When it comes to money, people usually have a lot of regrets.
Some of the most common ones are spending when they should be saving, not looking for a less-expensive alternative when it might have taken only a few extra minutes and, unfortunately, not having saved enough money for retirement when it’s almost too late. Americans tend to wish they had saved more for their future — of the 1,000 401(k) plan participants Charles Schwab surveyed, 40% said saving for retirement was their greatest source of financial stress, but they blamed obstacles for keeping their savings low.
See: How parents can help their children avoid regretting their college debt
Some of the financial challenges participants faced included: unexpected expenses and paying down credit card debt. About two-thirds of the participants said they wish they had saved more of the money they spent on the nonnecessities, such as dining out, expensive clothing, new cars and vacations. They did not, however, regret spending on a home, wedding or an education for themselves or children.
“There’s a balance in life around doing things that make you happy, but it is so important to take care of retirement,” said Catherine Galladay, senior vice president of participant services and administration at Schwab Retirement Plan Services. “We all know the sooner we get started on it, the better really.”
It’s never too late to save for retirement, but yes — the earlier people start the better off they’ll be. Unfortunately, not everyone heeds that advice. More than 40% of Americans are at risk of going “broke” in retirement (meaning they’ll have less than $10,000 saved for retirement), according to a GoBankingRates survey. The good news: That figure dropped from 55% of people who expected to go broke in the same survey last year. The bad news: Retirement costs a lot more than $10,000, but Americans sometimes wait until they’re in the decades just before retirement to start saving. There are numerous reasons for that — for some, they simply can’t afford to invest a substantial amount of money in a retirement account as well as pay for everyday responsibilities like rent and food; for others, they just haven’t gotten around to it.
“It is more fun to spend the money now, versus save/invest for many years down the road,” said Scott Fligel, a financial adviser at NM in Charlotte, N.C. “The discipline creates the freedom, which seems backward.”
Also see: Home buyer’s remorse: why you get it and how to get past it
So how do you balance spending now for a good time and saving for the future? A few financial advisers have suggestions:
• “A dollar saved is a dollar earned”: When invested properly can gain an investment return and appreciation, said Thomas Duffy, a financial adviser at Jersey Shore FA in Tinton Falls, N.J. So not only does it not go to something you may not appreciate in a day, week or decade’s time, but it also makes money thanks to compound interest. “The longer the time frame, the higher the opportunity cost,” he said.
• “Pay yourself first”: Don’t deprive yourself of spending money for nights out or a new outfit, but allocate a certain amount of money each paycheck to go straight to a retirement account. For those who are self-employed, or whose employers do not offer a retirement account, auto-debit your bank account on the same day your paycheck is deposited, said David Bize, a financial adviser at First Allied in Oklahoma City.
• Crunch the numbers: Whether you’re retiring in two years or 20, start to think about what retirement might look like for you — at least ideally. Where will you live? What will you do with your free time? Will you have any supplemental income aside from any sort of retirement account, pension or Social Security benefit? “If you know that you need an extra $200 per month, then you know that if you eat out at a nice restaurant and are paying for family or friends, you just agreed to work an extra month PLUS however many hours after tax and benefits hours you need to work to earn the money to pay for it,” said Carol Craigie, a financial adviser at Fiscal Fitness Clubs in Parker, Colo.
• Don’t fall for “YOLO,” but build the mentality into your routine: You only live once, but you need to pay for that life too. “The YOLO excuse is a great way to overspend and leave you short of funds when it really matters,” said Neal Van Zutphen, a financial adviser at Intrinsic in Tempe, Ariz. Does this mean you can’t go for a drink after work with colleagues? No, but it does mean you should consider where you spend the most money and scale back if it doesn’t work for you and your savings goals. “Financial Fitness requires individuals track all of their expenses and consider those that are necessary and those that are discretionary.”
• Do what you love: Sometimes, people spend money on things they don’t really care about (which goes back to the previous point). Eric Walters, a financial adviser at SC Wealth Planning in Greenwood Village, Colo. advises clients to pick three hobbies or splurges they really love and dedicate their discretionary spending on that. “That allows them to really enjoy those things and not feel deprived,” Walters said. “It helps connect my client’s spending to what they value most.”
