You save and save and save; yet you might still be wondering, “did I save enough?” The amount of financial obligations can be quite overwhelming. Saving too much can put stress on your current lifestyle. However, not saving enough can become a problem for you in retirement, which can sometimes send you back to your previous lifestyle, also known as work. It’s easy to say, “okay, so what is the right number to save?” And you would be partly correct, but it’s a mistake to think that’s all you need to do.
1. Thinking you’re saving the right amount
If you have ever watched a squirrel then you would know they bury nuts, a lot of nuts. When winter rolls around and it’s time to eat those nuts, the squirrels forget where a lot of them are buried. It’s a sad but true fact; the squirrel failed to plan. Think of all that wasted time and the stressful frantic hoarding those poor squirrels put themselves through. Fortunately, the squirrels don’t usually starve and mother nature gets a few more trees sprouting from those nuts in return.
When you’re saving for retirement or any financial goal, it’s important to know how much you need to save. Knowing what that number is, can help reduce your stress and possibly free up dollars for another financial goal. Or better yet, allow you to do something today besides saving. As financial planners, we tend to plan for the future, but it’s important to find that balance for today too.
2. Emotional Control
Investing can become an emotional rollercoaster. When the market goes up, there are feelings of happiness and euphoria and sometimes we want to invest more or become more aggressive. The opposite occurs when the market goes down.
No one wants to buy a stock or mutual fund that loses money; yet when we go shopping, discounts and sales seem very attractive. When it comes to these short term price fluctuations, it’s all about perception.
It’s more than just buying low and selling high. Jumping into an aggressive savings plan or investment can be stressful. Even if you have the basics of saving and investing, emotions can destroy your plan. It’s important to go through a risk questionnaire to find out your risk tolerance. The key is to work towards your goal gradually, so you can ultimately achieve it. You probably won’t eliminate your emotions but investing with your risk tolerance may help. It’s also part of the plan.
3. Rewards & Sacrifices
Planning is a gradual process. If you went to the gym and started working out for the first time, you probably wouldn’t begin with the 100 pound dumbbells. The same can be true for financial planning. Start planning with your top priorities and committing a comfortable amount towards your goals can go a long way. Set short term goals such as beginning to save into your 401(k) before you also save additional money into a Roth IRA. Increase your savings rate during bonus time or when you get a raise but set aside a portion to do something rewarding. Consider eating out one or two days less per month or reduce your cable package to a basic service.
The small changes can add up quickly. Keep your sights on the big picture and how much you need to save overall. Continue to make sacrifices and reward yourself in the process. Moving towards your financial goals should be an exciting and fun experience.
Just like to tortes and the hare, slow and steady wins the race. Actually for retirement it’s a marathon, but you get the point.
4. Reviewing Your Plan
“The only thing in life that is constant is change.” -Heraclitus
Your investments will go up and down and your goals may change too. Reviewing your financial plan at least annually can help you regroup and recharge your path to financial success. You can increase or decrease your savings rate, choose new goals and adjust them too.
The review is the reason you can start today. If you change your mind, you can change your course.
5. Not having a Clear Plan
You have the basics of planning down and feel financially responsible. But you still don’t have a clear plan. If you don’t know how much you need to save for your goal; what rate of return you need to target; what happens if you have problems along the way; or have written this stuff down, then you don’t have a clear plan. Write out your financial plan and track your progress.
Here are the action steps towards saving you can take to achieve your financial goal.
- Establish your goals. Understand where you want to be in the end.
- Gather your savings accounts together and get organized.
- Analyze by adding up how much you have saved towards your goal and figuring out what the effects of saving more or less will have on your plan.
- Decide which plan of action you want or how much you need and are willing to save.
- Start saving.
- Track your progress and adjust accordingly.
It’s important that you review your plan because your priorities might change. It’s okay to adjust your goals as you continue saving. You can always go back to your plan and adjust the goal but you can’t go back and redo your savings plan if you failed to plan in the first place.