Ah ... it's that time of year again when our employers send us glossy packets in the mail reminding us to enroll in our benefits package for the new year. My husband and I sat down for an hour this past weekend (after the lights turned back on) and selected our benefits together - medical and dental insurance, disability and life insurance, and retirement contribution percentage. Sure it's not the most romantic thing to do on a Saturday night, but it's a great opportunity to discuss these financial decisions together once a year and set a goal for our retirement savings next year.
No matter how close (or far) we are from retirement, I think it's wise to periodically think of ways that we can increase our retirement contributions, even if it's by 1%. After all, the earlier you save for retirement, the sooner you can retire, especially since the future of our Social Security doesn't look too secure. At the suggestion of a fellow financial planner, I'm posing a "1% challenge" for all of us - to think about our spending habits and see if we can save an additional 1% of our salary and put that towards our retirement next year.
One percent may not sound like much but it adds up! Let's say your salary is $50,000, 1% of that is $500. If you saved an additional $500 every year for the next 30 years in your retirement plan, and assuming a 5% average annual growth rate, you will have an additional $33,000 in your account in 30 years! And during those 30 years, you won't be paying any taxes on the account while it's growing.
So the obvious question is, how do we cut our expenses by 1%? Recently I've come up with a couple of ways to save a little more each year.
- I noticed that I was spending a lot of money each month on dry cleaning, so at my mom's suggestion, I decided to try putting a few pairs of suit pants in the washer and dryer at home. I was pleasantly surprised when they came out fine, though not as nicely pressed. But that saves me about $35 a month (or $420 a year).
- I usually get my haircut 3 times a year, at $60 each. But since I discovered that I really like the bob, I decided this year to get a bob right before the summer, and now I can let it grow out for months before having to get my hair cut again! That saves me another $60 a year.
Right there, that's about $480, close to the $500 in savings needed in the example that I used above.
Of course, everyone's situation is different. So if you have any money saving ideas, please feel free to share and let's brainstorm some ways we can meet the 1% challenge for 2013!