While everyone is fully aware of the importance of savings in retirement, only a few stay motivated enough to work out their retirement plans. The reason is simple: retirement plans are long-term in nature and they require a consistent income stream, a persistent commitment to restrict expenses, and the habit of putting the residual into a savings account.
Recent data suggests that the mindset of the people who keep on saving consistently is that they envision themselves at the age of retirement, thinking about what kind of life they’d like to live when they are no longer working and entirely dependent on their savings for sustenance.
Unfortunately, at least in the case of most people, the magnitude of the running expenditure as well as a person’s ad-hoc needs do not allow savings to accumulate as much as one would need to build a comfortable retirement savings fund.
Think About The Future
The question becomes, how much independence and freedom do you want to enjoy during your retirement years?
People who are able to imagine their retirement period are actually able to make more effective retirement plans as compared to people who have not given much thought to their lifestyle once they are no longer able to earn a living. This process of imagination trains your mindset and inculcates the spirit to save more for a better, more comfortable retirement period.
The research study which initially figured out the importance of retirement imagination in the retirement planning process was carried out by Capital Group. For the purpose of the study, the researchers involved participants from all walks of life, both in the social and financial contexts.
Half of the participants were asked to envision their post-retirement life while the other half were not specifically asked to do anything, rather to maximize their savings regardless. The resulting data showed that those participants who gave some thought to their retirement period ended up saving 31% more than the participants in the other group.
Imagining your retirement could create the push necessary to save more consistently, but you also need some effective strategies to bring your imagined retirement lifestyle to life. The following strategies have been designed to help you attain a safer and more comfortable retirement period.
Reduce Your Expenses in At Least One Category Every Quarter
This is the simplest rule of savings and also the least followed, mostly because there are a lot of unanswered questions when you apply it to your finances. Let us get the sadness out of the picture first. Reducing your expenses does not mean settling for less or substandard options.
Almost every functional manager of a company is given a cost reduction target for the quarter. This does not mean that the quality of the final product is allowed to suffer. It only means that better planning and pushing oneself to think of opportunities for cost saving is what’s required.
It could be in the form of bulk purchasing to avail discounts, reviewing the membership discounts that you may not be availing, app subscriptions that are no more in use on your phone, tablet, and/or computer; the list of all the areas where you can cut costs is endless.
Get a Second Job
If your health and schedule allows, then utilizing your energies to create a secondary source of income would only contribute to your mental health in the long term, as it would allow you to retire at an earlier age.
When you’re retired, you can follow your passions and pursue your dreams. All that and more is waiting for you to be free from the daily grinding and compulsion of going to your job. As soon as you hit that magical figure in your secure savings account you can be free to do all you want to do with your time.
Save Before You Spend
This is probably the mother of all advice on savings. Many personal finance experts have reiterated time and again that your savings should automatically get deducted from your regular income, and the amount of savings should never be available at your disposal for spending in the first place.
You will not miss what you never get. This rule also applies to bonuses, incentives, asset sales, leave encashment, prizes, inheritance and other incomes that are in addition to your current income. It becomes crucial for a retirement planner to put these over and above incomes directly into the savings fund instead of spending them.