Retirement always seems so far away until it isn’t. Putting off saving will make it much harder to have enough so you can comfortably live and pay your bills in your golden years.
One of the best ways to save for retirement is through tax-advantaged plans sponsored by your employer. Putting cash away now will help you set yourself up for financial success down the road.
Here are three ways that the next generation is saving more for retirement and using their 401(k) plans to build wealth.
1. Maxing Out Company Benefits
One of the best ways to save money for retirement is by taking advantage of your company’s benefits. Many employers offer a way to save for retirement, such as a 401(k) plan. Setting up an automatic deposit from your paycheck is one of the fastest ways to increase your balance.
When the money is taken out of your paycheck, you don’t see it in the first place so you don’t miss it. It’s a great way to trick yourself into saving and make it painless. Make sure you’re contributing enough to take full advantage of your company’s match – you don’t want to miss out on any free money.
This is one of the best ways the next generation is saving more for retirement. Tapping into your company’s retirement matching is a quick way to boost your savings rate by taking advantage of the free money.
Many companies offer to match your retirement dollar for dollar up to a certain amount. For example, they may offer to match the first five percent you put into your 401(k) every paycheck. This means you’re saving 10 percent from every paycheck for retirement, but only 5 percent is coming out of your actual compensation.
The free money continues to grow in your account with the rest of your contributions, earning interest and getting you that much closer to retirement. There is usually a vesting period until you fully own all matching contributions free and clear. For most companies, it’s in the 4-5 year range.
Check with Human Resources or your plan’s administrator on the vesting rules so you don’t miss out on getting the full amount.
2. Making Extra Money
Another way the next generation is saving more is by making more money. The rise in popularity of the gig economy offers new ways for people to make extra money outside of their regular paycheck.
The cash can be used to pay off debt, save for a big goal or possibly, pad a retirement account. Since contributions to traditional retirement accounts come with tax benefits, this is a great way to shelter some of the extra income and lower your tax burden.
There are many options for making extra from driving for Uber and Lyft to consulting or freelancing gigs. Every dollar counts and finding something that fits with your schedule and skills is key.
Other ways to make money include selling things on Facebook Marketplace or via eBay. Many people find good deals at yard sales or second-hand stores and resell them online. If you know what to look for, you can find some gems in the rough and flip them for a tidy profit.
If you’re good with animals, you can start a dog walking and sitting business. This works especially well in big cities with busy professionals who don’t have time to take their furry friends for a walk.
Another way to make money is by renting out a room in your home. Popular sites such as Airbnb make it easy to list your place for a few nights a month and make money. If you’re willing to take on a full-time tenant, you can consider a longer-term rental.
Other gigs you can try include grocery delivery, teaching English online and even tutoring. Companies such as VIP Kid will pay you to help others learn a new language.
The key is making sure the money gets put toward paying down debt and padding your 401(k).
3. Cutting Expenses
Last but not least, cutting back on expenses is a powerful way to save more for your 401(k). If you don’t have a budget, setting one up is the first step toward taking charge of your finances.
Already have a budget? Review your monthly spending and pinpoint areas where you think you can spend less. Some line items to consider slashing include dining out, grocery shopping, entertainment, utilities, gas, and more.
There are many ways you can slash your expenses without compromising your quality of life. One way to cut back on groceries is to make a meal plan for the week, shop with a list, and buy what’s on sale.
To cut back on dining out and entertainment, consider hosting a potluck or a game night. This way you still get to hang out with your friends and have fun for a fraction of the cost. You can also go out and pre-game by having some food and drinks before heading out.
If you’re looking to cut back on your commuting costs, consider carpooling or taking public transit. If you live close to your work, biking or walking may also be good options. In densely populated areas, heading out on foot or a bike can save you time sitting in traffic.
Consider cutting back on things you don’t use or finding a more affordable alternative. If you don’t watch cable, consider canceling it and going with Netflix or Amazon Prime Video. Both offer great entertainment options at a fraction of the price of cable.
Regardless of how you cut expenses, make sure you put the money you save to good use. As you make more money and cut back on expenses, increase your 401(k) contributions. Most plans will let you change your contribution amount as much as you want. The more you can contribute to your 401(k) the sooner you can get to your retirement – now that’s not a bad tradeoff.
The Bottom Line
Saving more money for your 401(k) takes some planning but you can definitely do it. Set a goal of when you would like to be maxing out your 401(k) and then craft a plan to get there with some of the tips we gave you today. Best of luck and happy saving!
About the Author
This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at his website NextGen Wealth and on the NextGen Wealth Facebook Page.
The information is provided for discussion purposes only and should not be considered as advice for your investments. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.