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Beat These 5 Budget Busters
Beat These 5 Budget Busters
It happened again. You started the month determined to keep spending within your budget, only to come up short on contributions to your retirement and other savings.
How can this be?
Many factors can steer you off course on monthly spending, but a few particularly common culprits are often to blame. Here are five budget busters and some smart strategies to beat them.
1. Subscription Services
Premium sports and movie channels are great fun, but subscription creep is common as more channels join your viewing rotation, monthly charges increase over time — and free trial periods quietly end.
Smart savings strategy. Cut back channels to just your favorites. Avoid in-app purchases and only watch shows included in your programming package. When possible, replace premium services with free or lower cost, ad-supported plans.
2. Unexpected Repairs
Things break — that’s life. Computers crash, TVs stop working, appliances wear out, cars break down and phones get dropped. And it can be hard to stay on budget when they do unless you take steps to prepare.
Smart savings strategy. You can’t expect things to never go wrong, but you can establish an emergency fund of at least three-to-six months of expenses for when they do. Good maintenance habits can also help minimize repairs. And be sure to take advantage of any purchase protection that might be available for items bought with your credit card.
3. The Urge to Splurge
We’ve all walked out of the grocery with “extras” we didn’t plan on buying or come home from the mall with a new sweater that was too good a deal to pass up — or given into the desire for a pricey mochaccino at the coffee shop. While occasional indulgences are rarely problematic, frequent ones can add up.
Smart savings strategy. Bring a list to the store and avoid recreational shopping. And don’t grocery shop when you’re hungry — going to the supermarket with an empty stomach increases the chances that you’ll leave with a loaded cart. Spend cash to help keep credit card balances under control and set limits for online shopping (it’s just too easy to “click to buy”). If a purchase is beckoning you, consider layaway or wait to see if the urge passes.
4. Dining out
Eating at restaurants is a treat, but it can be easy to spend more than you intended. If your monthly restaurant tab is starting to look more like a car payment, there are things you can do to prevent your favorite eatery from taking too big a bite out of your budget.
Smart savings strategy. Limit eating out to once or twice a week — or month, depending on your budget. Instead of fine dining, try informal, less expensive bistro meals. Alcohol adds a lot to the check, so limit consumption when dining out. Split a meal or have an appetizer instead of an entree. Look for early bird or happy hour specials and swap out a steak splurge for a less expensive pasta dish.
5. Delivery Fees
You can get almost anything delivered today, from cat food to a new car. But convenience can come at a hefty price. Whether for meals, clothing or other online purchases, delivery services can make everything you buy more expensive.
Smart savings strategy. Drive to the store instead of paying delivery fees and forgo rush shipping. Don’t fork over hard-earned cash for meal delivery services, which often don’t even include tipping the driver. Eat in more — or use convenient curbside pickup instead.
And Most Importantly …
Whatever you do, there’s one way to prevent budget busters from derailing your retirement or other savings plans — and that’s to pay yourself first. Having retirement plan contributions automatically deducted from your paycheck is an effortless way to accomplish that. Put your financial future at the top of your budget each month to help ensure you can always afford what matters most.
Inflation and Your Retirement Plan
Inflation and Your Retirement Plan
Lately, it seems we’ve all had to learn more about global economics than we’d like. Thanks to the COVID-19 pandemic, extreme weather in essential manufacturing regions and a container ship mishap in the Suez Canal that wreaked havoc on deliveries for months, there’s no shortage of reasons for soaring prices and low-stocked shelves. With so much uncertainty in the world and all around, you may feel like holding onto cash is a safer bet. But if inflation is on the rise, a dollar today could have less buying power than a dollar tomorrow.
You may have had to adjust your budget to compensate for rising prices, but have you considered shoring up your retirement savings against the risk of inflation?
Inflation and Your Buying Power in Retirement
Inflation impacts the “real value” of investments in your retirement plan because the same amount of money may give you less spending power later. If your expenses are $2,000 per month now, you might need $3,500 during retirement, just to maintain the same quality of life — all thanks to inflation.
Countering Inflation in Your Retirement Portfolio
If you’re worried about how inflation may impact your 401(k) performance and retirement plan, there are some things you can do to compensate, increasing the chances that you will have more spending power in your golden years.
