8 Ways to Save on This Summer’s Road Trip

This post 8 Ways to Save on This Summer’s Road Trip appeared first on Daily Reckoning.

Summer is approaching. That means vacations for many families. AAA estimates that 100 million Americans are planning a getaway, more than half opting for a road trip.

But with gasoline prices inching higher, traveling could cost more than you may have expected. And for anyone on a tight budget, that could mean cutbacks on other parts of your trip.

As of mid-May, the national average price for a gallon of gasoline was $2.86… 3 cents higher than the same time last month.

Here in California we’ve been hit the hardest… passing a whopping $4. That’s up about 30 cents from a year ago.

For an estimate on how much gas will cost on your road trip, AAA has a handy calculator that’s based on where you’re traveling and the car you’re driving.

Now if you’re like me, you hate paying too much at the pump. So here are eight things you can do to make any upcoming road trip, and even your everyday commutes, a bit more affordable…

#1—Tap Your Smartphone

Use apps such as AAA’s Triptik or GasBuddy to find the lowest prices when you’re traveling. You can search by city, state, or brand. 

#2—Find a Fuel Rewards Program

Most gas stations offer a rewards program that can save you money…

For instance, BP’s Driver Rewards will knock off 10 cents per gallon (up to 20 gal.) for every $100 you spend on their fuel.

Shell has one, too. You can save 30 cents per gallon on your first five fill ups and 10 cents thereafter.

Exxon Mobil Rewards+ program gives you 3 points per gallon. For every 100 points accumulated, you get $1 off your fuel purchase. So 500 points = $5 in savings.

The obvious downside to these programs is that you have to buy at participating stations, which can be a nuisance when on a road trip.

If that’s a concern, you might consider Pay with GasBuddy. It works as a debit card at most every station nationwide taking the purchase amount right out of your checking account.

The service has three membership levels. One is free; the other two have monthly fees. You’ll save 5 cents to 20 cents per gallon depending on which membership you join.

#3—Cash Is King

Some gas stations will charge you as much as 10 cents or so a gallon when you pay with a credit card. That’s to offset the processing fees that credit card companies charge them.

So if you’re willing to pay with cash, look for stations that’ll give you a discount. Paying with a debit card often earns similar savings. 

#4—Discounted Gas Cards

GiftCardGranny.com and CardCash.com sell discounted gas gift cards that give you another way to save…

A recent listing was for a Sunoco card. Face value: $200. Your cost: $195.

Another was for a Shell card. Face value: $100. Your cost: $98.

#5—Timing Matters

Findings vary on which is exactly the best day to fill up. Yet there is agreement that prices are lower early in the week, which makes total sense to me.

After all, come Thursday folks are anticipating a weekend of travel. So unless it’s an emergency or you’re already on the road, don’t buy gas on Friday, Saturday, or Sunday.

#6—Do You Really Need Premium?

Years ago, drivers would occasionally buy a tank of premium to clean their car’s engine. But experts say that’s no longer necessary because today’s gasoline has additives to protect engines and cut pollution.

So it’s like throwing money in the trash when filling up at the premium pump can cost you 20 to 40+ cents per gallon more than regular grade.

However, some auto manufacturers specify premium fuel for certain models. If you’re not sure what can be used in your car, Edmunds has two lists for you: Premium Required and Premium Recommended.

#7—Before You Hit the Road…

Get your car ready with a tune-up. Replace the air filter, too.

You may realize a 7% increase in fuel mileage, saving as much as 12 cents a gallon, according to the Department of Energy. 

While you’re at it, check the tires. Properly inflating them could improve gas mileage by up to 3.3%, saving about 2 cents a gallon.

Having the oil changed and using the right grade of oil is good for another 3 to 6 cents in gasoline savings. 

#8—Practice Good Driving Habits

Avoid jackrabbit starts and sudden stops. Testing showed that accelerating slowly from a green light and gradually stopping for a red light cut fuel consumption by 27-35%.

And when on the open highway, switch on the cruise control. Cars monitored got 4.5-14% better fuel mileage using cruise control set a 70 mph compared to driving at 65-75 mph.

