It’s well documented that most of us aren’t saving enough for retirement. The Center for Retirement Research estimates with the National Retirement Risk Index that 53 percent of working age households in 2010, the last year for which data are available, would not be able to maintain their standard of living when they retire. This percentage has been rising substantially over the last few decades.
The financial planning expert Michael Kitches has written about this problem on his blog, comparing financial planning to fitness. Human nature is such that it’s extremely difficult to sacrifice hard-earned dollars that we want to spend now in order to put them towards retirement, which may be decades away. In the same way, it’s hard to sacrifice time and effort to exercise right now for the long-term goal of good health.
Kitches highlights the fitness craze P90X, which has found huge success by promising guaranteed 90-day benefits. He says that financial planning will only be successful if it can be more like P90X, delivering real short-term benefits while aiming for long-term goals.
One way to do this is to start using financial planning software to organize your budget and other finances. Most likely you will be able to identify enough excess spending that you can save more for retirement while also having a bit more walking around money in the next 90 days. It can also cut down on financial worries because you will know you are carefully keeping track of your money.
While there are numerous financial planning systems out there, probably the most popular and most comprehensive is Mint.com, which I use. Mint allows you to load all of your financial information–bank accounts, credit cards, loans and investments–in one place. You can create a budget and make goals and track your progress. The main page displays all of your bank accounts, debt and investments in one easy-to-read dashboard that displays your “net worth”. Mint is operated by the financial software company Intuit, which is a leader in providing secure online accounting software for large corporations, so I don’t worry too much about security.
Using Mint has helped me to identify wasteful spending and make priorities. If you are someone who does not already keep a strict budget or have all of his financial documents in order, Mint can have significant short-term benefits. The budgeting software will tell you exactly how much you are spending at Starbucks each months or how much is going to ATM fees or parking tickets. It can even send you reminders to tell you when bills are due.
While its not quite as hard as a P90X regimen, keeping up with Mint does require some effort. A lot of the site’s features are automated, but you still have to classify your spending transactions into different budget categories, which can take a while. Even if you consistently spend beyond your budget, just knowing where your money is going is a big step in the right direction.
The bottom line is that getting your finances in order with Mint or some other financial software gives you short-term benefits that provide the incentive you need to work towards the long-term goal of saving for retirement.