It can be a challenge to focus on saving for the future, instead of the instant gratification of spending money now. However, the types of decisions that you make now can influence your quality of life after retirement.
Here are some simple steps to help get you into the right mindset about saving for your retirement.
Look at your spending habits
You may be saying, ‘I do want to save, but I can’t right now.’ It helps to take a look at your spending habits and make a few adjustments to accommodate saving for retirement – it may be easier than you originally thought.
For example, it costs more to have a monthly cable or satellite subscription than most minimum monthly contributions towards a retirement annuity (RA) or a unit trust investment. Some RAs have an investment minimum of just R500. A few tweaks to your spending habits and it should be feasible to free up this amount to contribute to savings.
Create a budget
Once you’ve analyzed your monthly spend and have found areas where you can cut back, it’s best to draw up a budget. This will show you what portion of your income needs to go towards fixed expenses and how much money will be left over. Now, think about other priorities – saving for retirement should be right at the top of your list.
Ideally, saving for retirement should move into your fixed expenses category. By committing to a monthly contribution, you will reap the rewards of compound interest on your investment.
Think of a budget as step one of a bigger financial plan. Once you know your current status, the next step is to identify your financial goals and to set up processes that will help you achieve them.
Calculate how much you will need
To plan effectively, it’s important that your budget allows you to know how much you are currently spending. Also, think about the elements that could potentially change as you get older, e.g. will you still be paying off a house or car; will you need to save for your children’s education?
Reflect on your circumstances
Now that you have a comprehensive idea of how much money you may need to maintain a comfortable lifestyle in retirement make a concerted effort to remain focused and level-headed.
It’s important to take into consideration the possibility that you may need to access your investment before you retire. Mention this to a financial advisor, and he/she can recommend flexible product options.
Do some homework
Don’t procrastinate. If you feel that you need help choosing an investment that is right for you, speak to a financial advisor. He/she can help you analyze your financial goals and adjust your monthly expenditure to help you save for the future.
Remember, that to start successfully saving for retirement:
- Financial objectives should be defined and clearly understood.
- A financial plan should be discussed with a financial advisor.
- Think rationally, not emotionally.
- Always think of the long-term benefits.
- Be disciplined and stick to your plan.