Most individuals identify as either savers or spenders. Most savers emphasize the future by stashing as much cash as possible to ensure their retirement and financial stability. Spenders prioritize their current desires and requirements, expecting that they will be able to meet their future demands with an increase in income or innovative solutions.
Each spending style has disadvantages.
Many individuals who embraced the financial independence/early retirement (FIRE) movement now express regret. In the meantime, 63% of Americans live paycheck to paycheck, and only 33% of American seniors have sufficient funds to support themselves.
But here’s the thing: you are not required to choose a side, and it is ideal for balancing living like a monk to save for retirement and splurging like there is no tomorrow.
Here are three straightforward approaches to locating the “sweet spot.”
Understand your position
This may be step one, but consider it to be step zero. Examine your present lifestyle and income to see where you lie on the spectrum of savers and spenders; this will help you plan your future.
Then, it might be beneficial to compare your spending and saving patterns to your salary band. With your salary, do you spend more on your home, groceries, vacation, or pleasures than the average household? The best method to determine this is by comparing the money left over for savings.
Over the past 63 years, the average personal savings rate in the United States has been 8.95 percent, which is around 3.1%.
If you save more than this, your finances are likely better than most of your friends. If not, it may indicate that you tilt away from “saving” and toward “spender.”
Focus on essentials
As you review your expenditures, you may observe certain patterns and tendencies. You may seldom dine out, yet every few months, you take an expensive trip. Or perhaps you must constantly have the newest technological device.
Do you intend to maintain your current lifestyle in retirement? Or are you living simply with grand aspirations to explore the globe when you finish your career?
Do you even desire retirement? A rising number of people continue to work into their 70s and 80s because they like socializing at work, the controlled atmosphere, and stimulating tasks to maintain mental acuity. If you are one of these individuals, your need to save now is significantly reduced.
But even if you want to work far beyond retirement age, you must prepare for the possibility of your plan failing.
Be adaptable and make modifications.
No one possesses a crystal ball. Your circumstances and the economy as a whole can be exceedingly unexpected.
Keep in mind that few experts foresaw the current inflationary surge and quick increase in interest rates. Except for the global health crisis and record-breaking inflation, however, shocks may occur anywhere. At any moment, a medical emergency might wreck your job and money.
Additionally, medical expenditures increase after retirement.
Consequently, whether you identify as a spender or a saver, your retirement and savings goals must be adaptable. The finest plans leave room for the unexpected.