enjoy the money you've worked so hard to earn. Enjoyment in life is important and necessary—but remember that what we're talking about right now is how to continue enjoying life during your retirement. Review your expenses regularly to see where your money is going. Do you really need three phones, ALL the movie channels, or a premium subscription to the service you barely use? Cut out anything you don't truly need.
- Set up a retirement plan. We've been talking about ways to save and grow your money for retirement. So, I would be remiss if I didn't talk about having an actual retirement account. Whether or not you already have a retirement plan from a current or previous employer or you freelance you run a small business, you can set up and contribute to your own retirement plans, such as a self-directed 401k or IRA. This will give you added tax advantages for retirement.
Building your retirement fund sounds great, but without a good budget, you'll find that most often, there's nothing to save.
Learn how to create a budget, even with inconsistent income:
- Look at the past. Look back at your monthly income and expenses for the past year. Attempt to build a budget with your lowest month of income as a starting point or use your monthly average. If you can survive your month of lowest income, the rest of the months will be easy. If you have several months in a row of lower-than-expected income, then budget to build a reserve fund that will get you through.
- Create an emergency account. The best way to be prepared for unforeseen expenses is to have an emergency savings account. Once you fall into the trap of avoiding one bill to pay another, it's challenging to dig your way out. Ideally, you want to build your emergency fund high enough to cover expenses for at least 3 to 6 months. This can help prevent you from depleting your traditional and retirement savings or going into debt during an emergency.
When it comes to retirement savings, time is money. Start budgeting for and funding your retirement right away. If money is tight, these may be challenging activities. But when you put the proper foundation in place, you'll greatly increase the likelihood of experiencing an abundant retirement.