When we talk about retirement planning, most of us tend to focus on saving money and setting up one or more reliable streams of income for the future. But there’s another important component of planning for your retirement: How will you budget that money to last for years to come?
One way to set yourself up for a more manageable monthly budget is to enter retirement free of debts, or at least as close as you can get. Follow these four steps now to take charge of your debt.
Assess your monthly spending. Take a look at each credit card statement, along with any other bills that you receive. In particular, focus on the interest rates that you’re paying. Focus on paying down the highest-interest debts first. Or, consider debt consolidation.
As a bonus, paying off debts earlier will mean that you free up room in your budget to pursue additional retirement planning options.
Change your mindset. With each pay period, paying yourself should be your first priority. Believe it or not, paying off debts before saving for retirement is not usually recommended. You could cost yourself many years of compounding interest in your retirement account, and you really cannot make up for lost time.
So instead, divert funds to your retirement account first. Then budget for everything else, including debt payments. But definitely prioritize eradicating debt over unnecessary purchases.
Budget for savings, too. Everyone needs some cash set aside in a savings account, so that you have easy access to funds in the event of an emergency. Now you won’t be forced to rely upon high-interest credit cards when the unexpected happens.
Think in the long term. The distant future is inevitable for all of us, but a little trick of human psychology can make it difficult for us to picture ourselves as retirees. Make an appointment with us, and we can help you sort out your dreams and priorities for retirement. Then together we’ll make a plan to help you pay down debts, save for the future, and work toward those goals.