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When It Comes to Money, Don’t Forget Your Short Game

May 17th, 2016 | 2 min. read

By Jacob Schroeder

When_It_Comes_to_Money_Dont_Forget_Your_Short_Game-image.jpgAs you save for retirement, it helps to sweat the small stuff. Over time, small money moves can make a big difference in your financial future.

In many ways you could equate saving for retirement to the game of golf. It’s a long game of fits and starts. Some days are better than others. And as any golfer can tell you, long drives are nice but it’s in your short game – putting – where the money’s made.

You have to approach your financial goals one small step at a time. Take the first step: create a budget. You would already be better off than most people. According to a 2013 Gallup poll, 2 out 3 people surveyed did not have a budget.

Living below your means is only one part of the larger picture. You also need to diligently save, control debt and spending, and manage your assets. These small money moves can help improve your chances for achieving a comfortable retirement.

1. Set money aside – no matter how small – for a rainy day

One of the biggest financial pitfalls people face is unexpected expenses such as a medical emergency or home repairs. Unfortunately, most people are not prepared. A survey by found that around 63% of Americans say they cannot handle a $500 car repair.

This can lead some to rely on credit cards, which exacerbates the problem as interest accrues or payments are made late. Instead, pay yourself first and create an emergency fund. Set aside a certain amount from each paycheck into an account you’ll tap only for emergencies.

2. Remember the time value of money when shopping

Impulse shopping can be a hard habit to break. The desire for instant gratification can prevent you from rationally judging the worth of what you buy.

A better way to shop is to think about the time value of money. For example, let’s say you have a $52,000 salary, which means you earn $25 an hour. A new $400 iPhone would be the equivalent of two full eight-hour work days. Is it really worth that much?

3. Pay off small debts first

There are a variety of strategies – all with their own ardent proponents -- for paying off debt. Ultimately, use whatever strategy you’re most likely to stick with.

However, the snowball approach of paying off your smallest balances first provides a big psychological boost. In fact, a study by two Northwestern University professors even found that people are more successful at erasing their debt when they focus on their smallest debts before attacking larger, higher-rate loans.

4. Play catch up in your 401(k)

Workers age 50 and older can add a little extra to their retirement accounts in catch-up contributions. In 2016, older workers can contribute up to $6,000 more in their 401(k) plans, for an annual maximum of $24,000. They can also contribute up to an additional $1,000 to an IRA, for a maximum of $6,500.

According to a report by the Center for Retirement Research, most households do not increase their retirement savings after the children leave home. So if you’re an empty nester, consider using any newly available cash to boost your retirement accounts.

5. Roll over your old 401(k)s

If you’ve participated in several employer-sponsored retirement plans, it may not make sense to leave your assets behind. You may be paying administrative and investment fees for each account. Plus, it makes it difficult to implement a cohesive investment strategy for your long-term goals.

Rolling over your old 401(k)s into a single IRA lets you manage all your retirement savings in one place, which makes it easier to track your progress. Also, you can increase your investment options and may be able to lower your costs.

While it’s important to think big when planning for retirement, be sure to focus on the many small steps to get there. Doing so can make saving for retirement less stressful, and help keep you from spoiling an otherwise good walk.