To Sum It Up

A final note that will make your road trip more comfortable…

Some people believe that their car’s a/c increases fuel usage. Not so according to test data from Edmunds.com.

The online resource information company found that using the a/c at highway speeds had no appreciable effect on fuel economy compared to rolling down the windows. 

So before you hit the road this summer, keep the above in mind as some easy ways to reduce expenses.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 8 Ways to Save on This Summer’s Road Trip appeared first on Daily Reckoning.

What to “Look” for Before You Make This Purchase

This post What to “Look” for Before You Make This Purchase appeared first on Daily Reckoning.

If you’re reading this there’s a good chance you’re either wearing glasses, contact lenses or some combination.

According to the Vision Council of America, approximately 75% of adults use some sort of vision correction. About 64% of them wear eyeglasses, and about 11% wear contact lenses, either exclusively, or with glasses. Over half of all women and about 42% of men wear glasses.

I bring this topic up because I know it affects a lot of you. Consumer Reports says the average retail price for buying a new pair of glasses now is $220-$240. That can be an expensive visit to your optometrist’s office if you don’t have insurance.

The good new is you don’t have to spend that much, especially not if you only need single-vision lenses. Something I’ve seen a lot of my friends and family do over the years that’s saved them big is buy glasses online.

If you’re hesitant to buy prescription eyewear online, let me dispel some of the myths about the process and lay out exactly what you need to know.

Don’t Let the Bad Apples Ruin the Bunch

In 2017, The New York Times ran a story about a man named Vitaly Borker who ran several cheap online eyeglasses sites including DecorMyEye and OpticsFast.

As far back as 2010, customers of DecorMyEye said they were shipped cheap counterfeits in place of the designer eyeglasses they believed they had purchased. Borker eventually was caught and it landed him four years in jail.

But this story sent a lot of people running for the hills. Don’t let this one bad apple or other tales ruin the savings you could be enjoying. In fact, if you stick to the list of trusted retailers I have below, you’ll be fine.

“How much do I actually save?”

If you’re going to buy your glasses online, you’ll pay one-fourth to one-sixth the usual price with the online sellers versus the traditional retailers. ZenniOptical.com prices start at around $7 for lenses and frames and $5 for shipping. That’s just about the cheapest price out there.

However, what you save in material costs buying direct from China, you lose in customer service apparently. Some Zenni customers have complained the lack of customer support from the online retailer.

In addition to Zenni, there are several other sellers of complete prescription eyeglasses for under $20. (If you wear bifocals or progressives, you can run that bill up to $40.) EyeBuyDirect.com and GlassesShop.com are both good cheap options as well.

What You Need Before Buying Your Glasses Online

You still need a prescription if you’re shopping online, typically your RX should be no more than one year old. The eye exam fee could end up being the bulk of your glasses cost, so it pays to shop around.

First, check your health insurance policy to see if eye exams are covered. Even if you don’t have insurance coverage, you should be able to get an eye exam for around $100. (Note: if you’re buying contacts as well as glasses, your exam will cost a little more.)

Here are few retailers that have reasonably priced eye exams:

  • Costco Optical
  • LensCrafters
  • Pearle Vision
  • Target Optical
  • Visionworks
  • Walmart Vision Centers

Also, your doctor is legally required to give you a copy of your prescription after your exam. One measurement you must have on your script is your pupillary distance (PD), make sure it’s there and if it’s not ask your doctor to add it.

The FTC’s Eyeglass and Contact Lens Rules lays out certain rights and obligations eye doctors have to their customers. Regarding giving out PDs, the rules say the following:

“Many doctors don’t charge for the pupillary distance measurement. If your doctor charges for it, some online sellers will refund the cost.”

If you don’t want to risk paying out of pocket for your PD and not getting reimbursed in the end, check out Goggles4u’s DIY guide to calculating your pupillary distance.

Know Your Frame Measurements

Choosing the right frames involves more than just picking a style you like — you need to find frames that fit your face. The three measurements to know are: lens width, bridge width (the width across your nose), and temple arm length (the length of the arms).

If you own a pair of glasses that fit, start by checking their size. Measurements are usually written inside the frame, listed left to right (lens width, bridge width, temple arm length). You’ll find them printed inside the temple arms or the nose bridge.

