No matter what your age, saving enough money to meet your needs and wants is probably up there on your list of priorities. For most of us, it will pose a challenge at some point in our life—or maybe many times. And during a challenging time such as we are facing now, it can cause a great deal of anxiety.
However, some of the basic steps you can take to help build your personal wealth are the same now as they have ever been. Yes, everyone’s situation is different. But following these tips by doing as many as you can—to the best of your ability, based on your situation—may just improve your savings account over time.
1. Save enough
According to the Social Security Administration, a 65-year-old can expect to live another 19 to 21.5 years on average. Further, one-third of 65-year-olds will hit age 90, and 1 in 7 will live beyond age 95. Depending on when you retire, you could be looking at 30+ years in retirement.
Even though your expenses during retirement average 70% of your working years, because of early retirements and active lifestyles, our expenses may be greater than 85% in the early years.
And don’t forget about the impact of inflation. A million dollars after 10 years of 3% inflation is worth about $737,000, before figuring taxes.
For health costs, Medicare doesn’t cover everything. Things like prescription drugs, custodial care, and long-term care are not covered. Consider long-term care insurance and a supplemental insurance plan to cover what Medicare doesn’t. Remember, the longer you live, the more likely you will need long-term care. The Genworth 2019 Cost of Care Survey found that the median monthly cost for a home health aide in Wisconsin is $4,767. A semi-private room in a nursing home facility is $8,273. Plan ahead for possible costly health care expenses.
2. The earlier you save, the better
The earlier you start, the more you can benefit from compound earnings. Compounding is when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested, and so on. This means that contributing a small amount now could benefit you more in the long run than any larger amount you contribute later on. Even modest monthly contributions have been shown to grow exponentially.
— Kyle Steenport, teacher, Stanley-Boyd Area Schools
You may have heard the phrase, “Pay yourself first.” It can be a powerful savings strategy. It means you pay into your own savings and investments before anything else. Setting up automatic contributions into your retirement account using payroll deduction or electronic funds transfer can make it easier to do.
Kyle Steenport is in his early 20s and just started his first year of teaching at Stanley-Boyd Area Schools. He follows the pay yourself first mentality. “I think it’s important to be saving for my future at a young age. I think a lot of people coming out of college are just so excited to finally have a salary and make money that they forget the importance of saving. All of my family members who are older have been saying for years how imperative it is to start saving up as soon as possible. To me, that means utilizing the benefits you are given through your job.”
Nick German agrees. Nick has spent 18 years in the Appleton Area School District. He teaches high school, coaches middle school, and runs engineering and robotics camps for elementary kids in the summer. “Start saving early and live within your means. My wife and I are both fortunate to be educators. We’re also fortunate to come from modest backgrounds, so we’ve continued to live a simple life as our income has increased over the years. This allowed us to devote an aggressive percentage of our income to our retirement for the first half of our careers.”
Take a look at our infographic to see what happens when you start saving early for retirement. You might be surprised.
3. Don’t spend more than you earn
It’s important to be aware of the money you have coming in versus what’s going out. Spending more than you earn on a consistent basis can build debt quickly! Being in debt has a BIG impact on financial wellness by affecting your credit score, making it harder to get a loan, etc.
Once you’ve assessed your debt, devise a plan to pay off the highest interest debt first. If you need some help, contact one of our financial advisors. We’ll help you come up with a plan to get you back on track. And use our online debt calculators.
The best way to avoid debt is to be proactive about managing your money, which brings us to the next tip…
4. Make a budget
Not only does it help ensure you’ll have money for the things you need and that are important to you, but having a spending plan can also help keep you out of debt (or work your way out of it). And following a budget can make it less likely you’ll spend money you don’t have.
On the more positive side, a budget also helps maximize your savings and investments, allowing you to make sure your hard-earned money is being used to its best purpose. You’ll be better prepared in case of an emergency such as a job loss, major health crisis, or extensive home repair. And it gives you some room to splurge. That may sound counterintuitive, but having a budget can “give you permission” to buy those fancy shoes or purchase those drive-in concert tickets by tracking your expenses and building in an amount you choose for the fun spending.
Another way a budget can help you is to make it easier to clarify your short- and long-term savings goals. Long-term financial goals are often too easy to put off for later. For example, depending on your age, saving for retirement may seem a long way off. However, a budget can help you discover a way to fit it in, even if it’s just a small amount at first.
Here are a few examples of goals you may want to achieve:
- Short-term (0-5 years): Emergency fund, vacations, start a family.
- Intermediate term (5-10 years): New car, new home/condo, college fund.
