Retirement is one of your biggest financial goals, so it's important to set aside part of your paycheck regularly for your retirement plan.
However, building up sufficient savings to cover shorter-term concerns, such as emergencies and large purchases, is vital.
Juggling both pursuits can seem daunting. However, by taking a few steps, you can free up some of your income to put toward your savings fund.
This article will explore five ways to build a savings fund without impacting your retirement planning.
1. Create a budget and track expenses
To create a budget, you must calculate your monthly income and expenses. You can find this information by reviewing your bank and credit card statements. Look at all statements for a few months to better understand your average monthly income and spending.
Once you create your budget, track your monthly spending to ensure you live below your means. Furthermore, cut unnecessary spending to free up money for your savings fund.
For example, you could downgrade or cancel a streaming service you are subscribed to and save money each month.
2. Maximize your workplace retirement plan
Your employer may offer a matching bonus if you have a workplace retirement plan, such as a 401(k). This is free money, so contribute up to the maximum matching bonus. This helps you accelerate your retirement savings with lower contributions, giving you more room to save in a savings fund.
For example, say you earn $5,000 per month. Your employer offers a $0.50 matching bonus per dollar you contribute to your plan for up to 6% of your salary. Your matching bonus limit is 6% of $5,000, or $300. Your employer then contributes $150.
If you contribute more than the matching bonus limit, you could scale back to the matching limit to free up money for savings without hampering your retirement goals.
3. Set aside a percentage of your paycheck
After creating a budget, cutting spending, and hitting your matching bonus limit, you may have a healthy sum of extra money. Now, you can set aside a fixed portion of your paycheck for monthly savings.
The exact amount depends on your current and future living expenses, financial goals, and debts. If you have a lot of debt to pay off, set a lower savings rate. Once you pay off those debts, you can increase your savings.
However, if you have few financial obligations, you can save a lot more each month.
4. Increase your income
Cutting expenses and maxing your matching bonus is a good start, but these can only go so far. Increasing your income can help you jumpstart your savings even further.
Consider picking up a side hustle to add an extra stream of income. The best side hustle for you will depend on your skills and interests. Here are some ideas:
- Freelancing (writing, graphic design, social media management, etc.)
- Driving for rideshare or delivery services
- Renting out your car
- Renting out your home or a room in your home
You could also ask for a raise or promotion at work. Your chance of successfully negotiating a raise or promotion depends on how well you perform at work and how confident you approach the conversation. You can also consider switching to a higher-paying job or using a higher-paying offer as leverage to negotiate a raise or promotion.
Ideally, you can try both of these at once. Getting a raise and starting a side hustle could significantly add to your savings efforts.
Also, as your income increases, avoid raising your spending and stay within the budget you've created for yourself. This will help you increase the portion of your income you save.
The Bottom Line
Saving for retirement and a savings fund simultaneously is feasible but requires discipline and commitment.
Budgeting, cutting unnecessary spending, and maxing out your workplace retirement plan help you squeeze more out of your paycheck. After that, increasing your income allows you to set aside a larger portion of your salary and hit your goals faster.
By following these tips, you can build a healthy savings fund without compromising your retirement.
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Name: Keyonda GoosbyEmail: [email protected] Title: PR Specialist
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