Online retailer Warby Parker will actually mail you frames to try on before you buy. And wherever you buy, check their return policy so you know what your options are if your frames don’t fit.

Most sites don’t offer full refunds on returned eyewear with prescription lenses. For example, FramesDirect.com deducts 50% of the lens price from the refund amount for returns within 30 days of purchase. ZenniOptical.com offers a 50% refund or a 100% store credit on all eyewear returned within 30 days of the delivery date. Eyeglasses.com provides a 50% refund on returned lenses.

The Best Places to Buy Cheap Glasses

According to Consumer Reports, these are the top 10 places — both physical and online — to buy eyeglasses:

  1. Costco Optical
  2. Any independent eyeglass shop
  3. Warby Parker
  4. A private doctor’s office
  5. ZenniOptical.com
  6. Kaiser Permanente
  7. Opticare Eye Health & Vision Centers
  8. Eyebuydirect.com
  9. Sam’s Club Optical
  10. Walmart Vision Center

39dollarglasses.com is another great option online that came in 12th.

Where Should You Avoid?

Consumer Reports says the three worst places to shop include SVS Vision, America’s Best Contacts & Eyeglasses and GlassesUSA.com.

If you still have cold feet after reading this then here’s one final tip…

Consumer review expert, Clark Howard, who wears progressive lenses says:

“I recommend a safe harbor until you’re comfortable. I want you to pay too much for your first pair buying them the traditional way to satisfy your fears. Then buy a second pair with a cheap online shop. Compare the two to see if the cheaper pair will work for you moving forward.”

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post What to “Look” for Before You Make This Purchase appeared first on Daily Reckoning.

Your 30 Day Financial Challenge

This post Your 30 Day Financial Challenge appeared first on Daily Reckoning.

A recent study by the U.S. Bank found that only 41% of Americans use a budget even though it’s one of the most effective ways to keep track of your finances.

Building a budget, automating bills, consolidating debt, negotiating lower premiums…all these financial must-dos are easy on paper but for whatever reason prove challenging in practice.

Why do you avoid doing what you know is best for your money?

I roll my eyes whenever I hear that old proverb, “A journey of a thousand miles begins with one single step.” But I have to admit, it’s true. If you’re feeling stuck financially, like you don’t know where to start even though you know what you should be doing, let me help.

Set aside five to 30 minutes each day over the next 30 days and follow my financial checklist. Don’t worry about trying to be perfect, this is an exercise in action. Here’s the full 30-day challenge:

Day 1: Make A List Of All Your Income and Expenses.

Use an app like Mint or software like Excel to help you. Your goal is to have a clear picture of where your money goes each month.

Bucket your income and expenses into different categories like Savings (retirement, emergency fund), Mortgage/Rent, Household Expenses (food, utilities, heating oil, etc.), Auto (car payments, tolls, Uber), Debt Repayment (student loans), Entertainment. It doesn’t have to be perfect, you just need to capture everything.

Day 2: Continue Day 1.

You might need a second day to get all your income and expenses tracked. If you can go back as far as one year, that’s even better. You’ll see irregular expenses like property taxes and gifts you might not have budgeted for looking at only the last 3 months.

Day 3: Build a Spending Plan.

Based on the data you collected in days 1 and 2, build a plan for your money.

Are you happy with how your money is being spent currently? Are there areas where you’d like to spend less money? Choose one area in your budget you want to reduce spending.

Day 4: How are You Going to Save in That One Area?

If you decide you’re spending too much on eating out, think of ways you can save in this one area next month. You can try meal prepping an entire week’s worth of lunches on Sunday or use the envelope method for meals out.

Day 5: Reduce Your Fixed Expenses.

Rather than trying to save in areas that require willpower like skipping Starbucks, look at your fixed, recurring expenses and figure out where you can save without having to lower your quality of life.

For example, if your cell phone bill costs you $80 per month now, how much could you save by calling your provider and negotiating a lower bill? A 20-minute phone call might save you an extra $15/month or $180 per year. 

