Day 18 Of 30 Days Of Stay-At-Home Personal Finance Wins: Increase Your Retirement Account Contributions

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What if you were able to come out of this time of social distancing and economic crisis with a stronger and healthier financial life? What if you looked at this as an opportunity to take a little bit of your extra time each day to work on your finances?

Since it takes me about 35 minutes to drive to work in the morning and 45 minutes on the way back home, I have an extra 1 hour and 20 minutes of my day that I don’t have to drive while I’m working from home that I can use to accomplish something. This doesn’t even take into consideration all of the networking and social events that would usually take up some of my time throughout the week.

Obviously, your situation is different than mine (and probably a whole lot different if you have kids at home who would otherwise be in daycare), but I’m guessing that we all have at least a little extra time right now that we can dedicate to our personal finances.

It looks like we’re going to continue to practice our social distancing skills at least through April, and now is a great time to work on creating a better financial situation, so I’m giving you 30 days of stay-at-home personal finance wins throughout April.

Unfortunately, I understand that there are many who have (and who will) lose their jobs during this time of uncertainty and objectively will not come out on the other side of this with a stronger financial situation. Hopefully, many of these personal finance wins can help to lessen the blow and make things easier on them. On the other hand, I think that many of these wins are still relevant to those who are fortunate enough to be in a position to not have to worry about their job and their finances to help them build a healthier financial life.

Day 18: Increase Your Retirement Account Contributions

This win isn’t going to be for everyone. This is something that only those who are financially stable and who will be able to remain financially stable while the economy is largely shut down should consider.

Increasing retirement savings contributions is something that I often help push people towards. Unfortunately, most of us have never had any sort of personal finance education and we’re led to believe that saving enough to get the match in our retirement accounts is all that we’re supposed to do.

That’s not gonna cut it.

Check out this study that Fidelity did which shows how much you should be saving for retirement to retire by age 67: How much do I need to retire? My experience with using financial planning software with clients to show them how to achieve sustainable financial plans shows that the savings rates reported within the study are in-line with reality. Here’s an excerpt from the article:

“Our savings factors are based on the assumption that a person saves 15% of their income annually beginning at age 25, invests more than 50% on average of their savings in stocks over their lifetime, retires at age 67, and plans to maintain their preretirement lifestyle in retirement…”

If your savings rate isn’t up to par, then you can get started making progress in the right direction right now.

Some people might be worried about increasing their retirement account contributions right now since they see all of the news about the stock market and the economy being thrown around everywhere. However, since we’re long-term investors we’re not going to worry about what the market does over the next couple of months or even years. For younger people, savings rate is more important than asset allocation and portfolio performance. On the other hand, even if you’re nearing or in retirement, an appropriate portfolio allocation should help you be able to not worry about short-term market fluctuations. In fact, when the market goes down stocks become cheaper to buy. Who doesn’t like a good sale?

When you make contributions to your retirement account each time you’re paid you get to take advantage of dollar-cost averaging so you get to buy all along the market cycle instead of having to guess when is the right time to buy.

You don’t have to make a drastic change to your retirement savings rate. You can make as small of a change as increasing your contributions by 1% and setting up automatic annual increases. You could also set a reminder in your calendar to check back in 3 months and see if you feel comfortable increasing it by another 1%, or even more.

30 Days Of Stay-At-Home Personal Finance Wins