Saving for the future – we all “know” it’s something we are supposed to do, yet study after study shows the majority of us are not saving enough. So why not? Why is it so difficult to put a little bit away today towards what we want tomorrow? It’s a lot of factors – education; planning paralysis – too many choices, so opt for none; and habits. Spending will generally be more natural for many because it provides immediate gratification.
Why We’re Not Saving
When we’re young, retirement is soooo far away – we have plenty of time, right? Then, as we age, we realize retirement isn’t as far as we thought – and the enormity of how much we need to save can paralyze us. We may tell ourselves, we’ll never have enough – might as well enjoy ourselves now. Or perhaps there are other contributing factors: caring for parents that never saved, or family members with Special Needs requiring expensive treatments and therapies.
Overconfident, insecure and overwhelmed – if one, or all, of these feels familiar to you you’re not alone. Studies consistently show Americans are not saving enough for retirement, and what I listed above are only a few of the reasons. We know we should, but how can we overcome these obstacles?
I’m fond of telling my clients you eat an elephant one bite at a time. Don’t feel that because you’re behind where you need to be you need to start with a drastic savings plan. Much like fad diets, this won’t work over the long term. Develop a strategy that you’re comfortable with and execute. If it means you’re only contributing 1% to your retirement plan at first, then do it (but let’s be real – most people can start with more than this). This is meant to be a beginning, we need to overcome inertia.
How do you develop a strategy? Let’s start simple – how much are you spending every month? Make that your first savings goal, it’s realistic and it can be rewarding to watch your money grow to meet it. Once you’ve met that goal, set your next goal by multiplying the first goal by 6 (now we’re saving towards 6 months of expenses). Then double the goal each time it’s met. Celebrate when you meet your goals, do something to reward yourself – it’s a big deal. After all, previously you were not doing anything.
Obviously 1% of your income isn’t going to get you where you need to be. So increase this annually and/or any time you receive a pay raise. If you’re pay is increased by 2%, increase your saving by 1%. You shouldn’t miss it, because you haven’t had it – and by not taking all of it you aren’t “shorting” yourself; you’ll be more likely to continue the savings. The only time to stop increasing is when you’re max’ing your 401(k) out, or when your financial planner tells you you’re good.
Have an accountability partner. Set a date in your calendar of when you want to reach your benchmarks, and periodically see how you’re doing. Tell a trusted friend or loved one about your goal(s), maybe even make it a friendly competition. Don’t quit if there are set-backs or you don’t meet the benchmarks. Instead, ask yourself “why”. Were you being unrealistic with the goal, or did you not apply 100% of the effort you could’ve towards reaching it? Sometimes life just gets in the way, it happens – but you don’t have to settle. Having an accountability partner will help keep the motivation up when things aren’t going well, and you can do the same for them.
They say Rome wasn’t built in a day, neither is financial security. It can be daunting, especially if you’re thinking you need to have a million dollars set aside and you haven’t started yet. Think back to skills you’ve mastered – were you able to do it right away? For most people the answer is “no”. It took time, effort and some setbacks – but yet here you are. Retirement is no different. Remember to give yourself milestones, and focus on those. After all, the hardest thing for you to do is take that first step and start saving.