Areas to look for recurring savings:

  • Utilities – energy saving light bulbs, programmable thermostat, wash laundry in cold water, etc.
  • Transportation – carpool, take public transit, walk more, sell one of your cars.
  • Cell Phones – family plans or corporate discounts, bundle internet, cable and your cell phone.
  • Cable – cut the cord, replace expensive cable packages with cheaper streaming services.
  • Internet – do a speed check to make sure you’re getting what you pay for. If you’re not, contact your provider and ask for compensation.
  • Insurance – review your deductibles and yearly mileage. Some carriers base your premiums on how much you drive. If you’ve changed jobs or commuting patterns, you might be overpaying.
  • Refinance debt – refinancing your mortgage or consolidating student loans can lower your monthly costs.

Day 6: Manage Credit Card Debt.

If you have credit card debt, call and see if you can negotiate a lower APR. A lot of providers offer 0% APR promotions. If you qualify, make a plan to pay down your debt before the promo period ends.

Day 7: Call Your Cable and Internet Providers.

Don’t pay for what you don’t use. Negotiate a smaller cable package or consider cutting the cord and switching to cheaper streaming services.

Day 8: Pull Your Credit Report.

Go to Annualcreditreport.com to get your free credit report from each of the three credit reporting agencies (Experian, Transunion and Equifax).

If you find any discrepancies, report them immediately. Mistakes on your credit will cost you money by making lending more expensive.

Day 9: Shop for Better Car Insurance.

Take a safe driver course online. For a few hours of your time and $25, you can save a decent amount on your insurance.

Day 10: Automate Your Finances.

Look at your budget and figure out which recurring bills you can automate. Also look at your savings and determine whether you’re on track to fund your retirement, emergency fund, or next vacation. Set up auto transfers to make saving and paying bills easier.

Day 11: Declutter.

Pick a room or spend the weekend decluttering your whole house. Gather things to donate, trash, or sell.

Day 12: Continue Day 11.

Continue decluttering and find a few more things you can get rid of, donate, or sell.

Day 13: Post Items for Sale

Post the items you’d like to sell on Craigslist or Facebook Marketplace. As soon as you sell them, take three-quarters of the proceeds and place it in savings. Use the rest as discretionary income.

Day 14: Declutter Your Finances.

Do you still get paper bills? Can you sign up for e-bills? Schedule a time every month to get the .pdf files and save them if you want to keep the bills. Shred documents that are no longer needed.

Day 15: Organize Your Financial File.

Make a few folders (virtual or physical). One for tax receipts, one for documents you have to keep for future reference (like a cancelled check for a security deposit until you get the deposit back), and one for monthly rotating documents (receipts that you can get rid of after reconciling with the credit card statements, bills that you can get rid of after paying them off, etc.)

Day 16: Have a Financial Date with Your Partner.

Talk to your partner about your finances to make sure you’re both on the same page. Align your goals and spending plan with your partners so there’s no surprises.

Day 17: Build a Master Financial Document.

After your financial date, you should create a master financial document with your current net worth, monthly budget, and all your accounts with passwords.

Make sure you encrypt this document and keep a copy in a safe place. Start it today and keep working on it until it’s complete.

Day 18: Spend One More Day Working on Your Master File.

Self explanatory, but you shouldn’t make a  master file in a hurry. Be thorough and take an extra day to complete it.

Day 19: Take Inventory of Your House.

To ensure your homeowner/renter insurance is accurate, you need to know what you own and how much it will cost to replace. Spend the day taking an inventory of all your most prized possessions.

Day 20: Do a Bank Audit.

Are you paying for a checking account or credit card? If you are, it’s time to change banks. Shop around for a free checking account and no-fee credit card.

Day 21: Do an Interest Rate Audit.

Are you getting the best interest rate? You don’t need to go chasing the absolute lowest rate but do a quick audit once a year to make sure you’re not getting ripped off.

Day 22: Do an Investment Audit.

How much are you paying in expense ratio? Are there ways you can reduce this and improve your return?

Day 23: Do an Energy Audit.

Do you have energy vampires? Check with your utilities company to see if they will do a free audit or buy a “Kill-a-Watt” device and DIY.

Day 24: Kill Some of the Energy Vampires.

