One of the biggest obstacles to saving for retirement is often that little voice that tells you your nest egg will have to wait, either because your car is on its last legs, your student loans are weighing on you, or you promised yourself you would finally go on a proper vacation.
You’re probably thinking a few dollars here and there aren’t going to make a big difference, so you should wait to pad that nest egg until you can start contributing at least a few hundred a month to a 401K or IRA. Right?
If you find yourself using this logic, we don’t blame you—seems as though a lot of people do: According to a 2016 GoBankingRates survey, a third of Americans have exactly $0 saved for retirement. But the sooner you start investing in a retirement account, the sooner that money has an opportunity to grow—and even a little bit has the potential to go a long way over time.
In other words, just because you can’t put away a big chunk of each paycheck right now, doesn’t meant that you should settle for putting away nothing. If getting started has been a challenge, read on for some pain-free strategies that could help you free up some cash for your nest egg—because every bit you can save and invest for your future is money well spent.
1. Skip One $20 Purchase a Week
Think about how quickly a twenty can exit your wallet: Your daily cups of coffee, that after-work happy hour and the magazines and bottled waters you pick up from the newsstand every week can all easily add up to $20 or more—and fast.
But it’s likely the case that what you’re spending that money on are “nice to haves,” as opposed to “must-haves.” Eliminating these types of small expenses probably won’t require a major change to your lifestyle—but that $80 a month you’re putting into your retirement account could have a big impact.
Jeff Rose, CFP®, founder of personal finance site Good Financial Cents, says that putting $80 into a pre-tax retirement account, like a Traditional IRA or 401K, translates to a nearly $1,000 tax write-off, as the contributions help reduce your taxable income. “That is a short-term benefit, but the real benefit is the sooner anyone starts contributing to their retirement accounts, the sooner that money starts gaining interest and begins the compounding process,” he adds.
For example, if you put $80 a month into a retirement account with hypothetical growth of 7% a year, and did that for 30 years, you’d have more than $90,000 at retirement. By contrast, if you waited and made contributions for 15 years, you’d have less than $25,000 waiting for you. See the difference starting early can make?
2. Slash a Big Monthly Spending Category by 10%
If you want to go a step further, ferret out a budget category that you feel could use a trim and try to shave just 10% from it. Maybe that means cutting a few work lunches a month from your food budget, or skipping a few movies to trim your entertainment costs.
If you adhere to our One-Number Budget strategy and categorize your expenses into fixed costs and flex spending, you could try cutting a variety of things to help you reach that 10%. Perhaps a subscription or two you rarely use can be eliminated to lower your total fixed number, while a combo of one less shopping excursion and one fewer trip to the gas pump a month can bring your flex spending down.
By starting small, you’re minimizing the chances of feeling deprived. “Our brains are wired to avoid pain. The larger the change from ‘normal’, the greater the pain,” says Michael F. Kay, CFP®, author of The Feel Rich Project: Reinventing Your Understanding of True Wealth to Find True Happiness.
Kay likens the concept to making small changes to your diet or exercise habits to ease into a healthier lifestyle. “If you decide to make big changes and eat nothing but celery and carrot sticks, your brain will rebel because it feels denied,” he says. “It’s not long before you’re swimming in brownies. By making small steps with achievable goals, each success builds strength and resilience.”
3. Try a Financial Fast Once a Quarter
There is, however, a population of folks who like extremes and might be open to the periodic financial “fast.” Just ask Elon Musk, who once famously shared a story about successfully living off a grocery budget of $30 per month as a way to test how little he could survive on.
Of course, we’re not advocating you go to that extreme. But if you’re the type who likes to challenge yourself, consider taking a week once every three months or so to live as frugally as possible; then transfer what you saved over a typical week into your retirement account.
“In addition to feeling a sense of accomplishment and identifying potential expenses to reduce, [financial fasting] can have the benefit of adding to your appreciation for what you have in life,” says Derek Tharp, CFP®, founder of Conscious Capital, a wealth management firm based in Cedar Rapids, Iowa. On top of that, as was the case with Musk, you’re giving yourself the confidence that you could live off less if your circumstances were to change.
Of course, if taking a financial fast just leads to binge-spending afterward, then you know this strategy isn’t for you—after all, the goal is to enable you to feel good about freeing up your funds, not send you into an overspending binge cycle that you may have to pay for later.
4. Make Cash King for a Week
For those of you who reach for your credit card to pay for a pack of gum at your local convenience store, this tip is for you. Try going cold turkey on your plastic for a period of time—even if just a week—and see if you end up spending less than you would if you used credit. If you do, consider making this a weekly ritual.
Skeptical you’ll actually spend less? A 2016 study published in the Journal of Consumer Research found that when people pay by cash for an item versus a credit, debit, or gift card, they place more emotional weight on that purchase, thus making it feel more painful to part with that money. That added mindfulness could make a big difference in your spending habits—in order to avoid the “pain,” you may start to limit the total amount you’re willing to spend, says Rose.
Plus, by cutting back on your plastic tendencies, you’re getting the added benefit of helping keep your credit card debt in check. “Any [credit card balance] that you do not pay off in full each month is going to cost you money,” says Rose, either directly in the form of interest, or indirectly by potentially lowering your credit score, which will affect the interest rates you’ll pay on other types of borrowing in the future.
5. Redirect Old Debt Payments
If you’ve recently finished paying off a car, a credit card, a student loan, or a personal loan, congratulations! That’s a big accomplishment. But before you start doing your happy “I now have more spending money!” dance, think about diverting that old payment amount into your retirement account.
Why? Scientifically speaking, with this strategy, you’re using the psychology of “framing” and “mindlessness” to your advantage.
“Framing is a concept that captures how we behave differently based on how a situation is presented to us. In this case, a saver is framing their income as lower than it truly is by matching a reduction in expenses with an increase in savings,” says Tharp. “This strategy only works due to mindlessness. We often associate mindlessness with negative financial behaviors, but in this case, we’re using it to our advantage. If we were truly mindful about every paycheck we receive, this self-deception wouldn’t work. Savers who use this strategy are mindfully taking advantage of their own mindlessness.”
If your head is spinning, here’s the translation: Because your brain hasn’t become attached to the extra money yet, you can trick yourself into thinking that you don’t actually have additional income at the ready. Rather, you’re just continuing to pay a “bill,” except now it goes to someone else (in this case, your future self).
So, in a nutshell, spend mindfully but save mindlessly—it just might help you get a jump start on that nest egg.
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