personal finance

5 Good Money Habits to Boost Your Retirement Savings

~ Jessica ~ Leave a comment

Think back to your most recent savings goal. How long did you have to save in order to reach it? Was it a concert ticket or some new shoes that took a few weeks of budgeting? Was it a big-ticket item like a new computer or a summer vacation that took a year or two of planning in advance? Perhaps you’re currently saving for an even more ambitious goal: a car, a wedding, a down payment on a home? Although savings goals vary from person to person and range in size and scope, it’s likely that your longest-term savings goal will be your retirement.

Saving for retirement poses some unique challenges: How are you supposed to prioritize retirement savings against the long list of more immediate goals? How are you supposed to find the motivation to prepare for something that’s decades away? How can you quantify the amount you will need to save when you have no idea what your future will look like?

The good news is that you can boost your retirement savings by practising the same good money habits that apply to smaller savings goals. Read on to find out which money skills will also level up your retirement savings plan.

1. Eliminate roadblocks. No matter what combination of financial goals you have in the works, this is the top priority. Think of it as creating the right environment for your savings to grow. Savings thrive when they have long stretches of uninterrupted time in which to accumulate and compound, so it’s in your best interest to eliminate any obstacles that threaten those ideal saving conditions. Focus on paying off any high-interest debt—you know, the kind that sucks up money that could otherwise be going toward your goals (credit card debt is an example). Revisit the terms of any loans you’re paying off and do a little research on potential consolidation or refinancing options—you might find a way to pay down your debt more efficiently and free up some extra funds for your savings goals at the same time. Eliminating roadblocks also means having a healthy emergency fund in place, so that your savings progress doesn’t get wiped out by an unexpected job loss (a good starting point is three months’ worth of expenses).

2. Automate savings. So your emergency fund is set up and your debt-management plan is in place—now is a great time to see if there are ways to automate your savings at work and at home. Can your employer automatically deduct your retirement contributions from your paycheque? Can you set up your online banking system to regularly transfer a certain amount to your savings account? Look for ways to make the act of saving easier, more consistent and less time-consuming.

3. Picture your goals. One of the reasons it’s hard to get motivated about saving for retirement is that it’s an abstract concept—especially when pitted against more self-explanatory savings goals like “new car” or “tropical getaway”. Take 10 minutes to ask yourself a few basic questions and to design your ideal retirement: do you see yourself relaxing at the beach, or enjoying a beautiful home and watching your family grow, or pursuing a passion or hobby you couldn’t make time for in your working years? Does your ideal retirement mean indulging yourself, or would you prefer to downsize and keep things simple? Would you want to continue working (part time or in some capacity) throughout your retirement? Do you picture moving into a new space? A new city? A new country? Fleshing out the details of an otherwise ambiguous savings goal allows you to ground the goal in reality and to get excited about it—and it’s easier to contribute to a savings goal you’re actually excited about.

4. Practice living with less. Increasing contributions to your savings goals (usually) means decreasing your monthly spending. This doesn’t necessarily mean adopting a super-frugal lifestyle; however, if that’s what you want to do to get to your goal sooner, go for it! Create some monthly challenges (like a month of packed lunches, or a month of free things to do) to see the impact of spending a little less. Put the money you would have otherwise spent towards your savings goals. If you live with a partner, challenge yourselves to live off of one income, and put the other toward savings. You will soon discover that spending a little less here and there does not require a complete lifestyle overhaul. Understanding the give-and-take of budgeting is a powerful skill, and it’s easier to cut spending when you can put it in the context of achieving a goal. Cancelling a cable package “just because” is not an enticing idea—but what if you knew that cancelling that cable package and investing the money saved would allow you to retire four years sooner? Having the right motivation can make it easier to save.

5. Increase savings along with income. This tip is an extension of living with less. Try to maintain your current lifestyle and expenses even as your salary rises over time. As your income increases, increase the amount you contribute to your savings goals. It’s very easy to slip into a slightly larger lifestyle after a raise. It’s equally easy to treat unexpected income as “extra money”, whether it’s a bonus at work or $20 in a birthday card from Grandma. There’s nothing wrong with rewarding yourself from time to time, but limiting your living expenses—even in times where you don’t have to—will free up more resources for your long-term savings goals. More importantly, you’ll be better prepared should your income levels take a hit. Allow your savings to scale up with your income, but don’t let your expenses scale up along with them!