After you finish your energy audit, fix some of the problems yourself. Whatever else you can’t fix arrange for a professional to come and resolve the issues.

Day 25: Do a Subscription Audit.

Netflix, Hulu, Spotify, Apple Music…the list goes on. If you have a number of entertainment or online magazine subscriptions, consider cutting the ones you use less frequently.

Day 26: Find More Ways to Save.

Look at your company’s HR page, your credit card company’s benefits page, your insurance company’s discount page and any other subscription’s (like AAA) pages to see what discounts you are eligible to receive.

VISA, Master card, American Express and Discover all offer benefits to card holders that can save you money with discounted tickets, extended warranties, etc.

Day 27: Calculate Your Hourly Wage.

If you’re on salary, you might not think about how much you get paid per hour. Do the math and you’ll know how many hours each of your purchases are costing you. This is an empowering exercise.

Day 28: Buy a Friend Lunch.

Take someone you admire and want to learn from, out to lunch. Ask questions and listen. This is one of the best ways to invest in your career.

Day 29: Update Your Information.

Make sure your beneficiary information for all your accounts is updated.

Day 30: Update Your Will.

You only need to do this if there’s been changes to your assets or life situation since the last time your will was updated.

That’s it! If you make it through all 30 days, you’ll have accomplished more in one month with your money than you will all year.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post Your 30 Day Financial Challenge appeared first on Daily Reckoning.

3 Ways to Grow Your Savings by Thousands of Dollars

This post 3 Ways to Grow Your Savings by Thousands of Dollars appeared first on Daily Reckoning.

Do you ever wonder why lottery winners sometimes go bankrupt, even after winning big? Why some people keep balances on their credit cards and pay high interest rates when they have savings available to pay the bill?

And why it seems so hard for Americans to set aside regular savings for retirement, even though they know they should?

These paradoxes can all be traced back to one concept you may have noticed is gaining attention as of late: behavioral economics.

The idea of psychology as a driver of economic action dates back at least to Adam Smith’s The Theory of Moral Sentiments (1759). Behavioural economics has, however, only in recent years been getting more popular.

In 2017, the Nobel Prize in Economics was awarded to Richard Thaler, professor of behavioral science and economics at the University of Chicago Booth School of Business. Dr. Thaler’s research looked at why people often make irrational decisions with their money.

Instead of acting rationally and having self-control, we tend to get easily distracted from long-term goals by short-term rewards, we often make poor financial decisions when we know better, and we give in to impulses way more than we should.

The bad news is marketers have figured this out and they’re constantly sending you small “nudges” telling you about special offers, limited-time sales, and never-before-seen deals encouraging you to spend your money now instead of saving it for tomorrow.

The good news is you can apply these same psychological strategies to boost your retirement savings.

Using Small Nudges to Improve Your Savings

In 2008, Dr. Thaler and Cass Sunstein, a legal scholar, wrote a book called Nudge: Improving Decisions about Health, Wealth, and Happiness. Dr. Thaler defined nudges as something that “alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid.”

“Nudges are not mandates,” the authors write: “Putting fruit at eye level counts as a nudge. Banning junk food does not.”

This idea of nudging extends beyond health and personal finance. Several countries around the world, including Britain, Germany and Japan have started implementing “nudge units” within their governments to change citizen behavior.

But for today’s discussion we’ll focus on how you can use little nudges to save more, invest more, and meet your retirement savings goals faster.

Nudge 1: Commitment Devices

Commitment devices are voluntary, binding arrangements that people make to reach goals that may otherwise be hard to achieve. Commitment devices are not a new concept.

From “Christmas club accounts” designed to help you save for holiday expenses, to CDs, financial providers have offered commitment savings products for decades now.

Why do commitment devices work?

  • People are present-biased – People prioritize today’s desires and needs over tomorrow’s and, as a result, fail to make choices that will only benefit them in the future.
  • People lack self-control – People often intend to save money for a bigger expense, but find themselves spending it on more tempting and gratifying things, instead.
  • People are inattentive to the future – It can be difficult to remember the future. People often under-save because they don’t think about how much money they’ll need in the next month, year, or decade.
  • Social pressure – Many people face pressure from their family and friends to share their earnings and savings.

