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In 2022, inflation rose by a staggering amount. Currently at 8.6% as of this writing, at least one economic forecast projects inflation could reach 9% before year’s end. To keep up with rising costs, it may be tempting to lower your 401(k) contributions — or stop altogether. But in fact, high inflation means you’ll need to save more aggressively for your future as purchasing power declines. 

While 401(k) savers have the option of raising deferral amounts periodically, many employees fail to increase their contribution rates over time. Here’s why you should consider upping your 401(k) contribution, especially when inflation is on the rise.  

A Small Increase Can Make a Big Difference 

Saving for retirement is a long-term proposition, and small changes to your 401(k) allocations can greatly affect your ability to retire comfortably in the future. For example, according to Fidelity, a 35-year-old earning $60,000 a year can make a significant impact in their retirement savings by the time they’re ready to withdraw with only a 1% increase in their savings rate. In the short term, that’s only $12 more per week, which isn’t enough for most savers to feel an immediate pinch. However, just that small increase can add up to an additional $85,000 more in the fund by age 67, assuming a return rate of 5.5% and a consistently growing salary.  

While your particular situation may vary, increasing your 401(k) contribution rate now means that these funds have more time to potentially increase in value thanks to the powerful effects of compounding. And having a little bit less in each paycheck now will likely hurt a lot less than not having enough for a comfortable retirement later on.  

Consider Auto-escalation 

Even though the math is undeniable, sometimes it can be hard to get yourself to take the plunge, particularly if you’re concerned about rising costs in the near term. To make it easier for employees, some plans offer auto-escalation, in which your 401(k) contributions increase automatically. Typically, these rates increase by 1% each year until federal limits are reached. This is a great option to sign up for if you aren’t already enrolled. And you can always opt out of an increase, so there’s no long-term obligation. 

Talk to a Financial Professional 

Raising your 401(k) contributions periodically can help put you in a much better position for retirement, without having to take big hits to your available cash flow at any one time. Instead, you can ramp up gradually, upping your contributions whenever you receive a pay increase or at some set interval.  

When you’re ready to begin increasing your allocations, talk to a financial professional to find out how you can best augment and manage your retirement savings. As inflation continues to rise, 401(k) savers who periodically increase their contribution amounts are positioning themselves to be better prepared to maintain buying power at retirement, when they’ll likely need it the most.  

Source 

https://finance.yahoo.com/news/rate-inflation-2022-could-hit-134855542.html 

Creating — and sticking to — a household budget is the cornerstone of a sound personal financial plan. Here’s how to make one in 10 simple steps.  

1. Pick a system. There’s no shortage of budgeting apps and online tools available. You can also use a basic electronic spreadsheet or even pen and paper, if you prefer. But whatever your approach, select a convenient and flexible system to capture and categorize your income and expenses over time. 

2. Track current spending. Keep track of everything you buy for a month to have a realistic picture of your spending before you start. It can be surprising how many purchases occur under your radar — like that occasional latte, magazine or fast-food lunch.  

3. Log Your Income. Record income from your job and any other sources, like a side hustle building websites or selling handmade jewelry on Etsy. Don’t forget to include investment or retirement income as well.  

4. Record Fixed Expenses. These are costs that remain relatively stable over time — things like your mortgage, insurance premiums or car payment. 

5. Project Variable Expenses. These change from month to month. They might include things like gas, takeout dinners and clothing purchases. Credit card payments tend to also fall into this category. Look at your average over the two previous months for a ballpark, but always err on the high side when it comes to budgeting for them.  

6. Include Occasional Expenses. Some expenses only come up from time to time. They can be predictable (like your summer vacation) or unpredictable (like a car repair). Either way, it’s important to budget for expected and unexpected occasional expenses. To do this, take the total estimated cost, divide by 12, and include that amount into your monthly budget. 

7. Emergency Fund Savings. Aim to set aside at least 3-6 months’ worth of expenses in a highly-liquid savings vehicle like an FDIC-insured bank account (some advisors suggest 12 months depending on whether you own a home, are married or have children). Clearly, this can take time to build up, so if you don’t yet have enough saved for a rainy day, budget regular contributions to an emergency fund. 

8. Retirement Savings. Sit down with your financial advisor, who can help you determine how much you’ll need to save in your 401(k) and other retirement accounts each month to stay on track to achieve your retirement goals. It’s important to “pay yourself first” when it comes to funding your future — and your budget should reflect this important priority. 

9. Plan for Windfalls. Decide ahead of time what you’ll do with an increase in pay, tax refund, gift, bonus or other found money. Having a plan reduces the likelihood of an impulse buy. Consider using most of it to bolster your retirement fund or pay down debt. 

10. Monitor and Periodically Re-evaluate. It’s important to reexamine your budget regularly and whenever your financial circumstances change. Depending on your situation, that could be quarterly, semi-annually or annually. 

Don’t be hard on yourself if it’s difficult to stick to your budget each and every month. You may need to make some adjustments from time to time. The most important thing is to keep trying to meet your spending and saving targets. If you need help determining a realistic budget for your situation, make an appointment with a financial advisor who can assist you. 

You just landed a new job, and there are so many things to do. You have to set up your new workspace (even if it’s at home), become acquainted with your boss and coworkers and get up to speed on your new responsibilities. And there’s the company-sponsored 401(k) you should sign up for.  

It could be tempting to put off investment- and retirement-planning decisions until you settle in. But that’s an idea that could cost you more than you might expect, especially if you have a longer time horizon to retirement. 

According to The Motley Fool, a 25-year-old employee making about $47,000 who saves 15% of their income and realizes a 7% annual rate of return would have almost $100,000 more at retirement than another worker with all the same parameters — except that they waited until age 26 to begin their contributions.  

So, move signing up for your 401(k) to the top of your to-do list. If the options are a little overwhelming, sit down with a financial advisor who can help you determine your personal risk tolerance and recommend investments accordingly. 

Another option to consider if you’re unsure about making investment decisions is electing to contribute to a target date fund (TDF), if your plan offers one. These funds create a mix of investments according to an estimated retirement date.  

The fund automatically adjusts the mix and risk of investments to become more conservative as the target date approaches. A TDF handles much of the decision making for you. However, it’s still important to monitor the fund’s performance and periodically check in with your financial advisor to ensure you remain on track to meet your retirement goals. 

You generally want to contribute as much as you can to your 401(k) plan. But at minimum, try to contribute at least enough to earn the maximum company match. 

Companies that offer a what’s called a 401(k) “match” will match your retirement contributions either dollar for dollar, up to a certain amount — or according to a percentage or formula. You always want to aim for contributing at least enough to receive the maximum possible employer match or you’re leaving free money on the table. 

What you may intend to be a small delay in contributing to your 401(k) can lead to months or years as life gets busy. If this should happen, you can easily miss upswings in the market and opportunities for growth to compound over time. 

Choose to make retirement planning a priority and put yourself first. Your employer-provided financial advisor can be a tremendous resource whether it’s the first time you enroll in a 401(k) plan or your third or fourth time around. And if this isn’t your first experience with a 401(k), be sure to discuss the options for any funds remaining in 401(k) accounts from your previous employers as well. 

Don’t delay this important decision — set up an appointment with your financial advisor today.