- Look for investment products that yield the same returns as the rate of inflation, or greater. When inflation is historically 2% to 3% annually, keeping most of your money in a bank account or CDs may not cut it. Look for investments likely to have higher annualized returns than inflation.
- Diversify your 401(k) portfolio between stocks, bonds and mutual funds. Not all asset classes and individual investments are equally impacted by inflation. Diversifying can help you manage your risk tolerance while still staying ahead of inflation.
- Look at treasury inflation-protected securities (TIPS). If you’re concerned about risk, TIPS can help. These are treasuries that offer returns designed to keep pace with inflation, allowing you to at least see returns that preserve your buying power.
- Consider investing in gold. Even though gold is sometimes thought of as a hedge against inflation because it traditionally moves opposite to the U.S. dollar, this isn’t always the case. When diversifying your assets, consider gold, but be wary of relying too heavily on it.
- Identify sectors with superior performance. Some sectors, like energy and commodities, often beat inflation. Including funds or stocks in these sectors in your portfolio can sometimes help mitigate inflation risk.
Impact on Retirees
Inflation can be more of an issue when you’re on a fixed income or close to retirement. Speak to your financial professional about strategies to deal with inflation, especially if you’re planning on leaving the workforce soon.
Saving for a big purchase can be a big challenge, whether it’s a brand-new car, a hot tub — or even a 1959 Gibson Les Paul. But you can tackle your elephant-sized purchase with a similar strategy: Just take it one step at a time. Here are a few big-ticket budgeting tips that you won’t need a memory like an elephant to remember to use.
1. Set a reasonable budget … then pad it. It’s always wise to allow extra room in your budget for contingencies. There can be unexpected surprises, especially with larger purchases. And unfortunately, things often have a way of costing more than you expected. Consider allowing a minimum 10% overrun on your big-ticket budget.
2. Find discounts and take advantage of them. If you’re traveling, for example, consider AAA or AARP discounts. Off-season travel can score you some savings, too. Many items and experiences cost more depending on when you buy or book them. Always look for coupons and other saving options when paying for routine purchases such as oil changes for your car, grocery shopping, dining out and ordering pizza.
3. Comparison shop. Scour the web and Google Shopping for other retailers who offer the product or service you’re interested in. If you’re looking for a car, for example, don’t assume that the price at your local dealer is “the” price. Edmunds.com, cars.com and other online resources can provide options in your area that you can filter based on your needs and preferences. And be sure to check national franchises that can ship inventory from across the country to find the best deal.
4. Ask a “friend.” Crowdsourcing consumer opinions has never been easier. Most products and services are reviewed, rated and compared — and the results can be easily searched for online. Search the comments for keywords like “discount,” “savings” or “cost less” to see how others saved on their purchases.
4. Set up a dedicated account. A great way to help organize your savings for a large purchase is to earmark the money intended for it by keeping the funds in a separate account. That way, you can more easily track your progress — and you won’t be tempted to spend the money on anything else.
5. Boost your savings with offsets. Take a look in your garage, the back of your closets and the attic. See if there are things of value that you no longer use or want. Sell them on eBay, Craigslist, OfferUp or at a yard sale. On the flip side, a penny saved is a penny earned. Can you decrease nonessential spending until you reach your savings goal?
6. Put time on your side. Start saving as early as possible. If you wait until the last minute, you may be faced with having to do some pretty extreme saving. The sooner you start, the less you’ll feel the impact on your day-to-day budget.
Seek out Advice — and Save
Family members, friends and co-workers might have their own experiences with the purchase you’re about to make and can share how they saved money on it. Ask for their advice — but also consider bringing in an expert by speaking with a financial professional who can help you make a realistic, feasible plan for your purchase.
Make Tax Efficiency a Part of Your Investment Strategy
Make Tax Efficiency a Part of Your Investment Strategy
When reviewing investment options, many people focus strictly on returns. But it’s critical to also consider tax efficiency as you build a portfolio.
There are two types of investment accounts: tax-advantaged and taxable. Tax-advantaged accounts are any investment or savings option that’s either tax-exempt, tax-deferred or offers some other kind of tax benefit. When you take advantage of tax-advantaged investing, you can reduce the impact when Uncle Sam comes calling on April 15th.
