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5 Steps to Save More for Retirement

Joe Udo

Let's face it, retirement saving is difficult. When we are young, retirement seems a long way off and many of us don't handle delayed gratification very well. It's so much easier to spend money on fun things now, and put off retirement saving until later. This immediate need mindset is why a typical working-age household has only about $3,000 in retirement savings, according to the National Institute on Retirement Security.

While saving more for retirement is a popular New Year's resolution, it often fails because people don't have a plan to actually save more. The first month of the New Year is already over. Are you on track to save as much for retirement as you thought? If not, here are some tips to get back on the right path while the year is still young:

Track your expenses. The first step to saving more is to figure out what you are spending money on. Many people have no idea where their money goes. By the end of the month, their bank account is depleted and the cycle starts all over again. Track every single expense to see exactly where your money is going every month. Are you spending hundreds of dollars on cable TV, clothing, car payments, restaurants, coffee, apps and magazine subscriptions? If you don't even know what you spend your money on, saving more is going to be extremely difficult.

Cut back on unnecessary items. I used to eat out a few times per week. Each meal didn't cost much, but the monthly cumulative total turned out to be substantial. I didn't need to eat out that often, and once I cut back to once or twice per week, I was able to put more away in a retirement account. While it is convenient to eat out, cooking at home is healthier and much more affordable. Eating out was the luxury that I could reduce. If you track your expenses, you'll be able to see what you can sacrifice to increase your retirement saving.

Save in tax-advantaged accounts. Once you cut back a bit, you'll have more funds to add to your retirement accounts. The easiest way to save more is through your employer's retirement savings program. Many employers offer a match up to a certain amount, and you can also defer your tax payment until later. If your employer doesn't offer a 401(k) or equivalent program, then consider opening a Roth IRA.

Set up automatic deductions. One nice thing about employer-sponsored plans is the automatic deduction from your paychecks. Automatic deductions are great because you won't even see the money in your take-home pay, and you won't be tempted to use it. After a few months, you will get used to the reduced paychecks and won't even miss the retirement contribution. If you are saving outside of your employer plan, then you need to set up automatic deductions on your own.

Increase your contributions. Once you are contributing to your retirement plan, it will become automatic and your account will keep increasing every year. Most of us could not save a lot when we were young, so we need to increase our retirement saving rate when we can. The easiest way to do this is to share your raises with your retirement plan. Whenever you get a raise, you should also increase your contribution rate. If you get a 5 percent raise, give your retirement account a 3 percent raise and keep 2 percent for yourself.

The earlier you start saving for retirement, the better off you'll be because of compound interest. Saving for retirement is not fun because it's a long way off for many of us. Most of us would rather enjoy all of our money now, but that's not a sustainable plan. It will be much more difficult to catch up when you're older because time won't be on your side anymore. Take advantage of these tips to grow your retirement nest egg this year.

Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

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