When you think of your retirement, you might dream of a period of relaxation where you can dive into your hobbies, go on more vacations, and start eating dinner at 5:30. But for those who haven’t properly saved their money, retirement may be dream hanging just out of reach. The number of people in this situation might be higher than you think. According to a Northwestern Mutual study, one in three Americans have less than $5,000 in retirement savings, and one in five Americans have no retirement savings at all.
But how do people end up in this position? There could be a number of factors:
- They don’t know how much they need. In a 2019 Transamerica study, almost half of the respondents (46 percent) stated that the amount they were aiming to save for retirement was a guess. Gen X and baby boomer respondents thought they would need $500,000, and millennials guessed they would need $400,000. According to a MetLife study, the average cost of retirement is $738,400
- They don’t make enough money to save significantly. According to the S. Bureau of Labor Statistics, the median weekly earnings of full-time workers were $905 in the first quarter of 2019. If you extrapolate this across the entire year, this number would be $47,060. Considering the cost of rent, bills, food, and any number of monthly expenses you need to take care of, you may not have much room left for savings in your budget.
Even still, when you’re living on a tight budget, you may still be able to find ways to save your money for your retirement. But if you’re looking to build up your savings, you’ll need to avoid these bad spending habits.
1. Buying something you don’t need because it’s on sale
Who doesn’t love a good sale? When you’re working your way through the mall or browsing online and you see a banner that reads “40% off”, it may be hard to stay away. And if you check that sale out and find an amazing deal on something you already need, then it might make sense to pounce on a great deal. But if you’re convincing yourself to buy that item just because it’s on sale, you may want to think twice.
According to a Slickdeals survey, Americans spend $450 on average on impulse purchases which equals around $5,400 every year, and $324,000 over a lifetime. Of those surveyed, almost two thirds who would consider themselves impulse shoppers said that finding a good deal is the main recent for these purchases. 40 percent of people said that the only reason they made a purchase was because they had a coupon.
If you’re buying something you genuinely need, then finding a deal can actually be a great way to make room in your budget for more savings. In fact there are some great tools out there to help you find deals on things like eating out, buying and selling used clothes, and all sorts of other useful things. But bad spending habits could really set you back.
If you were to take this $5,400 each year and use it to boost your savings instead, you could be making a significant contribution to your retirement.
2. Making too many small purchases
Making purchases like a $10 lunch here and a $5 latte there may seem harmless, but they can start to add up over time. The next thing you know, these “small” purchases are costing you hundreds of dollars every month without you even realizing it.
There are plenty of things that can fall into the category of small purchases. They could be things like:
- Dining out
- Subscription services
- Expensive gym memberships
Paying $10 a month for your Netflix account may not seem like much on its own, but when you combine it with all of the other small purchases over the course of the month, these spending habits may be making it harder for you to grow your savings.
If you want to put a stop to this kind of unnecessary spending, you’re going to have to take a good hard look at your budget and get a better idea of where your money is going. Whether you’re using a budget calendar, tracking your monthly expenses on an excel sheet, or using any number of free budgeting tools, the idea is to figure out exactly how you’re spending your money.
Your next step is to try to cut out some of your bad spending habits and eliminate (or at least reduce) some of your spending on things that aren’t essential. For example, if you go out for dinner every week, try cutting this back to once a month. If you find that you’re spending too much money on outings with your friends, try finding ways to cut back. Whatever your spending habits are, look for ways to reduce the inessential ones.
It’s also important to remember that you don’t need to save some crazy amount of money to make a significant impact. If you’re saving an extra $100 every month by cutting back on the small purchases you make, this money can go a long way in your retirement fund. If this $100 is earning 7 percent annual return, that could earn you about $113,000 in savings over 30 years. That’s a big chunk of change for doing things like cutting back on coffee and packing your lunch instead of getting takeout every day.
3. Blowing your extra cash for no reason
When you come in to a large some of money from a tax refund, work bonus, or through other means, it might be hard to resist the temptation to go out and blow that money on a fancy vacation or some other big-ticket item you’ve had your eye on. While it’s not a crime to occasionally treat yourself to something special, it’s important to make sure you’re not jeopardizing your financial future with any of these purchases.
When you’re trying to save your money for retirement, you might think the key is to simply start making more money. This is easier said than done, but if you do manage to start earning more, the temptation to reward yourself more frequently and extravagantly for all your hard work may start to go up. After all, when you’re making more money, it’s only right to spend more, right? If this is your thinking, you may not be the only one.
According to a 2017 study by CareerBuilder, one in ten American workers earning $100,000 or more annually are living paycheck to paycheck. This shows that a higher salary doesn’t necessarily fix all of your money problems. If you’re not being smart about how you’re managing your finances, you might be spending more than you can afford and leaving yourself little to work with for retirement.
Don’t let these bad spending habits ruin your retirement
The road to retirement is a long one, and the process of saving for it isn’t always easy. But it won’t help to be throwing money away on things that you don’t really need. If you’re not careful, these bad spending habits could be costing you thousands of dollars in potential retirement savings. But once you’ve been able to identify the problem areas, you can start to fix them and work your way towards a brighter financial future!
Do you practice any good spending habits to help save for your retirement? Comment below!
Posted in: Financial Tips
Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.
