I have been on a purging binge for the past several months. It started with a large t-shirt collection. I usually dress in slacks and a polo shirt or a suit (rare in a post-COVID era). Why do I need so many t-shirts when I do not wear them? Off they went to a nearby non-profit focused on low-income families and the unhoused.
But the purge did not stop there. Next up were the numerous dress shirts I do not use. I have six tailored suit shirts which is more than enough. Socks were next. I then turned my attention to the large stack of books in my office. I have donated, recycled, and tossed out tons of stuff.
But equally important, I am focused on not buying more stuff. I am at an age where I enjoy the experience (ie, a family reunion), the company, and the conversation. When the experience is over, I have the memories/ photos/ videos. I do not need souvenirs or SWAG from the event. Be gone, clutter!
By getting rid of stuff, I see how much I have and I enjoy those items. It also is a reminder not to buy more as I just a whole lot of effort getting rid of things. Against that backdrop, I also encourage my 401k employees to budget. Not buying more stuff frees up cash. But where should the cash go? And for those who have never seen a budget, what are good habits? Here are some of my favorite budget tips.
Create and Stick to a Budget: Use the 50/30/20 rule—allocate 50% to needs, 30% to wants, and 20% to savings or debt repayment.
Track Spending: Regularly monitor where your money goes to identify and eliminate unnecessary expenses.
Automate Savings: Set up automatic transfers to a savings account or investment vehicle to ensure consistent saving.
Plan for Irregular Expenses: Budget for holidays, car maintenance, or medical expenses to avoid financial surprises.
Reduce Impulse Spending: Implement a 24-hour rule for non-essential purchases to prevent impulsive buys.
Pay Off Debt Strategically: Use methods like the snowball or avalanche strategy to reduce high-interest debt quickly.
Shop Smart: Compare prices, use coupons, and take advantage of sales to stretch your dollars.
Set Financial Goals: Define short-term and long-term financial objectives to stay motivated and focused.
Limit Credit Card Use: Pay off the balance in full each month to avoid interest charges.
Review Your Budget Monthly: Adjust for changes in income or expenses to stay on track.
With a budget well in hand, I then review what with my employees and ask how much they can contribute per paycheck to their retirement account. Having a clear vision of cashflow and where is coming from/ going to is essential to answering the "How much can you contribute" question.
I generally like to see 10% per paycheck going to the retirement plan. Yes, I am aware of the Fidelity study that said anyone 35 and older should be doing 15%. And finally, early on in my career, I did not have two dimes to rub together so I have been in a situation where I was living hand to mouth.
The Parting Glass
To the extent possible, I encourage everyone to save based on a data-driven budget. Getting rid of stuff is helpful to see what you have. Following on that with a strong discipline not to buy more is essential. The goal remains, "Retire With Dignity".