Commitment savings devices have helped a lot of people save more than they would have otherwise. Studies suggest that people would rather be nudged than shoved into commitment savings though.

Here’s an example:

In Kenya, researchers found that simply providing people in pre-existing savings groups with a safe box (a metal box with a key they controlled), increased preventive health product investments by 75 percent in the following year.

However, a hard commitment device – where people put money for preventive health in a locked

box, and could not withdraw it for emergencies – had a much smaller impact over the same one-year period.

Nudge 2: Defaults

Automatic (“opt-out”) enrollment is when you are automatically enrolled in a product or service unless you choose to opt out. Setting the default to “opt-out” instead of “opt-in” has been shown to significantly increase uptake of certain savings vehicles, especially in retirement planning.

Why do defaults work?

  • People prioritize today over tomorrow – People tend to get caught up in their busy lives and systematically fail to make decisions today that will only affect them in the future.
  • People put off taking action on complex tasks – People often avoid taking action on tasks that seem daunting or complex, and financial transactions like choosing a 401(k) plan are no exception.
  • People suffer from inertia – People have a strong preference for the status quo, regardless of whether it is better or worse for them than available alternatives.

Research around the world suggests that defaults affect savings at every step of the way, from the rate at which people participate in savings programs, to the amount people contribute, to the likelihood that people will increase their contributions over time.

Especially in the U.S., we’ve seen the dramatic effect defaults have on retirement savings plans. One study found that when companies began automatically enrolling new hires in a 401(k) plan, participation rates went from 59 to 95 percent.

When the employer changed the default contribution rate from 3 percent to 6 percent, it increased retirement savings amounts without reducing participation rates. The 6 percent default doubled the amount of people who contributed 6 percent of their pay, from 24 to 49 percent.

Nudge 3: Reminders

A lot of people struggle to build good savings habits because there are so many seemingly urgent needs today that it’s hard to save for tomorrow, or they simply forget. Setting reminders is an easy, low-cost way to bring savings goals to the top of your mind.

Why do reminders work?

  • People tend to be inattentive to their future needs – People often fail to think about or budget for large future expenses – think weddings or a new roof, or emergencies, which are hard to budget for.
  • People prioritize today over tomorrow – People tend to put their current desires ahead of their future needs, even when they are tempted to buy something they know they shouldn’t. Temptation today makes saving for tomorrow hard.
  • People procrastinate – People often get caught up in their busy lives and delay taking action. They may intend to deposit money in a savings account, but never seem to find the time.

Research from different countries around the world show that reminders are a useful tool in fighting procrastination and helping people follow-through on their goals.

For example, Canadian online robo-advisor firm Wealthsimple started using a system that provides personalized, frequent alerts (displayed when clients sign in to their accounts) to inform them about possible investment options, like unused RRSP or TFSA contribution room.

“The idea is to proactively educate clients about the opportunities available to them – such as contributing to a retirement account. As this is personalized and immediately useful information, our hope is that it will nudge them to make decisions that are aligned with their longer-term interests,” says Dave Nugent, Wealthsimple’s chief investment officer.

As you can see, gradual changes or “nudges” can make significant shifts in financial behavior. If you’re ever feeling stuck, don’t look to make big moves right away. Instead look for small nudges that can change your course.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 3 Ways to Grow Your Savings by Thousands of Dollars appeared first on Daily Reckoning.

Retire on Time Even if You’re 40 with Nothing Saved

This post Retire on Time Even if You’re 40 with Nothing Saved appeared first on Daily Reckoning.

Turning the big 4-0 with nothing in the bank for retirement isn’t ideal but it’s reality for a lot of Americans today.

The Employee Benefits Research Institute reports that 37% of all employees age 35–44 and 34% of employees age 45–54 have less than $1,000 saved for retirement.

If you fall into this camp, take comfort in knowing you’re not alone. But realize you have a big hill to climb if you want to build a decent-size retirement nest egg.

You missed the opportunity to let time perform its compounding magic on your investments and now you’re faced with a simple math problem: The compounding approach won’t work for you if you start this late in the game.

