We’ve all heard that for a successful retirement, we need to save money. With that admonishment usually comes stats about how much to save, how much to have saved by a certain age, and if we would just give up that one latte every day we could all retire as millionaires! This post is aimed at those who struggle to save, or who have insufficient income to save. So, why don’t more people cut costs and save money?
In reality, it’s not that simple. For example, those who live and earn in the lowest 20% bracket in our society, actually spend more on necessities than they earn! They simply cannot save for retirement when they are robbing Peter to pay Paul just to survive every month. It’s not so good for those who earn in the next bracket (20%-40%) either. Although not as hand-to-mouth, they still may not have enough to actually fund their retirement. The answer is obvious – they simply don’t have the extra income to save. If you think I am crazy, check out the Consumer Expenditure Survey and dive in to the quintiles data. A much easier and more pleasant read is Nick Maggiulli’s book, Just Keep Buying. Nick really dives into this topic.
Much of the financial advice heralded in the press is really not aimed at these groups. Unfortunately, they do need to save, and they deserve a stable, solid retirement just like any of us. But the incessant chastising about cutting spending and saving more could be doing more harm than good. It’s putting lower earners under a lot of extra stress. If you’re an upper income earner, you actually have areas of spending that you can (and likely should) cut back on and invest that cash. If you are in the first 40% of income earners that is most likely a nonstarter given that food, transportation, healthcare, and housing are taking all that you earn and more.
To break the cycle is hard. But research has shown that when given more money and resources, people can actually change their status in life and begin the process of building financial stability and passing this on to their offspring. So what does that mean? They can’t work with what they don’t have.
For those in this group to break the cycle and actually be able to save some money, the cold fact is that they simply need more of it. No amount of financial advice will help them until they have extra cash to work with and their basic needs are met. This, is really difficult. The only way to break the cycle is to increase income through their human capital – their skills, knowledge, and time. Yeah, I know. I sound like the Grinch saying this; but it’s true. So, how do you do this? How do you increase your income?
Sell something! You can sell your time by adding a gig job, or starting a family business. You can also sell your expertise. Selling your expertise will likely garner more bang for your buck! People are willing to pay for your knowledge. If you tend to hoard items, or have items you don’t really need or use, sell them. If you inherited an item that is truly useless for you and brings no joy to your life, sell it!
Market yourself and sell a service. We all have something we can do for which we could charge other people. Are you a professional gardener? Beef up your resume and go after side jobs. You likely have the experience to sell not just the gardening services, but a higher-end service such as landscape design.
Teach! Do you have a pilot’s license? Find out what additional steps are necessary to become a flight instructor. Even if you can only teach ground school the first year, it’s more income than you were earning before you started teaching. And, it may not take up much of your time. Other occupations can take advantage of teaching as well. Maybe you’re a beekeeper, or chicken farmer. Scale your service to fit a wider, targeted niche like backyard beekeepers and urban chicken enthusiast. Remember, you have experience and already know way more than potential clients.
With service and time offerings, keep in mind your time is limited so this will be a challenge to scale. Don’t underprice your services. Do think of add-ons for extra money.
Once you do have some extra income to work with, don’t forget that there are tips for holding on to that new-found wealth. If you have never had much extra money to work with, consider doing the following once you do have some extra cash.
Understand your money flow (cash flow). Know how much is coming in, and how much is going out, every month. This is a budget basic. Track and record all income and expenses.
Work together. If you are married or partnered, work together. Go over all the expenses and income so you both have a solid understanding of how much you have to work with each month.
Once you are earning more, consider a budgeting approach. The Gold Standard is the 50-30-20 Rule. You allocate 50% of your income to basic needs, 30% to wants, and 20% to saving and investing. Your percentages may not look like that at first, and that’s ok. Remember, it’s a measurement to work toward. Other methods include envelope budgeting, the zero budget, and even using apps to help with budgeting.
Don’t stress over allocating and accounting for every penny. We all need some flexibility and breathing room. And, we need to leave a little in our spending for pleasant surprises and unexpected emergencies.
Ah, those emergencies. Once you are on more secure financial footing, and you have some extra money to actually save, establish an emergency savings fund. This money should be in a designated, high-yield savings account. That means, most likely not a major, brand name banking retail establishment. Your ultimate goal is to have multiple months of savings. Start with saving the equivalent of one month’s expenses, then go for three months’ worth, and then build up to six when you can.
When you don’t have the income to save, no amount of financial advice, tips, or recommendations will help you. Just telling folks to save more will not help them. Actual change is really hard, can be time consuming, and requires effort. As an independent CERTIFIED FINANCIAL PLANNER™, I can help you when you are ready and making that life change. Contact me and let’s get started on creating some peace of mind. #talktometuesday #financialplan #letsmakeaplan #CFPPro #todolist #moneydolist #earnmore #savemore #save #earn