People ask over and over: “what is the best way to help me save and prepare for retirement?” While there are several answers to this question, perhaps the easiest answer to give is to tell people that cutting as many expenses as you can now will allow for a better and earlier retirement later.
It is not in our nature to cut expenses, especially in the United States, as everything is so freely used and easily enjoyed. However, cutting certain expenses, even if it is only a few unnecessary ones will allow for a much better retirement.
Do you really need to go out and spend $1,000 on that new 50 inch LCD? Do you really need the Direct TV package that provides you with 400 channels? Do you really need a laptop, desktop, smartphone and tablet? These are just some things to think about when cutting expenses for retirement comes into play.
From Daily Finance:
Less consumerism means you will need less money for retirement. Financial experts recommend replacing 70 to 80 percent of your income before you retire, which means the average household needs this proportion of their current income for retirement. This income can be from investments, pensions, Social Security or even a part-time job. As you can imagine, it’s very difficult for most people to generate 70 to 80 percent of their current income without a job. That’s why many people have to wait for Social Security benefits or a pension to kick in before they can retire.
Most people will need to spend 70 to 80 percent of their current income to get by in retirement. You don’t have to be average, though. If you spend less and save more, then you will be used to it and probably won’t need to spend a lot of money after retirement.
Picture $500 compounded over 20 years. What if you saved and invested $500 instead of spending it on a new TV? After 20 years, you’ll have $2,330 (assuming 8 percent annual gains). That’s not bad, but not a life-changing amount either. However, once you start saving, it can become a habit. If you save and invest $500 every year, then you’ll have $24,711 after 20 years. Now that’s a more significant sum.
Saving 50 percent of income isn’t possible for everyone. Saving and investing $500 per year will compound to almost $25,000 in 20 years. Imagine how much you’ll have if you save 50 percent of your income. It will most likely be enough for you to achieve financial independence and do whatever you want. Of course, saving 50 percent isn’t possible for everyone, but I think most of us can save much more than we are currently doing now. Let’s examine our consumerist lifestyle and see if it’s possible to cut back a bit and take the long view instead.
The article from Daily Finance makes a lot of sense, especially considering just how hard it can be these days to save for retirement and to properly cut expenses. Think about these things the next time you want to get on a faster, better track toward an early retirement.
Original Article Source: The Daily Finance