It’s tough to accept, but it’s true. There are a variety of reasons why you left retirement planning until your forties. Dealing with too many debt commitments, juggling other priorities, having too little time, or simply not realizing that your 60s are closer than you think.

Regardless of your why, it’s not too late to take a hard look at your finances, create a plan, and get some money in the bank. Here’s a step-by-step guide on how to save for retirement in your forties without having to take on crazy amounts of risk. 

Step 1: Outline a Basic Retirement Plan

You’ll need four key numbers to start building your basic retirement plan:

  • the age you want to retire
  • the number of years you’ll depend on retirement savings
  • an annual estimate of living expenses in retirement
  • your current savings

Here’s how to find these numbers: While a lot of people see 65 as the “normal” retirement age, it’s by no means definitive. Take into account your age, salary, expenses and how long you’re likely to live, and you can figure out what age is a realistic retirement target.

Also consider all possible retirement income streams you might have. Will you have a pension, or will you depend on Social Security? To calculate your Social Security payments, enter your birthdate and current salary into this Social Security calculator from the U.S. Department of Labor.

You’ll see how retiring a year or two earlier or later will affect your monthly payments. For example, a 40-year-old earning $50,000 a year can expect benefits of $1,566 per month if he retires at age 65, or $1,824 if he waits until age 67.

After you figure out what age you plan on retiring, run your numbers through AARP’s Retirement Calculator. Enter your age, salary and lifestyle details, and the calculator will build a graph that shows your estimated retirement income and projected living expenses, as well as any gap between the two.

Adjusting your planned retirement age helps show you how working an additional year or two could affect your savings. What you might find is even delaying retirement until age 67 or 70, doesn’t close the gap entirely. This is where you need to rely on savings. So, how much money should you be saving?

To get a quick answer, use this Retirement Savings Calculator. Add your age, salary and current savings and the calculator will spit out how much of your annual income you should be saving for retirement.

This will be like a splash of cold water to your face. A 40-year-old earning $60,000 should aim to save 17 percent of his annual income — and that’s assuming he already has $10,000 in the bank. If you’re not sure where this money is going to come from, move on to step two.

Step 2: Trim Living Expenses

In your 40s, you should be earning substantially more than you did in the earlier stages of your career.

The downside is you probably feel comfortable taking on bigger expenses now. If you want to bridge the gap between your estimated retirement income and living expenses, you need to start slashing your living costs to free up cash.

Build a budget and see where the bulk of your money is going each month. Figure out which major expenses you need to cut.

Scaling back your cable package might add another $50 a month to your savings, and so might packing a lunch two or three times a week. But if you have virtually nothing saved in your 40s, it’s going to take more than $50 a month to make up for two decades of neglecting your nest egg.

Start thinking bigger.

Decide that instead of holding onto two vehicles, you and your partner will share one. Or, consider downsizing to a smaller home or condo which will lower almost all your housing costs in one shot.

Step 3: Get a Side Job

Working harder after you’ve spent the last 20 years or so paying your dues is not appealing, I know.

However, if you’re willing to take on a second, part-time job, you could reach your retirement savings goals a lot faster or without having to take such drastic measures as mentioned above.

For instance, if you can make an extra $400 a month on top of your regular paycheck, you might not need to become a one-car family. Better yet, if you’re able to reduce some major expenses and work a side job, you’ll accelerate your savings and not only hit retirement on time but have a sizeable nest egg to boot.

Step 4: Test Your New Plan

After you’ve made all the necessary calculations, trimmed some major expenses, and found a few new opportunities to earn some extra cash on top of your regular paycheck, run the numbers again.

Go back to AARP’s Retirement Calculator and see if you’ve closed the gap between your estimated retirement income and projected living expenses. If there’s still a gap, go through steps 2-4 again and figure out how you can move the needle in the right direction.

At the end of the day, you’ll have to work with what you have. You might realize that given your skillset or current time commitments, working a second job is not feasible. Or, you’ve cut your expenses to the bare bones and the numbers still don’t add up.

Once you’ve reached this point, then it’s time to consider higher risk investments to give your money a shot at growing. Treat high-risk portfolios as a last resort.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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