For this step you will need your budget and the goal that you defined in the first step. If you have not created a realistic budget, you should consider doing so now. If not, you run the risk of putting money in retirement only to find that you need to withdraw the money later to pay bills and this can be costly.

Once you have created your budget and estimated the savings necessary to achieve your retirement goal, it is time to carefully evaluate your budget. This is critical in order to figure out how much you can reasonably afford to save, and possibly to identify other ways to save money that could be invested.

Examine your budget
Whether you have decided to save fixed amounts or fixed percentages of your income, it is imperative that you ensure that these amounts are reasonable and affordable. First, make sure that you are not trying to save money that you need to live on or to pay your bills. Putting new purchases on a credit card charging 18% just so you can save for retirement is not going to help. Carefully examine your budget and select an overall investment amount that is affordable.

Find more money to fully fund your goal
If you still feel like you need to save more for your retirement goal, there are three options: 1) delay some of your other goals so that you can begin or increase your retirement savings, 2) find a way to save money, and 3) find a way to earn more money. Carefully examine your budget to identify places you might be able to save money. If it has been a while since you kept track of your daily expenses, do it again. We have worksheets in our budget section that you can use to detail these expenses. After recording them for a month, you might be surprised how many ways you can find to save that $1 a day that will help fund your goal. If you still can't find ways to save enough, you might consider a part-time job. Even working just a few hours a week could make a huge difference in your financial plan, without dramatically impact your life. Just make sure that if you choose this route, that you use the money from this job to fund your goal and not more spending.

Step 5 - Develop Your Plan