Savings and Retirement Take a Hit in 2023? 5 Moves To Make Now So It Doesn’t Happen Again
If you had to use your savings or dip into a retirement account to cover expenses last year, you’re not alone. According to Fidelity Investments, hardship withdrawals from 401(k) accounts have tripled in the last five years, with 6.9% of plan participants withdrawing money in 2023 to cover an emergency cost.
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The report states that employees are more likely to dip into their retirement accounts to cover emergency expenses, since they may not have other savings accounts. While accessing your savings is better than digging yourself into credit card debt, you don’t want to rely on your retirement accounts to cover present-day costs.
Here are five tips on what you can do when your money just doesn’t go as far anymore to ensure you don’t have to dip into your savings again.
Set a Budget
“If you’ve never formally set a budget, now’s the time,” said Todd Stearn, founder and CEO of The Money Manual. “If the process sounds intimidating, several apps — Rocket Money, YNAB and Simplifi — are available now to make it easy to set up and to see how you’re doing in working toward your goals.”
You want to start off by setting a budget that allows room for contributions to your emergency fund. It helps to plan for the unexpected by setting money aside, just in case, since you never know when your vehicle may need repairs or your roof needs to be replaced.
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Reevaluate Your Budget
“Our spending habits can be as unique as we are, but whenever you notice your money isn’t going as far as it used to, your first step is to reassess your budget,” said Erika Kullberg, attorney, personal finance expert and founder of Erika.com. “Taking a careful look over your accounts and spending habits might reveal some obvious changes you can make to reduce your outgoings and re-prioritize your expenses.”
With inflation raising the cost of everything around you, it’s essential that you consider this when budgeting. You may have set your budget for pre-inflation prices, causing you to fall slightly behind. You want to reevaluate your budget regularly to ensure higher costs are accounted for.
Kullberg added, “Trim the fat from your budget and put any gains back into your savings.”
You’ll want to find any extra wiggle room by making cuts to unnecessary expenses that are preventing you from saving as much as you would like.
Get a High-Yield Savings Account
“The difference between the national average savings account rate and the top high-yield rates is over 4% right now,” Stearn said. “Make sure you’re getting the most you can for your money.”
You want to ensure that your funds are working for you instead of sitting around in a checking account that doesn’t provide much interest. With stubborn inflation figures bringing up the cost of everything, you want your savings to at least keep up with this. Any interest you earn from your savings could help you when you’re struggling with expenses later.
Get Creative With Your Spending
“The price difference between dining out and cooking at home is growing, so that’s a good place to start if you’re still eating out regularly,” said Stearn.
He suggested that you focus on getting creative in all areas of your spending. You may have to seek out cheaper alternatives or delay a few major purchases as you focus on beefing up your emergency fund again so that you don’t have to hurt your retirement savings in the future.
Stearn elaborated, “It’s also a good idea to shop around and make sure you’re getting the best rates for all your bills where that’s an option, including insurance, cable, phone and internet.” You could ask your utility providers for any discounts or deals to see if you can save some money.
Look for Deals and Sales
“From buying clothes at thrift stores and yard sales to couponing, watching for sales, having swaps with friends and perfecting the art of the staycation, there are so many ways to save money on everyday essentials without missing out,” Stearn said. “Try different ideas out and see what works best for you and your family.”
Kullberg added, “Another great way to adapt to inflation is to start focusing on sales. Whether you’re talking about wardrobe updates, vacation packages or your weekly grocery shop, look for the sales. Prioritizing items that are on sale is an easy way to reduce spending.”
During challenging financial times, it helps to spend some time shopping around for the best deals so that you can keep more of your money. The goal is to find ways to save more so that you don’t have to touch your retirement accounts or house fund to get by.
Closing Thoughts
“Inflation hits us all to some degree, but there are moves we can make in order to minimize the loss and hopefully avoid having to dip into our savings or retirement funds,” Kullberg concluded.
Hopefully, at least one of the tips in this article can help if you’ve had to dip into your retirement savings or other savings goal in the last year to cover any of your expenses. With higher costs being the standard, do your best to plan accordingly.
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This article originally appeared on GOBankingRates.com: Savings and Retirement Take a Hit in 2023? 5 Moves To Make Now So It Doesn’t Happen Again
