You tuck away your pennies when you can, saving a little here and there. When you have some extra money left over from your paycheck, you put it into your savings account. You save when you buy generic lattes, and when you take your lunch to work. You’re proud of yourself.
You should be proud of these little habits, but they aren’t enough. They won’t lead to a quality life when there’s no work to be had and very little coming in from social security.
To have a successful retirement, we have to plan not only for having some savings — but for having enough to cover all the things that past generations used social security for. There has to be money for medical bills and the everyday costs of living, which are skyrocketing.
Planning for the future requires thought, effort, and discipline. To make sure you have enough money to live off of without sweating bills and medical needs, you need to be aggressive about putting away money now.
Use Burst Saving Instead
What you’re doing now is being complacent. You’re satisfied that you’re putting something – anything – away. The problem is that complacency won’t help you reach the level of financial comfort you’ll need later.
Burst saving will. This technique involves saving 15% of your annual earnings each year for 10 years.
According to a study by Hearts & Wallets, 64% of burst savers were able to save a nest egg equal to 10 times their annual salary. This is what’s usually recommended for a secure and comfortable retirement.
Using this strategy, you can boost your savings and increase your chances of socking away a million dollars before you retire. Even someone who has no savings can easily catch up and quickly fatten their financial padding.
The key is to make smart decisions about where to put that savings. You’ll need a minimum 5% return on your investment. You’ll also want to max out your 401K savings for the first three years before scaling back to the required contributions.
Burst Saving + Aggressive Tactics = Financial Success
Tuck away any and all earning hikes and bonuses into your savings. You’re already living on what you make. So put away the extra, and you won’t feel the pinch.
When you can, ramp up your 401K contributions. If your children aren’t living at home anymore, you can do with a little less each month, so push it over to your 401K. Or if your spouse gets a raise or new job making more money, put that extra into his/her 401K.
Watch your biggest ticket items. If you don’t need a home that costs $300,000, then don’t pay for one. If you don’t need a brand new Lexus (and you don’t), then why throw away your money on it? Pare down where you can. Live comfortably, but not extravagantly. (And be honest about what comfort is.)
DIY where you can. Buy a house you can fix up yourself. Not only will fixing up that house lead to a more attractive asset, but you’ll also have a hobby — and less time and money to spend on other things.
Drive your car until you can’t. Don’t trade up every few years because you need the latest model, or because you’re getting close to 100,000 miles. Stick with it; drive it and fix it until it doesn’t make sense to anymore.
You can only increase your main job’s salary by so much. Increase your earnings by taking on a side gig, and roll all your profit into your savings. If you do have room to increase your salary by making a career change, or by waltzing into your boss’ office and asking for a raise, then do it. (There’s a finesse to asking for and getting a raise: learn how to do it, and make yourself richer.)
Don’t forget that what you’re doing is going to improve your life when you’re older. Become a burst saver, and you’ll reach your million dollar goal sooner rather than later.
Have you ever heard of burst saving before? Would you try it?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
Editor's Note: Did you know about the service called $5 meal plans? For $5 a month, they send you recipes of delicious, healthy, yet cheap food that costs just $5 a meal.
Several of my friends signed up and they are able to eat at home more because the instructions are easy to follow, making everything convenient. The deal also comes with grocery shopping lists, which saves them so much time. Check it out yourself by clicking here and you too may be able to save more and become healthier at the same time.
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I object to your set-up for this article: the line about “very little coming in from Social Security.” Even under the most dire assumptions — which predict the SS trust fund running dry around 2035 or so — Social Security will still be able to pay around 77% of the current benefit levels. You, of all people, should know this and refrain from feeding a misguided hysteria that only weakens the program in the long run.
Thank you for the mention! Hearts & Wallets has also developed a free app to share savings habits based on the success of 20,000 actual savers from research over the past four years. The Freedom$™ app is available on iTunes and the Apple App Store as an iPhone or iPad app and is offered to help individuals achieve a baseline of financial freedom — or enough money to choose whether to work full-time or not. Please let us know what you think of the app so we can keep improving it!
I am a bit impressed on how you tackle the topic about savings Vincent especially burst saving. Yes it’s true that saving requires discipline to be successful in your goals. When you start saving, budgeting would be your next step. There were many ways on economical living. This article would be a great help to those people who’s planning to start saving.
I am not clear on what burst saving is unless it just means focus extra hard on saving absolutely every penny for a period of time. In theory, one is saving as much as they can all the time and that can well equate to burst saving. I guess I expected the article to say put what you intend to save into a retirement account at the beginning of the year as opposed to monthly or something.
A car falls most in value in the first 5 years, then stabiliserars value so buy a car that is 5-6 years old at a low price and run it for 5 years and then buy a new used car. You will save lots of funneling money that way.
I bought my last car with 220,000 miles on it. I got rid of the car that 290,000 miles on it. I regret “trading up” because the car with nearly 300,000 miles still ran fun.
But the silver lining is that I paid cash to make the transaction happen. And the new car should take me to 400,000 miles.
My recommendation…buy 10 year old cars. Save a lot of money, and the Toyotas, Hondas, and Hyandias all run forever.