Before Thanksgiving comes the benefits-enrollment season, and while most of us know we should be saving more, many people feel overwhelmed trying to figure out their options. The Internal Revenue Service recently announced an increase in the contribution limits to retirement savings plans, but only about half of all working Americans contribute regularly, meaning they are missing out on a tax benefit and any potential employer match. The rule of thumb in saving is “pay yourself first”, but that’s hard to do when there are so many demands on your income. How you think about saving – about debt, about your budgeted fixed and variable expenses – can make a big difference in how quickly you reach your financial goals.
If your bank balance dwindles towards the end of every month, leaving your savings jar empty, your first step should be to examine your budget. Fixed expenses are those items that don’t change, month to month, like rent, utilities or a car payment. Variable expenses are those items you maintain some control over, like groceries, entertainment. Then there are those expected AND unexpected items that pop up; periodic expenses are those you can anticipate and budget for, like annual membership dues or tax payments. Nothing in life goes exactly to plan, so everyone needs an emergency fund to help out when it doesn’t.
Most people can easily find places to trim variable expenses and plan for periodic ones, and your lifestyle should align with your income, but making serious headway on the road to financial security may require a rethink of what you really need – including what you consider a fixed expense today.
HGTV’s tiny houses and Bravo’s frugality reality series are evidence that what might have seemed like extreme lifestyle changes ten years ago are now worth considering. There is no shortage of stories about people who have drastically cut their cost of living to accelerate their financial success. It all starts with a dollar, knowing how many you have, where it is going, and plugging the holes.
Let’s return to the pay-yourself-first mantra. Debt is the biggest barrier to saving, so paying it down is the essential first step. Stop accumulating it (by reducing your variable expenses), and take a hard look at cutting your fixed (and periodic) expenses. For some that may mean downsizing, holding off on a new car, or setting up a daycare co-op. A certified nonprofit financial advocate can review your income, your expenses and your debt, and help you come up with a budget that meets your goals.
Making big changes to either your fixed or variable expenses is going to affect your lifestyle, but try to keep your eyes focused on the long-term benefits. Dedicate as much as you can to the savings options available to you, like 401k and 403b plans, especially if your employer offers to match it. Contribute automatically each paycheck, and if you can possibly avoid it, never leave free money on the table!
Decisions about your health insurance premiums – a fixed expense – are also on the table during the benefits enrollment season. It is very important to take the time to get a clear picture of your costs – your copays, deductibles and prescription drug coverage as well (the variable expenses associated with health care).
It never hurts to take advantage of a free session with a certified financial advocate during benefits enrollment season. Find more room in your budget, tackle your debt and enjoy the peace of mind that comes with financial stability.