It seems as though it’s getting harder and harder to find stable forms of investment income. With interest rates low, many savers are being penalized, and those looking to retire soon or who are already there could find themselves scratching their heads looking for a safe yet stable return on their savings.
With income at a premium, expense reduction could come as a great way to enhance a retirement strategy. Rather than pushing risk higher in an effort to increase income, there could be some significant advantages to lowering expenses instead.
Cutting costs easier than increasing income?
Personally, I’ve often found it easier to take our existing expenses down a bit than raise extra income. Heck, sometimes cutting costs is as simple as reaching over and turning off the light or adjusting the thermostat. Meanwhile, increasing income can involve a lot of time, effort, and sometimes, risk.
As a self-employed individual, I know just how difficult creating income can be, as well as how unstable certain self-created income sources can be. Over time, I’ve realized that many of my cut costs often stay in place longer than my new income streams. Not only this, but while I can largely control what costs I cut and in what amounts, new income streams often come with new employers that I may have little control over and who may decide to reduce payments or not pay at all with little or no recourse on my end.
Knowing where to cut and how
The key to cutting costs for us though? Starting early and knowing how. This has involved tracking our expenses for not just years but for well over a decade. This helps us better understand how, where, and in what amounts we spend, and therefore how we can cut. Not only this, but by tracking our expenses over time, we’ve been able to develop a personal inflation rate that helps us understand how our costs grow year over year.
We feel that moving forward into retirement with this information at our disposal will be one of the most critical elements in our retirement strategy and will let us not only plan well leading up to retirement, but continue to maintain our finances once there.
Learning now serves us later
Some people suffer a shock of sorts as they move into their retirement years. Due to healthcare costs, travel expenses, and similar elements, their expenses may not drop as much in retirement as they think they will. Meanwhile, low interest rates, a faltering stock market, and changes to Social Security or a pension system could limit their retirement income.
Therefore, learning about how to cut costs now can help us better prepare for when we hit retirement. By learning about our expenses, as well as how to reduce them if necessary, we enter our golden years with a better grip on our overall financial picture and have more confidence knowing that we can control and adjust our retirement situation if necessary.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.