4 Steps to Budgeting for Retirement with your 401(k) (Infographic)
Planning for retirement can be tricky. But saving for retirement is a crucial part of your overall financial wellness. So, how do you create the best retirement savings plan for your current place in life and your retirement goals? With your 401(k) and a little bit of realistic budgeting!
As a quick reminder, a 401(k) is a retirement savings plan established by an employer that lets employees save and invest a portion of their paycheck. Often, the employer matches a percentage of the employee’s contribution and the total vests over time. Learn more about the basics of your 401(k) here. Once you understand everything your 401(k) can do for you, it’s time to jump into creating your retirement savings plan.
How Your 401(k) Ties Into Overall Financial Wellness
While the thought of planning so early for retirement can seem daunting now, the long term benefits and overall improvement to your financial wellness pays off in the long run. No matter your current age, saving for retirement ought to be part of your budget. Here is a four step plan to help you create a budget that also allows you to reach your retirement savings goals:
1. Strategic Spending:
The first step requires you having a thorough understanding of your current spending habits. Reviewing your transactions each month may reveal that you’re spending too much on your morning coffee or at the movies on the weekend with the kids. Identifying the areas that are impacting your ability to save makes it even easier to see how you can shift your spending and start growing your retirement savings.
2. Educated Budgeting:
We all know how important a budget can be when it comes to saving but the key is creating an educated budget. Once you have looked at your spending habits, debt, and other payments, you can build a realistic budget that fits your needs. It is crucial that this budget includes ongoing 401(k) contributions so you can make to keep moving you toward your retirement goals.
3. Smart Savings:
Making the most of the money put away for retirement is an important part of your budget’s savings plan. Saving your money in your 401(k) is the best way to maximize the money you’ve set aside, helping to build a comfortable retirement. On top of your 401(k) investments, be sure to maintain other savings accounts for either emergencies or other dedicated events down the road. Dipping into your 401(k) before you retire can be detrimental to your overall savings so having those backup savings accounts is critical.
4. Long-Term Planning:
Your educated budget is a great current snapshot of your financial situation, but what are your long-term financial goals? What kind of lifestyle do you want to live during retirement? These are the questions you need to ask yourself when setting your long-term savings goals. And, remember, make sure those goals are realistic with your current life position and expenses.
Your ability to prepare for retirement hinges on your long-term preparations just as much as your short terms ones. Follow our four key steps now to make sure you are making the most of you 401(k) plan so you can live your best life during your golden years.