________________

The good money habits outlined above will create a routine that motivates you to find a few more dollars to put toward retirement. Even little changes can make a huge impact on a long-term savings goal that has decades to compound and grow. Because time is on your side, there is a lot of value in prioritizing contributions (even small ones) to your savings goals now. Choose a couple of tips to put into practice this month, and notice the impact it has on your budget—and on your financial peace of mind.

Use Psychology to Build a Budget You’ll Stick With

~ Jessica ~ Leave a comment

When you start looking for financial advice (or any kind of advice, for that matter), experts will share their take on what’s “good” and what’s “bad”. In personal finance, there are some classifications that we can all agree on: Debt is bad. Emergency funds are good. Overdrawing your account is bad. Earning interest on your savings is good.

Aside from the obvious examples, the guidelines are a bit murky; plus, the financial advice gurus often contradict each other. One expert will tell you that spending money is “bad” and saving money is “good”. The next will say that saving money is “bad” and investing it is “good”. Another might tell you that there are some “bad” investments and some forms of “good” debt.

If you’re waging an inner battle of good vs. bad every time you whip out your credit card or peek at your monthly bank statement, it’s probably time to give your views on budgeting a shakeup. Start by losing the desire to classify everything as “good” and “bad”. There are good and bad ways to spend money, just as there are good and bad ways to save it. Following that logic, there are good and bad ways to budget.

A good budget is one that, quite simply, works for you. It allows you to meet your needs and plan for your goals, and—most importantly—it motivates you to keep on budgeting. Successful budgeting systems vary wildly in their approach and in the tools you need, but they tend to have the same three actions as building blocks:

  • PRIORITIZE
  • TRACK
  • REWARD

These building blocks not only help you organize your finances, but they also have the ability to boost your motivation (and there’s real science to back that up). Read on to see if your current budgeting system has all three building blocks in place.

  1. PRIORITIZE

What it means: Prioritizing your goals means taking a little personal reflection time and writing a few things down. Prioritizing your goals should not be confused with categorizing your expenses—we’re not talking about combing through your budgeting spreadsheet and pondering whether “fast food” and “takeout” should be combined into a single category. We’re not even talking about what you think you “should” be saving up for. No, we’re talking about your goals. What do you want your life to look like over the next few years? Is it your dream to train for a new career? To have an adventure in a foreign country? To throw an awesome wedding? To start your own business? To raise a family? Allow your goals to be a judgment-free zone—goals and dreams are as diverse as the minds and personalities behind them. In most cases, goals reach beyond the familiar trifecta of “pay off student loans, buy a house, save for retirement”.

Why it works: Prioritizing your goals gets you buzzing about what your money can do for you. There are a couple of motivating factors at work here. Number one: by prioritizing your goals, you are asserting your beliefs and your values. You are also reminding yourself of why you’re willing to adopt a budgeting system in the first place. Studies show that you’re more invested in activities that you see value in—and although budgeting literally deals with values (the dollars-and-cents kind), including your personal values in your budgeting system is what generates determination and stamina. Creating and sticking to a new routine is a pain if you think you have to or you should do it; it’s a lot easier if you’re mindful of why you want to do it. Number two: prioritizing your goals is a great starting point because it reminds you that you’re in charge. You have a say in where your money goes. Social scientists point to autonomy as being a critical element to sustain motivation—and what’s more autonomous than realizing that your budget is a collection of choices you make in order to create the life you want?

Get started: Grab a pencil and paper. Ask yourself what you want. Think about it for 10 minutes. Write the answers down. Realize they are achievable.

