There are so many things that stand in your way of saving for retirement – there’s never a “perfect” time to start. What you have to do is choose to do something rather than nothing, and do it now. With that said, you do need to find money to save, and that’s not always easy. Here’s how to start saving when you don’t seem to have anything.
If you don’t have a budget, make one. This will go a long way toward helping you save money. The simple act of writing down monthly income and expenses practically forces you to be objective about what you have (and don’t have).
It can also make things easier when tax season rolls around – even if you outsource your filing to a company like Liberty Tax services – because everything is written down and organized. If you budget in your savings, then it becomes like anything else – you have to do it.
If you budget for savings, then you won’t – it’s as simple as that. If you already have a budget, pull it out. Reassess your personal values. Prioritize things now that you have a family. Don’t think about just the short-term anymore. When you were single, you had far fewer responsibilities, and your budget probably reflected that. You had more discretionary income.
Now, you have a lot less discretionary income – and for good reason. Your savings plan needs to sustain you in your old age. You don’t have to ditch the bar scene completely, and you don’t have to swear off your single friends. You do need to start shifting more of your focus toward the long-term though.
Buy Life Insurance
Why do you need life insurance? You’re young, healthy, and still bulletproof, right? Again, life insurance is one of those things you’ll need over the long-term. It’s also a great way to get started saving money. Insurance planning isn’t just about buying a policy and forgetting about it.
It’s about buying a death benefit that covers all of your current and future known financial obligations and then back-filling it with personal savings until you don’t need the insurance anymore.
So, for example, if you have $100,000 in financial obligations (i.e. debts), you need $100,000 of life insurance death benefit. But you don’t just need death benefit. You need a savings to replace that death benefit too. Why? Because financial obligations never really go away. Even when you’re old, you’ll still have a lot of expenses – they’ll just be different kinds of expenses.
Instead of having a mortgage, you might have a lot of medical expenses, for example. Now, how you choose to build that savings is up to you. You can either buy a whole life policy to combine insurance and savings, a blended term and whole life, or buy term and put money aside outside of the policy altogether. Each strategy has its advantages.
Where do you get the money for this insurance? One clever way that works especially well if you’re buying whole life is to raise your deductibles on other insurance policies. This will necessarily lower your premiums on those policies. Take the difference and buy life insurance with it. If you use permanent insurance, the cash value it builds will allow you to meet the deductibles on your other policies if you ever need it.
Choose The Right Mortgage
It’s not as simple as buying a 15 year mortgage and calling it good. Because you’re young, you can afford to make payments for a longer period of time. Besides, when you’re stuck for savings, refinancing your mortgage and consolidating your debts might be the only real way to free up significant sums of money.
Choose the longest mortgage you can, and then set aside the savings. Don’t worry about the long mortgage. You’ll be paying simple interest on that. Worry about the savings side. If you choose a tax-deferred investment account and an investment that compounds annually, it’ll be much easier to earn more on your savings than what your mortgage is costing you.