“I’m Too Busy to Plan for Retirement”
Like all of us, you’re busy. Retirement is a fuzzy, distant event that has nothing to do with shuttling the kids to lacrosse practice or dance lessons while making sure family members with five different schedules manage to eat a semi-healthy dinner every night.
Maybe you’re a professional, dutifully saving 3% of your salary into a 401(k) every year and getting 3% on top of that in matching funds by your employer. This is better than most Americans: this rate of savings will fund a retirement in some form, but probably not the retirement you want. Saving at least 10% of your income (or more if you’re getting a later start) is often what’s required given the increasing likelihood that you’ll live to 85, 90 or possibly even 100.
Why I Hate “Budgets” and Love “Spending and Saving Plans”
What comes to mind when you hear the word “budget?” Either it feels like an exercise in denial or it feels like a tedious, hours-long exercise of tracking where every single nickel is going in your household.
While scrupulous tracking may be required if you are in genuine financial crisis, it is not required if you have some money in the bank and are already saving at least a small percentage of your income each month. However, if you’re looking to save more for retirement and get yourself up into that 10% to 15% range that is required to fund what will likely be a retirement of 30 or more years, I do recommend having a simple spending and saving plan in place to help you get there.
With my busy clients, I’ve found the plan needs to be easy to set up and maintained in an hour or two per month; otherwise, like many other good intentions, it will get thrown overboard in the daily scramble. This household spending plan will have you off and running in a few hours and can be easily maintained once a month to help you meet your retirement savings goals.
Step 1 – Set Your Retirement Savings Goal
If you’re still in your 20s, consider setting a savings goal of 10% of your income. If you’re in your 30s or beyond and don’t have a lot saved for retirement, think about how you can get to 15% or more.
Step 2 – Establish Your Spending Categories
Make a numbered list of all of your household spending categories. Lump things together as appropriate. For example, your heating bill, your power bill and your water bill can be combined under the category “Utilities.”
Separate other things that you think should be tracked separately. For example, consider separating “Dining Out” from “Other Entertainment” and “Food/Household Supplies” if you suspect you may be overspending in restaurants. Create no more than about 20-25 categories. Sample budget categories are included at the end of this exercise.
Step 3 – Make Some Super-Rough Spending Guesses
Spend no more than 10 minutes going through your list and making some super rough guesses on how much you spend in each category. Do not get out any old bills, credit card statements or a calculator at this point. Put the spending categories into three buckets – big expenses, medium expenses and small expenses. The purpose of these guesses is simply to group expenses into the categories, not to understand where every dollar is going.
Step 4 – Choose Your Spending Plan Targets
Use the Spending Grid Tool below to help you decide which spending categories you will target for reduced spending. For each numbered spending category, draw an appropriate bubble on the grid.
Big expenses should go toward the top of the graph and little ones should go toward the bottom. Similarly, expenses you’d find easier to reduce should go toward the right of the graph while those that would be harder should go toward the left.
Consider cutting any categories that fall into the upper right quadrant (that is, categories that have a large budget and which you would find easy to cut). An example of this might be the $5 cup of coffee you purchase on the way to work each day. If you switch to making coffee at home most days and taking it with you in a travel mug – thus reducing your coffee purchase to once a week – you could save about $15 a week, or approximately $750 per year, with the same end result of being able to drink coffee every morning.
At the end of the exercise, you should have one to three categories that are your Spending Plan Targets for reduction.