Are you feeding that retirement fund?

Retirement contributions can be difficult to fit into your budget, but your take home pay won't go down as much as you think.

If you’ve been following the advice of the last few days, you should have a retirement plan in place. Now comes the hard part: contributing to that account.

When it comes right down to it, retirement contributions are another bill. Contributions reduce the pool of money that you have with which to pay your bills and live your day-to-day life. For many people, that’s an obstacle that’s hard to overcome, particularly if you’re in a state of living paycheck to paycheck.

Fortunately, it’s not really as challenging as it sounds.

Let’s say you’re 25 years old and earning $40,000 per year. You’ve decided to start contributing 10% of your salary to your 401(k). How will that actually affect your take-home pay?

To make this easy, we’ll just assume that the only deduction from your paycheck is your income tax and your retirement. We’ll also assume you get paid twice a month.

So, beforehand, you pay $6,030 in income taxes over the course of the year, or $251.25 per paycheck. Your take-home check twice a month is $1,415.42.

Afterward, you put $166.67 into retirement each paycheck. As a result, your income tax goes down to $5,030 over the course of the year, going down to $209.58 per paycheck (that’s $41.67 less in income taxes per paycheck than before!). Your take-home check twice a month is $1,290.42.

So, your take-home pay goes down $125, but you’re putting $166.67 into retirement each and every paycheck. The difference is taxes – your taxes went down $41.67 per check because of your 401(k)/403(b) contributions.

The point is your take-home pay won’t go down as much as you think. If you contribute $140 or so to retirement, your take-home pay will only go down $100 or so.

That still leaves the challenge of living on less income. There are a few strategies worth mentioning.

First, you probably won’t notice it as much as you think. It’s a lot easier to spend money on things that you forget about if you have money in your checking account. If you have a bit less money, all that will change (for many people) is that they spend less money on things they forget about.

One way to demonstrate this to yourself is to just spend a month or two keeping all of your receipts. Keep receipts for everything. Then, at the end of that period, look through them, particularly for the things you’d forgotten about that were completely unimportant. For most people, it’ll add up to far more than you thought.

Another tactic is to simply live more frugally. It doesn’t take many changes to shave 5% or so off of your spending. Things like air sealing your home or eating at home more often will likely do it. In fact, this entire “365 Ways to Live Cheap (Revisited)” series is loaded with ways to shave a little bit off of your spending, and retirement savings is a brilliant way to utilize the money you’ve saved.

Start saving now. You won’t notice it as much as you think you will and you’ll be incredibly glad you did it in a few years.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.