Unfortunately, many Americans have not mastered basic financial management skills. Basics concepts, such as budgeting for retirement are not really covered in government schools. What are some of the most common financial mismanagement errors of Americans?
Financial Mismanagement 10
Preparing for retirement includes a number of steps. You must understand how much you spend and earn, each month. You must calculate how much you will receive once you stop working. The difference between what you earn now and receive after retirement is the income that you must make up.
How do you make up that income? Either you need to invest in income-producing assets to make up the difference or you will be forced to cut costs. Planning now is the wisest strategy because once you retire, you won’t have the same amount of income coming in each month.
- How Much Do You Spend?
This is easy, right? You simply compare your beginning monthly balance to your ending balance and the difference is your spending. While that is true, retirement planning requires more detailed information.
What specifically do you spend your money on, each month?
For the sake of retirement planning, you should itemize each expenditure. If you need help, there are numerous apps, like Spendee, which you can use to track your expenses each month. Now, you need to look at that list, more closely.
- Non-Discretionary Spending
Economists note that consumers have two types of spending: 1. Discretionary and 2. Non-Discretionary. Discretionary is your luxury splurge expenses (i.e. movie tickets). Your non-discretionary spending includes rent, utilities and groceries. If you need to cut costs for retirement, you need to cut your discretionary spending.
- Living Paycheck to Paycheck
Developing good budgetary habits is essential for retirement. You can’t live paycheck to paycheck before retirement and expect to survive once you lose your main income. You will need to develop money saving habits before retirement.
Develop Good Habits
Life is full of changes when you reach various ages. You need to develop good habits to accomplish each challenge successfully. The same is true for retirement.
You no longer have the income that you had grown accustomed to. You need to determine how much you spend and plan accordingly. Develop better budgeting skills and avoid financial mismanagement in order to truly enjoy your golden years, in style.