How to Find the Money to Invest for Retirement

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If you're finding it difficult to save for retirement, you aren't alone. It seems most Americans understand the importance of saving money to fund their retirement, but the challenge comes in finding the cash to contribute to their employer's 401(k), personal IRA or private online brokerage account.

However, you don't need to live in abject poverty to start investing. In fact, some of the ways families try to be frugal are not sustainable in the long run. For example, sacrificing healthy foods for cheap alternatives will likely increase your healthcare costs, skimming on life insurance coverage can leave your family with financial hardship and buying low quality goods can cause you to replace them more often.

Nonetheless, every family is unnecessarily bleeding cash somewhere -- it's just a matter of finding the right big-ticket items worth the time to research and save on. Then you can decide how to optimally allocate your savings, even it means investing in your 20s with small amounts of money.

Common Places to Reduce Spending

Below, you will find five ways to save money that will lead to thousands of dollars in your investment account. These are expenditures almost every American family makes annually.

1. Large appliances. Large appliances range from several hundred to a few thousand dollars. Buying an appliance during the wrong time of the year (e.g., right before a seasonal sale) could mean significantly overpaying. Instead, research the best time of year to buy anything and time your purchases accordingly. You may even find that high-end brands or products have now dropped into your budget.

2. Research your car purchase. I can't tell you how many times a friend has gone to the dealership to peruse what's available and ends up buying a vehicle on the spot. Couple the high dollar amount of buying a car with the long-term commitment of an auto loan and this is a perfect example of a consumer walking into a negotiation with no leverage. Research the type of car you want, compare the specific make and models that fit your needs and make multiple trips to the dealership to avoid buyer's remorse.

3. Telecommunications (cellphone, cable, Internet). According to a recent study by Cowen and Co., the average monthly Verizon wireless bill was $148, followed by Sprint at $144, AT&T at $141, and T-Mobile at $120. Add in the average $50 a month for broadband internet service and the approximately $106 a month cost of a 300-channel cable package, Americans are looking at a combined telecom bill of over $300 a month, or $3,600 a year.

If you can find ways to lower your bill by as little as $50 a month, you could save $6,000 in the next decade. After all, who needs 300 channels when studies show you're only watching 17 of them?

4. Compare insurance quotes. Insurance is another big expense American households overlook. While life insurance is an essential tool in estate planning, that doesn't mean you need to rush a decision and buy a policy from the first agent or financial planner who quotes you a decent rate. Furthermore, unless you are a 1 percenter, remember to only buy term life insurance.

The same is also true for mandatory car insurance coverage. Since auto insurance is an ongoing annual expense, overpaying for coverage can literally cost you tens of thousands of dollars over a lifetime. For this reason, consumers shouldn't just research their state's average premiums, but compare car insurance rates by zip code to get more location-specific data.

Once you find a good price range, don't be afraid to pay a slight premium for better customer service and faster claims processing from one of the best car insurance companies. An auto accident is stressful enough and you don't need a bad insurer delaying your payments.

5. Electronics. Electronics as a consumer category may be the most draining for some bank accounts because it includes technology for entertainment purposes. Computers, TVs, gaming platforms, tablets, iPods, smartphones, and surround sound systems can add up very quickly, especially if you're used to buying the latest and greatest.

To avoid constantly feeling like you need an upgrade because all your equipment is old, space out purchases to take advantage of technology innovations. Buy a performance laptop that will last 5 years, replace your phone every 2, buy a new gaming console every 3 or 4, and get a new TV, iPod, or tablet when there are technological leaps.

How to Invest Even a Small Amount of Cash

If you've already paid off high-interest credit card debt and fully funded your tax-advantaged 401(k), then you can start investing with very little money. Here are some of your investment options:

1. Traditional Mutual Fund Investing

If you have more than $2,500 to deposit and want to invest in a traditional mutual fund, then your best bet is to compare different online brokerages. Personally, I recommend Vanguard as they offer a better selection of low-cost index funds which can keep investment fees down.

2. Discount Brokers Online

This category comprises your Scottrade, TradeKing, TD Ameritrade and similar options. If you're interested in managing your own portfolio and simply want a strong platform, great customer service, and low-cost trades, then the annual rankings from Barron's is your ideal resource.

3. Alternative Investments

Relatively new to the investment scene are robo-advisers, which provide an automated style of portfolio management for the masses. These platforms ask you a series of questions and offer investment options based on your personal financial circumstances and tolerance for risk. For robo-advisers or new investment themes, investors may want to consider Motif Investing or Betterment to see if either can offer further diversification.

Anyone Can Start Investing

Investing for retirement doesn't have to be a privilege only the upper classes enjoy. Opportunities are plentiful for anyone looking to build their net worth and willing to make wise financial decisions. The above list is just a start and can act as a guide in preparing you to start thinking like an investor and not just a consumer.

John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. John is a father, husband and veteran of the financial services industry who's passionate about helping people find freedom through frugality. He also writes about growing your wealth about Sprout
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