The biggest challenge of saving for retirement is that when retirement is 20 or 30 years away, it doesn't seem like that big of a priority. It certainly doesn't loom as large as your day-to-day financial responsibilities. And during those months when you have more expenses than you have money to cover them, you may feel like you have no choice but to tap into your retirement savings.
What too few people realize is that when you take a nibble out of your retirement account, it can become a Jaws-sized chomp by the time you retire. That's because the money you withdraw loses all of its potential to grow. If you take out $3,000 out now, and your remaining savings grow at an average rate of 7% a year, then you will have cost yourself $11,600 in 20 years.
So how do you avoid the temptation to tap your nest egg? Here are some simple and (mostly) easy steps you can take.
Automate your savings
The more automatic and hands-off you can make the saving process, the less likely you are to mess with it later. Setting up an automatic transfer from your checking account to your retirement savings account is a good idea. Having an automatic payroll deduction that takes pre-tax salary and puts it into your 401(k) is even better.
Have other emergency funding
If you have another source of emergency income to turn to, you won't feel driven to tap into your retirement savings when your car breaks down or you need a root canal. The best source of emergency money is a dedicated emergency savings account. However, if you don't have such an account, or if it doesn't have at least a few months' worth of living expenses in it, then start building it up immediately. And if you think you could repay the bill within a few months, you could use a credit card. You may take a short-term hit in the form of a couple interest payments, but that's better than stunting your retirement account's growth.
Make saving painless
If you're living on a tight budget, then carving out some retirement savings can be tricky. The less disruption your retirement saving causes in your life, the easier it will be to stick to the plan. Nearly every budget has some fat in it; tracking down wasteful spending and getting rid of it may be enough to free up the cash you need without having to cancel your beloved Netflix subscription.
You may also have an easier time saving if you split the transfer up into several tiny ones, rather than one big monthly one. Many banks will let you set up automatic transfers as frequently as once per day. Splitting the transfer up into tiny fractions will not only help reduce the psychological impact, but also help ensure that you don't end up with an overdraft because you forgot that your retirement transfer was about to happen.
The ultimate reward for saving for retirement is, of course, a plush retirement. However, that's not much of a motivation in the short term. Consider setting up some mini goals and rewarding yourself in small ways for hitting them. For example, let's say you now have $8,000 saved for retirement. You might decide that when you hit the $10,000 mark, you'll reward yourself with a special treat -- taking a day off work and spending it with your family, going out to dinner at your very favorite restaurant, taking a trip with your best friend, etc. These mini goals should be realistic and achievable roughly once or twice a year. Taking the time to celebrate your steady progress might be all you need to keep yourself on track.