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How can I generate extra cash flow to fund my retirement plan?
This is a question that we hear from our clients quite regularly. It’s great that we’re asked this question, because it implies that the person asking the question — at the very least — is thinking about saving for retirement and recognizes that every dollar coming in and going out counts.
As a whole, we know we need to save for retirement, but some of us haven’t quite figured out how to come up with the extra funds to do so. Generating extra cash usually doesn’t happen easily on the income side, as this is typically uncontrollable. Your salary is what it is. The ability to free up cash flow generally lies on the expense side. One can generate additional cash flow “simply” by managing and controlling their own expenses.
Here are some tips that can help you free up cash, enabling you to save more for retirement:
Track and budget
You can’t save money if you don’t know where that money is going in the first place. Budgeting and tracking your money is a way to not only stay more organized, but also to put you on the path to meet your financial goals in retirement.
Cut unneeded expenses
This may seem obvious, but every penny counts. Do you really need the premium cable package? How about that gym membership that you never use? Can you cut your own lawn? Plow your own driveway? Can you cook your own meal rather than eating out? Freeing up just $50 per month makes a big difference.
Lower spending on necessities
When it comes to insurance and groceries, we know these are two things you can’t cut out altogether, but shopping around and shopping smarter are ways to reduce overall cost. Perhaps your health has improved and that term policy can be renewed at a much cheaper rate. Or perhaps taking advantage of specials or clipping coupons is worth saving a few bucks.
Vehicle and house
Instead of taking out loans for personal vehicles, consider buying older but reliable cars for cash. Minimize borrowings on vehicle purchases. The extra dollars you save in interest expense can be put towards retirement funds. Additionally, mortgages that exceed 30% or more of your take-home income are normally considered excessive. Consider a refinance to reduce the monthly payment.
Put additional income directly into retirement accounts
Expecting a raise? Put that additional income into your retirement savings accounts. Same goes for any additional cash inflow, such as tax refunds or bonuses. Remember, a tax refund is not a bonus. It’s simply the government returning your own money to you at a zero-percent interest rate.
Freeing up cash flow is easier said than done. On paper it’s easy, but in the real world it’s very challenging. Many of these tips require a change in behavior and lifestyle. Changing those require discipline and courage. You can do it! A little bit of savings now will pay dividends (literally and figuratively) in the future!