  1. TRACK

What it means: Tracking your expenses means being aware of where your money is going as you spend it. This is the part where financial advice experts start to disagree again: some swear by tracking your expenses with good ol’ pencil and paper, others swear by budgeting apps and spreadsheets, and some push more unique approaches like portioning your spending money into envelopes. The good news is that it doesn’t really matter how you go about doing it, but just that you do it. When you track your expenses, a couple of things come to light right away. You start to realize that every transaction, no matter how big or how small, is either contributing to a goal or taking away from it. There’s no such thing as “buying a pumpkin spice latte just because”. You will soon see that the cost of your fancy coffee comes out of somewhere—ideally out of your budgeted spending money, but potentially out of your vacation fund or your groceries or your student loan repayment plan. The second thing you’ll notice is that the longer you’ve been tracking your expenses, the more you’ll see evidence of your progress.

Why it works: Yet another critical element in sustaining motivation is competence, or your ability to do something well. As it turns out, we thrive on being reminded that we’re improving. On the surface level, tracking your expenses helps you to identify your spending patterns and to course-correct when necessary. More importantly, by tracking your spending, you’re also tracking your efforts. You’re creating a record of your progress along with a record of your transactions. Before long, you’ll have tangible evidence of how your actions and your follow-through are contributing to a calmer, happier financial life. You’ll see how capable you are of budgeting. You’ll find it easier (and even exciting) to keep your budgeting winning streak going.

Get started: Try out a new budgeting system today. Browse the App Store or do a quick web search, or pick up a book on the topic. Don’t spend much time evaluating or comparing budgeting approaches. Just pick one and try it out.

  1. REWARD

What it means: Rewarding yourself means encouraging and celebrating your progress as you create healthier financial habits. Don’t be afraid to use some creativity when defining your personal finance milestones and rewards. Milestones can be time-based (e.g., using a budgeting app every day for 30 days), achievement-based (e.g., paying off all credit card debt) or increment-based (e.g., having your emergency fund reach $500, $1,000, $2,000…). Rewards can take on many forms as well; material rewards are the most common, but consider incorporating time- and experience-based rewards into the mix too (for example, you can list “permission to spend an entire day just vegging out” as a reward).

Why it works: Quite simply, rewards feel good. They highlight our achievements and renew our commitment. As kids, we loved earning those gold star stickers, and although that familiar achievement/reward structure practically disappears in later years, it doesn’t mean that rewards are any less effective in adulthood. By assigning rewards to the milestone of any given goal, you’re creating added incentive and boosting your motivation. When you earn, claim and enjoy a reward, your brain gets an extra hit of dopamine, which in turn increases your focus and drive.

Get started: Set a timer for 10 minutes and brainstorm two lists: a list of budgeting milestones and a list of possible rewards. After the 10 minutes are up, assign the rewards to your milestones. They should reward your effort realistically and be super exciting to work toward at the same time. When you reach your milestones, claim your rewards.

________________

The act of creating a budget contributes to your ability to follow it through. It solidifies your values, it promotes competence and it highlights your achievements as you work through it. Incorporating Prioritize, Track, Reward into your budgeting method of choice will boost your motivation while tackling your personal finance goals at the same time.

Where You Seek Financial Advice Says a Lot About You

~ Jessica ~ 2 Comments

How did you decide where to open your first bank account? Where did you learn to budget or pay bills? If you have a money question now, what do you do? Who do you turn to?

If you’re under the age of 30, your answers to the above questions are likely some combination of “my parents”, “the Internet” and “I don’t know—I just kind of figured it out”. Although you might have been lucky enough to take life skills classes in high school, most young adults don’t receive any kind of formal financial education. So, it’s likely that you’ll need to seek guidance when it comes to money management.

That guidance can come from any combination of sources: family, friends, apps, blogs, classes, forums, financial institutions, articles, books—the list goes on. No source is inherently better than the others, as long as it empowers you financially. But the reality is that when it comes to getting financial advice, most of us have a comfort zone or a pattern we fall into: we ask mom and dad because that’s how we’ve always done it, or we start with an online search because we’re not comfortable with asking someone for help. Your default information sources say a lot about you and your values, and even though each source has good things going for it, it’s important to keep an open mind. Your financial health can always benefit from including new sources of advice.

Advice Source: Parents and Family Members

What it says about you: Responsibility is important to you, and you believe that big decisions should only be shared with people you absolutely trust.

