Being a young professional comes with many expenses, including rent, groceries, and reliable transportation. With all of these costs and other financial responsibilities — like repaying your student loan debt — you may think there’s no way to fully fund your Roth IRA anytime soon.
While the $5,500 contribution limit for 2015 may seem high, it actually breaks down to about $460 a month.
This still seems like a big number to some young professionals, so let’s break this down further to make it even more manageable: If you can save $115 a week, you will be able to use those savings to max out your Roth IRA in 2015.
Still not convinced? Consider these 6 ways you can save $460 a month to put towards your Roth IRA.
Evaluate Your Budget
In order to fully fund your Roth IRA, take a magnifying glass to your budget. Look at both sides of your budget: how much you bring in and how much you spend. Then get mean and look to eliminate expenses and cut costs anywhere you can.
You can’t live for free and eliminate expenses like car insurance, rent, or utilities. But you could look to reduce these costs by changing up your living situation, switching service providers, or simply calling current providers to ask for discounts or cheaper options.
The amount you can save will vary, but one thing’s for sure: you’ll save something by taking action. You won’t free up more money in your budget if you keep doing what you have been doing.
Ensure you align your spending with your values. Cut costs that don’t allow you to access something you deem important and essential. For example, you don’t need the latest and greatest stuff every year just because someone else says so — you can skip buying more stuff you don’t need (or even want) and save instead.
Make sure there’s a line item in your budget for savings, too. How much you save is up to you, but consider thinking about your savings in terms of percentages to put things in perspective.
If you make $35,000 take home a year, you bring in about $2,916 a month. If you save just 10% of your monthly income, that’s $292 a month — and more than half of the $460 needed to fully fund your Roth IRA. If you’re able to save 16% of your monthly income, you will have $467, or $7 more than what you’d been per month to max out your Roth IRA in the new year.
Funnel Any Raises Towards Your Savings
Planning on receiving a raise or negotiating higher pay in 2015? That’s excellent — but guard against lifestyle inflation by keeping your spending at current levels even after you start making more. Put the pay increase straight toward your Roth IRA.
Let’s use the example of making $35,000 again. If you receive or negotiate for a 5% raise in 2015, you’ll have an extra $1,750 in your pocket next year. Even a 3% raise will be $1,050, which is a great start to maximizing your Roth IRA contribution.
If you’re not sure if you will receive a raise this year, evaluate your progress at your job and whether or not you’ve executed any big projects. Depending on the economic climate at your organization, this may be your year to go ahead and negotiate for a raise.
Get Creative When You Do Spend
No one’s suggesting that you have to live your life on lockdown and eliminate all fun while you’re eliminating expenses. But you may need to think creatively, and do things a little differently, to live well on less.
Switch out activities and events that can get pricey for alternatives that are much more inexpensive:
- Host a night in at your house (and take turns hosting between friends): Instead of going out every weekend, have dinner parties for friends at your house and make it a BYOB event. Alternate who hosts between your group. Or instead of doing happy hour out, set up something like a wine tasting and invite folks over. Again, get creative and have fun. If you regularly spend $200 or more on nights out and bar tabs throughout the month, substituting that for nights in could cut that cost in half.
- Stop spending $12 per person when you go out and buy a movie ticket. Rent a RedBox DVD for less than $2 instead. If you usually go see 4 movies per month, having movie night at home could save you $40 per month.
- Cut cable if you haven’t already, and choose cheaper (or free) alternatives. Cable packages can easily run over $100 per month. Switch those out and entertain yourself via YouTube channels, materials from the library, blogs and podcasts, and Netflix if you’re okay with spending about $10 per month. You’ll save $90
If you’re eligible for any or all of the changes suggested above to get you thinking about what you could do to get creative with spending, you could save up to about $230 per month. That’s halfway toward maxing out your Roth IRA in 2015.
Earn Extra Money to Max Out Your Roth IRA
Don’t want to just try and scrimp and save? If you have some free time, consider working to earn more.
Have a skill you can teach others in your local community? Create a flyer and a website, then distribute your flyer to schools, libraries, and churches. Summertime is the best time to advertise, as summer is when children are out of school and parents are looking for enrichment activities.
Just graduate from college and have some really well-written papers? Consider selling your work online at sites like Academon. If you’d rather help people write their own papers, advertise at community colleges, universities, and libraries in your area or get on Freelancer, Odesk, or Elance as a tutor.
Have a unique set of skills from the career you’ve started? Think about consulting or freelancing in your spare time to earn some extra cash.
Bottom line: take a skill or specialized knowledge you possess and start up a side hustle. Even if you earn just $100 extra per month, that’s a big step toward fully funding your Roth IRA for 2015.
While saving $460 a month may seem daunting, it’s possible to do especially if you put some of the above tips into action.
Keep in mind it’s not about depriving yourself to save money to fund your Roth IRA. You don’t have to cut out coffee or nights out with friends entirely, but you should pay yourself first and think creatively about the money you do spend.
And if you feel like you hit a point where you can’t save more? Earn more instead. Your future self will thank you for working to fund your Roth IRA in 2015!