Two Ways to Boost Retirement Savings: Which Do You Choose?

Retirement

Two Ways to Boost Retirement Savings: Which Do You Choose?

Posted by Infinite Wealth Advisors, LLC
1 month ago | May 17, 2022

Many of us worry that we’re not doing enough to prepare for retirement, and know that we should be doing a bit more. At the very least, we want to max out our retirement plan contributions each year, and in many cases we want to do a bit more than that. And so, you face two options to better prepare for the future: Make some budget sacrifices and divert that cash to savings, or find ways to boost income.

So, which route is right for your situation?

Consider the “latte factor.” Often called the “latte factor”, this theory revolves around the idea that most people probably spend at least 5 dollars per day on something that isn’t really necessary. It might be a latte, or something other small indulgence that you enjoy.

This small daily spending seems trivial at the time, which is why we do it without question. But over just one year, that 5 dollars per day could amount to $1,825. If we assume a 5 percent rate of return, investing that same amount could net you over $244,000 in 40 years!

And so, many financial experts recommend cutting out one small daily indulgence, and investing that money instead. When you do the math, it’s easy to see the reasoning.

Option two: Increase your income. What if, instead of giving up your daily coffee (or whatever the indulgence happens to be), you simply found a way to earn an extra $1,825 annually. Invested in the same way, the potential return would be identical. The down side, of course, is that you’ll be working a bit more and losing some valuable free time.

Sacrifice doesn’t always feel motivating. For those with very enjoyable lifestyles, giving up a 5-dollar coffee could be a simple decision. But for those already living on a shoestring budget, who have given up luxuries such as cable television or a new car, that simple daily coffee represents something more. No one wants to live a life of absolute frugality all the time.

Life’s little emergencies can derail even the best-laid plans. Even those who have made wise choices and accumulated significant savings can find themselves derailed by unpleasant surprises. If you’re forced to borrow or whip out a credit card to cover an emergency, you might wish you had set up a savings account.

The answer is different for each situation. But in many cases, a combined approach works best. Why not comb your budget for small indulgences that you can give up, while also finding ways to boost your income? And whatever you do, make sure to divert some cash to a liquid savings account, so that you aren’t forced to take on debt to cover an emergency.

Remember, we’re here to discuss all aspects of your long-term financial planning, not just your retirement savings. Let’s discuss your earnings and budget at our next meeting, and we’ll help you max out your potential.

 

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