One of the most common and well-known tax-advantaged accounts is the 401(k). Many employers offer a 401(k) as part of their workplace benefits. There are two main types:
A traditional 401(k) grows tax-deferred. You contribute money from your paycheck before taxes are taken out, lowering your taxable income today. You save money on taxes now, but you pay taxes on your withdrawals later. If you think you’ll be in a lower bracket during retirement, this can be one way to realize tax savings over time.
A Roth 401(k) grows tax-free. You make your contributions with after-tax dollars. So, even though you pay taxes today, you don’t have to pay taxes when you withdraw during retirement. If you think your taxes will be higher in the future, this can be a good move, reducing your tax liability during retirement.
HSA (Health Savings Account) – The “Triple Tax Advantage”
If you have a high-deductible health plan and meet other requirements, you might be able to contribute to an HSA. With this type of account, you get what’s often called a triple tax advantage:
Contributions are made with pre-tax dollars, resulting in tax savings today.
Money in the HSA grows tax-deferred, allowing it to accumulate without the drawback of paying taxes as you accrue earnings from investments.
Withdrawals aren’t taxed if they’re used for qualified medical expenses.
Some retirees use an HSA in conjunction with other tax-advantaged investing accounts. For example, an HSA can pay for health costs during retirement, while money from the 401(k) is used toward everyday expenses.
529 Savings Plans
After you’ve shored up your own finances, you might want to use a tax-advantaged account to save for your kids’ education. Many states offer 529 savings plans that can help you do just that, whether you’re putting money away for college or even K-12 tuition. Both prepaid tuition and savings plans are available but investment options and fees may differ by state. Contributions are made with after-tax dollars, but money in the account grows tax-free if withdrawals are used for eligible education expenses.
Understand Your Options
Taxes can have a big impact on your financial picture and can sometimes be complicated to fully understand. Nonetheless, it’s important to consider tax-advantaged investing when establishing your personal financial plan. If you have questions, speak with your qualified financial professional about which tax-advantaged investment options might be best for you.
Holiday Gifts That Won't Break Your Budget
Holiday Gifts That Won't Break Your Budget
You’ve done a good job of sticking to your financial plan all year, but when it comes to holiday gift giving, it’s easy to let good intentions knock you off your savings path. According to the National Retail Federation, Americans spend about $1,000 on winter holiday gifts. That can be a real budget-buster, but meaningful gifts don’t have to come with a hefty price tag. We’ve got some $25-or-less gift ideas for everyone on your list.
Office gifts are part of work culture. Maybe you manage a team and want to give your group a token of appreciation. Or you know one person who always gives gifts, and you want to return the favor. A work-appropriate gift that won’t put your account in arrears could be a nicely bound notebook, a quality writing pen or a gift bag of color-coordinated office supplies like paper clips, magnets and post-it notes. Keep it professional but fun to brighten your coworkers’ day.
Seasonal Presents to Service Providers
Postal workers, hair stylists and even your Grub Hub driver are people you might want to thank during the holidays. A batch of your favorite cookies presented in a festive box or tin is a low-cost way to show your gratitude for a year of good service. Make it extra special by including a handwritten note and a copy of the recipe.
Thank Your Terrific Teachers
Whether it’s your child’s 4th grade teacher or your yoga instructor, there’s lots of reasons to give extra thanks to the people who help us learn and grow. A pick-me-up, like a $10 gift card to a coffee shop, can help any teacher start their day off right. Make it more meaningful by supporting a local business close to your favorite teacher’s place of employment. Bakeries, ice-cream parlors or tea shops often offer gift certificates or cards that you can package in a pretty envelope or decorated box for that personal touch.
Great Gifts for Grandparents
Grandparents, aunts, uncles, cousins — you want to remember your extended family in your holiday giving, but the costs can add up. Go for truly personal, budget-conscious family gifts by using the photos you take during the year to make photo-mugs, photo-calendars or even a family photo t-shirt! You can look online for low-cost, photo-personalized gift services. And at some big-box stores or national pharmacies, you can connect your camera or thumb drive to their in-store kiosk for easy ordering and processing.
Treat Yourself Too
No one should fault you for indulging in a holiday gift to yourself, but you should be as mindful here as you are in your presents to others. Money you receive as gifts (and funds you save by using our budget gift ideas!) can add up to a special treat and an end-of-year contribution to your retirement savings account. Talk to your WellCents financial professional about how catch-up contributions can help maximize your retirement savings and give your future self the gift that keeps on giving — a more financially secure retirement.