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3 Ways to Free Up Cash to Save for Retirement

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Whether you’re saving for the down payment on a new home or stashing money for your retirement, you’ll need a hefty sum.

As it stands, the average home goes for around $340,000, which means a down payment of as much as $68,000 is required to avoid private mortgage insurance, while healthcare in retirement can set you back at least $5,000 per year. There are also other costs associated with homeownership and the everyday expenses of retirement that you need to save for.

Getting a side-gig to shore up cash is the quickest way to meet your savings goals, but if that’s not an option, there are alternatives. They may require sacrifice or an overhaul of your lifestyle, but after a while, they will become money-saving habits.

If you throw all the cash you free up into your savings account, you may be well on your way to amassing a sizeable nest egg. With that in mind, check out these three hacks to free up more money to stash for retirement.

3 Ways to Free Up More Cash to Fund Your Retirement

1. Cut Expenses Everywhere

Minimalists and spenders alike need to cut expenses to save more. It’s a fast and effective way to boost your savings account and create positive habits. However, it takes sacrifice and commitment — and it isn’t as simple as cutting back on the coffee runs each week.

Before you can get to the business of slashing your costs, you have to create a budget. List all of your outlays, including everything down to the cost of your daily commute. Compare that with the money you bring in. The excess is what you have to save and to spend on discretionary purchases. If you want to increase the amount that goes into savings, you have to identify ways to lower your bills, and you must vow to curb your spending outside of necessities.

Take utilities for starters. You may be able to get a lower rate from your existing energy provider or find a more economical alternative. Converting to solar panels may save you money on your monthly utility bills, freeing up more cash. Even making an effort to shut off lights, use water sparingly and not overheat or cool the home can save you cash. The same is true for reducing the number of vehicles you own or getting rid of your vehicles altogether. Thanks to ride-hailing apps, short term rentals, and vehicle sharing programs, it’s much easier to get from point A to point B without owning a vehicle. Plus, you won’t have to pay to park it or pay for insurance.

Your cost cutting search shouldn’t stop there. Shop your car insurance, homeowners insurance, renters insurance, and medical insurance to see if there are lower cost plans. Financial technology startups have been disrupting the financial services industry for some time now, offering consumers cheaper rates on everything from banking to homeowners insurance. Even if you only identify $50 per month in savings, that adds up to an extra $600 per year in savings.

Once you get utilities and insurance obligations out of the way, it’s time to tackle your entertainment and daily expenditures. Find ways to lower your outlays from eating, commuting, cable, outings, and splurges. The more you’re willing to sacrifice, the greater the savings will be.

Depending on your circumstances, you can take drastic steps to free up money. Take your living arrangements, which is typically the largest outlay each month. If you rent a smaller apartment or downsize your home, you can quickly amass the necessary money. That’s particularly helpful for people who are trying to come up with a down payment for a home or are nearing retirement with little in the way of savings.

Don’t forget to restructure your debt. If you’re able to refinance your mortgage, a high-interest rate credit card or other debt into lower interest rate products, it can free up a lot of money. Remember, the idea is to put extra money away each month — not spend it — so make sure to be disciplined with this strategy.

2. Go Automatic

To stash more cash, you have to be consistent. You can’t do it for one month and then forget about it the next month. You have to be disciplined, which means saving regularly — whether it’s weekly, bi-weekly or monthly. The best way to do that is to make it automatic. With zero intervention on your part, you won’t self-destruct. If it’s the choice between concert tickets and savings, the latter might lose out if left to your own devices. Automatic is effective. A study by the Center for Retirement Research at Boston College found that automatic saving is more effective than a tax subsidy in increasing Denmark’s savings rate.

Automatic savings comes in many flavors. If you’re employed full time, there’s a chance your employer offers automatic savings plans. Money is taken out of your paycheck and automatically deposited into a savings account. Since it comes out of your paycheck before you see it, you’ll never miss it. It’s similar to a 401(k)-account offered by employers across the country. Pre-tax money is withdrawn from your paycheck and invested on your behalf. Outside of a company savings plan, banks and fintech companies offer the ability for you to save automatically. You choose the day and the amount you want to be saved each month, and they will withdraw it for you. When choosing contributions for your 401(k), make sure to save enough to at least meet the company match if it’s offered. If you aren’t saving that much in your 401(k), you are leaving free money on the table.

Mobile apps have also exploded on the scene providing a plethora of ways to save. Some help you move money into savings buckets, while others try to shame you into saving more. Moreover, some round up and save your spare change for you. You link your credit or debit card, and every time you make a purchase, it is rounded up to the next $1.00 with the difference going into the app’s savings or investment account. The savings are small, but they can add up over time. Some have partnered with well-known brands, doubling the savings when you make purchases with their partners.

3. Choose Low-Cost Investments

When it comes to investing, fees can make a big dent in your savings prospects. Go with an actively managed mutual fund, and you may pay 1% or more of your investable assets. That is money that isn’t going toward investments and isn’t benefiting from compounding. Compounding occurs when the interest on earned investments is reinvested, earning even more money.

One way to increase your savings is to choose low-cost investments. Exchange-traded funds, index funds, and passive investments all have lower fees than those that are actively managed by a human. With an index fund, for example, the average fee is 0.25% of invested assets, much lower than an actively managed mutual fund.

Make sure to look at the fee disclosure statements when choosing investments or assessing current ones to prevent overpaying. That includes your 401(k) plan at work. You may have chosen a fund a few years back and stuck with it, not knowing if fees are eating away at your returns. If you find an investment that has a high expense ratio, swap it out for one with a lower one. The expense ratio measures how much of the assets in a fund goes to operating and administrative costs. Those expenses reduce the investable assets, which means fewer returns for you. Rule of thumb: choose a fund with an expense ratio of 0.25% or lower.

If you are looking for an even cheaper way to invest, go with a robo advisor (or mobile trading app). Robo advisors are online investment platforms that use algorithms to determine asset allocations for investors, managing their investment dollars with little in the way of human intervention. Because it utilizes technology rather than active management by a human, robo advisors charge lower fees than what most financial advisors typically charge. Mobile trading apps that provide free and low-cost trading are popping up all over, and they’re ideal for DIY investors who are looking to save on their trades.

Final Thoughts

Life is expensive. It’s true if you want to buy a car or a home, or stash money for your golden ages. If you have a family, you also have to worry about medical expenses and college tuition. All of that requires real money. The more of it you don’t have to borrow, the better off you’ll be. That’s why throwing your bonuses and tax refunds toward your savings should be an important part of your strategy.

Instead of blowing it on something you don’t need or won’t remember in a year, save it. You’ll thank your future self for it. Remember, any increase in your savings rate puts you that much closer to achieving your financial goals.

What are you doing to prepare for your retirement years? What are your best money saving tips?


About the Author

Beth Morrison is a freelance writer and former CPA. She writes about planning for retirement, budgeting, and traveling for a variety of websites. She lives and works in Austin, Texas.


Published on June 17, 2019