If you want to save a certain amount for retirement or dream of becoming debt-free by a certain date, it can be disheartening to discover that your current income does not support your goals. Before giving up on your financial dreams, check out a couple steps you can take if your income seems insufficient for your financial goals.
1. Make Sure That You are Using the Right Accounts
One way that you can maximize the power of your savings is to make sure that you are utilizing the proper types of accounts for your needs. Though you must weigh the risk of the account versus the potential reward, opting for an account with a higher potential return is one way to boost your savings and meet your goals. A specialist in financial planning services can discuss options that offer higher returns while offering an appropriate level of risk.
For example, assume that you want to save $50,000 for a down payment on a vacation home. You currently have $10,000, want to have the money in 10 years, and can devote $250 each month to the goal.
If your savings account offers an annual interest rate of 1 percent, your account will have $42,588.72 in 10 years. Now, assume you opt for an account with an average annual return of 3.5 percent. This will boost your savings to $50,041.58. You've met your savings goal without having to increase your monthly savings.
There are multiple low-risk products that you could use to obtain this higher return, such as a certificate of deposit (CD) and bond funds. Don't leave money on the table by being too adverse to risk.
2. Check That You Aren't Squandering Portions of Your Income
Make sure that you are using your income as wisely as possible. It's easy to carelessly spend $20 here and $50 there without considering how this errant spending may affect your financial goals. Though some prefer to track spending manually, others prefer the convenience of a budgeting app that automatically categorizes their expenses, offering immediate insight concerning areas where overspending is occurring.
Another detail to keep in mind is how you treat large influxes of cash, such as bonuses and tax returns. It's easy to view these items as windfalls that you don't need to be as responsible with. Keep in mind that these large sums are still income and should be treated as such. While it's okay to use some money for fun, keep your overall spending in line with your goals.
If you find that you recklessly spend large sums of money, you may want to adjust your tax withholding so that you get more money throughout the year and a smaller refund.