Everyone knows that investing in your retirement savings should be a priority at any age. You also understand that the earlier you begin, the better off you will be. The problem is that sometimes life gets in the way, and it can be easy to throw your retirement plans off track. Here are a few simple suggestions for balancing saving for retirement with taking care of more immediate needs.
Know the Big Picture
When something happens, such as an unexpected expense, it is essential to consider the long-term picture and put everything in perspective. The idea of compounding is that you earn more by investing less over a more extended period. If you stick with your retirement goals for ten years straight without fail, and for six months you contribute less because of a short-term emergency, as long as you get back on track once the short-term need is over, you will not throw your plans off that much. You should also plan to do some catch-up as soon as life circumstances allow. The problem is if you never get back up to your original savings contributions, which can have a significant impact.
Think Twice Before Spending
The second piece of advice is to think twice before cutting back on your retirement and making a big purchase. It might be tempting to get that new car or upgrade your lifestyle when you have extra cash, but you need to picture yourself at retirement age and ask yourself if you would consider this would be a big regret. It is human nature to go after immediate gratification rather than to stick with a long-term goal, but before you make that purchase, you have to ask yourself what it means for your financial security. If you have less than ten years to retirement, an unnecessary investment can significantly impact your financial security in the future.
Have an Emergency Savings
Many times, the things that stop you from continuing on your track to your retirement goals are unexpected. It is the loss of a job, a family illness, car repairs, or a new roof on the house that can derail your retirement savings. That is why having emergency savings that are earmarked for those types of events can help you stay on track for the long term. If the money to handle emergencies is already set aside, then you will not have to dip into your retirement or stop your contributions when something happens. There is no reason why your emergency savings cannot earn interest while it remains ready and accessible in case you need it.
Consistency Pays Off
Sometimes, when an exciting opportunity for a purchase or life upgrade comes along, or when something happens that you did not expect, it is easy to get caught up in the moment and temporarily suspend your retirement plans as your first line of defense. However, the best piece of advice when something happens is to step back and look at the big picture. If you can let it sit for at least a couple of days before taking action, this can give you time to think it over and make a good decision rather than making one you will regret later.
The biggest challenge in saving for retirement is to resist the temptation to put off your retirement savings for short-term needs or wants, especially easy if you are in your 20s and feel that time is on your side. The caveat is that the sooner you have your nest egg put away, the better the rest of your life will be. You do not have to wait until retirement to enjoy having financial security. You can then use part of what you have saved to enjoy some short-term goals and enjoy the lifestyle you crave. The most important thing is to resist the temptation to go into debt or spend now if it means sacrificing your future.
One way to avoid making a decision you will regret later is to use a calculator to see what the impact would be on your savings goals. For instance, if you decide to buy a house that will have a bigger mortgage payment but allow you to contribute less to your retirement, you can run it through a calculator to see the long-term impact. Input the different periodic contributions on the calculator, and see the difference between the larger contribution and the lower contribution at the end of your investment period. This will show the long-term cost to your retirement savings.
Sometimes seeing the actual numbers can put things in perspective and make you think twice about giving in to your immediate emotional needs. Of course, there are times when it may be necessary to take a short break from your retirement savings. Still, you need to take this seriously and consider all the factors and other alternatives when deciding whether this is a good idea or not.