Why it’s great: Recent studies have found that 49% of Millennials turn to their parents for financial advice. It’s not hard to see why—family members have a trust factor that just can’t be rivaled by any financial institution. They’ve known you literally forever and they truly have your best interests at heart. They’re familiar and accessible and, since they’ve guided you through most aspects of life, it makes sense that they guide you through your finances too.

Where it’s lacking: No two families are alike. In some households, money is talked about casually and in others the topic is totally taboo. Some parents are fully involved in teaching their children about money; others get stressed out even thinking about it. Parents are an excellent resource if they’re money-savvy and if they’re comfortable talking to you about finances. If that’s not the case, then you might want to look for other sources of financial information before consulting with mom and dad.

Advice Source: Financial Advisor or Financial Planner

What it says about you: You value expertise in decision-making, and you’re not afraid to ask for help from a professional.

Why it’s great: Whether you consult with an advisor at your financial institution or hire an advisor independently, it’s hard to top the results you get from working with a dedicated professional. Having an expert assess your financial situation and design a plan for you is an extremely powerful tool because they can recommend products, services and strategies that you might never have come across on your own.

Where it’s lacking: Many young adults shy away from this advice source. One possible reason is because, as helpful as a financial advisor can be, reaching out to one can be intimidating if you’re used to your finances being a very private matter. Maybe you feel embarrassed about your current level of financial understanding, or maybe you’re not used to talking about money. Using some other sources on this list to gather information before meeting with a planner can help you feel in control and better prepared.

Advice Source: Personal Finance Blogs/Online Forums

What it says about you: You value privacy when it comes to your finances, and you know that research is critical before making any important decisions.

Why it’s great: It’s fast, it’s specific and it’s private—the Internet is great for financial guidance. Some helpful online resources include your credit union’s website, personal finance blogs geared toward your life stage, personal finance sections on news sites, and FAQ sections or forums on popular financial websites.

Where it’s lacking: As with all online content, you need to have a critical eye when gathering data. Who’s the author of the content? What’s their motivation? Is this review biased? Is that research trustworthy? When you use the Internet as your go-to information source, it’s up to you to sift through all the sites and articles to find the content that’s most relevant to you. Getting a second opinion (or better yet, a professional opinion) on a topic you’ve been researching is a great way to get more comprehensive advice.

Advice Source: Friends and Peers

What it says about you: Maintaining the status quo is important to you. You feel most confident with decisions that align with what others are doing.

Why it’s great: Friends and other peers can be a good place to get financial advice— they’re typically in the same age range, they may be facing some of the same financial challenges or situations as you, and they might be easier to talk to than your family. They’re believable role models and can serve as good examples of what certain products, services or financial habits look like in practice.

Where it’s lacking: Even the closest of friends can have dramatically different financial backgrounds. When you go to your friends for financial advice, it’s very easy to compare yourself to them; in some cases, that can do more harm than good. Everyone has a unique set of financial priorities and circumstances. Getting general financial advice from your friends is great, but when it comes to more specific advice, look elsewhere.

Advice Source: Apps

What it says about you: You value efficiency and are always looking for ways to improve and upgrade daily tasks.

Why it’s great: Personal finance apps are wonderful resources because they’re often better at slotting into our busy schedules than some of the more traditional approaches to learning about personal finance. Why bother researching different budgeting systems when a comprehensive budgeting app is just a 99-cent-download away? Convenient and well-designed apps that fill a real need can actually lead you to pay more attention to how you manage your money.

Where it’s lacking: Personal finance apps are usually geared more towards actions than they are to education. They’re a great way to check an account balance on the fly or to set up a budget, but they don’t always provide the education that goes along with those tools. Apps are awesome tools that tend to work best when combined with a broader understanding of financial topics.

________________

Also consider how your credit union can help you further your financial knowledge. If you were to draw a diagram of your financial advice sources, your credit union would sit quite comfortably in the middle. It may not be related to you, but your credit union does have your best interests in mind as a member-owner. Your credit union can also provide you with current, professional advice and can give you access to all sorts of additional resources—both online and in person. It’s worth checking out, especially if your current combination of financial resources isn’t quite making the cut.