- Long-term (10 years or more): Retirement savings (IRA, 403(b), etc.).
There’s a need for all three types of saving in your financial wellness plan. Starting earlier than later gives you a huge advantage by utilizing the power of compound earnings (see tip #2).
A budget can also be a helpful tool to use if you have a partner. Kyle, who was recently married, adds, “Another thing I’ve found to be important for my wife and me is our ability to budget and to communicate about money. This saves so many headaches and allows us to be on the same page. Once a month, we review our budget and see how we did. Then we adjust it accordingly. This small step allows us the chance to understand where our money is going and puts it on paper.”
Consider setting up a budget if you don’t have one. You can download a myriad of budgeting apps, set up a simple Excel sheet, or use our interactive budget form.
5. Keep credit card debt to a minimum
Credit card loans crossed the $1 trillion mark last year, reaching $1.08 trillion in the third quarter of 2019 (debt.org). Before credit cards, people knew easily whether or not they were living within their means. But the average credit card debt for Americans reached $6,194 in 2019, and balances increased 3% compared to the year before. Also of note, generations X, Y, and Z tend to carry more debt, including credit card debt, than older generations (Experian). Those who don’t pay attention and overuse their credit cards may not realize they’re overspending until they’re weighed down with debt.
Paying off outstanding bills has many benefits—it improves your credit score, reduces stress, and increases your financial security. Focus on paying off credit cards and other high interest debt.
Use our credit card pay-off calculator to see what it will take to pay off your balance. Visit our financial calculators page for this and many other helpful financial calculators.
6. Don’t chase the market
Especially during times of uncertainty like we’re in now, people tend to make investment choices based on emotion rather than careful consideration of their long-term plan. Selling stocks or cashing out your retirement savings when things look shaky, then buying again when the outlook seems brighter, is a common mistake. Trying to time the market almost never pays off because no one really knows what will happen next. Moving out of your investments into cash or very conservative investments means you may lose any opportunity to recover your losses when the stock market rebounds. One of the best things you can do right now for your retirement is to stay the course for the long term.
7. Create an emergency fund
Plan for unexpected expenses—there will always be surprise financial situations that pop up in daily life. Start with a goal of saving at least three months worth of expenses in your emergency fund—six months is even better if you can do it.
Consider setting up a recurring transaction to place money in your emergency fund each month. If you need to, take it slow and just save $20 per paycheck, increasing as you are able.
Do you already have a well-established emergency fund and it’s calling your name? Every time you consider spending money from your emergency fund, ask yourself these three questions:
- Is it unexpected?
- Is it necessary (a need vs. a want)?
- Is it urgent?
Use your answers to guide your decision to make it less tempting to dip into the fund.
8. Understand and take advantage of your workplace benefits
Understand and take advantage of your benefits including flex spending accounts, health savings accounts, life insurance, disability insurance, WRS, matching contributions to your retirement savings plan, etc. Visit your district office if you’re unclear about the benefits available to you.
9. Have adequate insurance coverage
Stuff happens. Insurance is key to your financial well-being and is an important part of your financial plan. Protect yourself appropriately with auto insurance, renters/home/condo insurance, umbrella insurance, and more.
However, while nearly everyone thinks they are adequately insured, few actually are. If you’re like most people who treat insurance like a commodity (i.e., based solely on price), you risk leaving yourself and your family exposed to financial loss or purchasing coverages you don’t need.
Member Benefits can take a look at your insurance needs and your existing coverage. If you’re well protected, we’ll tell you! If not, we’ll recommend changes and coach you to become a better insurance consumer. Call 1-800-279-4030 for a free consultation.
10. Pay attention to fees
Fees are everywhere—bank fees, credit card fees, loan fees, and retirement account fees. Fees matter. Keep an eye on how much you’re paying in fees because they can take a bite out of your bottom line.
— Nick German, teacher, Appleton Area School District
Remember, Member Benefits is here to help you with financial information and guidance, whether it’s an online resource, an individual consultation, or an in-depth financial plan. “I can’t say enough about Member Benefits’ efforts to help us understand our retirement investments,” adds Nick. “This year we met with Mark Resch (a Member Benefits Consultant) for a short individual consultation. He helped us realize we were on track for a comfortable retirement and that we could afford a larger home that better fits our growing family.
“We appreciate the time and expertise Member Benefits provides our family as we make long-term financial decisions.”
Member Benefit Consultants can provide assistance with your retirement savings accounts but do not offer investment advice. Registered Representatives of and securities offered through WEA Investment Services, Inc., member FINRA. All financial advisory services are offered through WEA Financial Advisors, Inc., an SEC registered investment advisor.