How to Save for a great Retirement
It’s much easier to plan your budget, savings, and retirement when your income is consistent. If you are employed make sure you participate on retirement programs offered by your employer. If you’re paid on commission or own your own business, it can be significantly more challenging to save regularly for your retirement. Strategies that work for most might not apply when you’re working for yourself.
Try these strategies to build your retirement savings even if your income changes from day to day:
Start slowly if you like, but get started. Many business owners falsely think that it’s a waste of time to save small amounts of money. Even if you can only save $10 each month, it’s a start. Attempt to add to that amount each month.
Getting into the habit of saving money is the most important first step.
Create your own version of direct deposit. One great thing about working for a large company is direct deposit, because it’s easy to send part of your paycheck off to a savings or brokerage account before you ever see the money. As a business owner, you can create a similar system.
Set up your checking account to automatically transfer a specific amount to a savings account at regular intervals.
Many individuals leave the money in their checking account while attempting to use mental accounting and tell themselves, “This $150 is for savings.” This rarely works. Remember that you can cancel a payment if you’re unable to swing it one month.
Save more when you can. Some businesses are seasonal and many are particularly inconsistent. When business has been slow for a while and then it picks up, it’s natural to want to enjoy your newfound bounty. Avoid falling into this trap. More tough times could be coming. When things are going well, save as much of that extra income as possible.
Eliminate unnecessary expenses. This is a good rule for everyone. Even if you’re earning $1 million per year, it’s foolish to waste money on unnecessary items and services. For most business owners, it’s wise to consider cutting out anything you don’t truly need.
Building a retirement fund sounds great, but without a good “budget”, you’ll find that most often, there’s nothing to save. You’ll need a good allocation of money. Use the following guide to set you up for the best chances.
Divide your money into 6 different accounts, even with inconsistent income:
Necessities 55%. This is money that you will use for your basic needs such as food, your house, car, education for your kids, utilities, clothes, gas, etc.
Wealth 10%. This is money that will never be spent. It will be used to create passive income. The idea is to eventually live off money coming from assets bought from this account.
Long term savings for spending 10%. This is money that will be used for major expenditures such as a car, a vacation, appliances or higher education.
Education 10%. This is not necessarily school education but more like mentoring, courses, masterminds and conferences.
Play 10%. This is an account used to buy leisure items, things like extra clothes, toys, entertainment, eating out in beautiful places, mini getaways, massages, etc. Tip: this money is to be spent every month so go totally nuts with it.
Giving 5%. This money is to be given away for charity. If, at the beginning, you don't have enough money to give then give your time. We are here on this earth to be happy and to help others so be sure you put some money aside every month to help your favorite charities.
Get started immediately on your budgeting and savings plan. When you’re self-employed, there’s rarely time to waste. If money is tight, these may be challenging activities. But when you put the proper foundation in place, you’ll greatly increase the likelihood of experiencing an abundant retirement.
Luis Salavarria is a multifamily real estate investor. If you have any comments or if you have a property you would like him to help you with, please contact him through this link LuisSalavarria.com/links.
