This Common Budget Habit Could Be Quietly Destroying Your Retirement Savings

Saving for retirement on a consistent basis often means following a budget. Without one, you might spend all of your money and get to the end of each month having no clue as to where your paycheck actually went.

Your budget should have room in it for not just essential bills, but discretionary spending and retirement plan contributions. If you bring home $4,000 a month, for example, and you need $3,000 of it to cover your essentials like rent, transportation, and food, you've got $1,000 left to work with. That $1,000 could be split evenly between fun spending and your IRA, allowing you to build a nice nest egg over time.

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But one budgeting habit may be wrecking your chances of meeting your retirement savings goals. It's important to recognize it and start doing things differently.

Are you paying yourself first?

A lot of people pay their essential bills, cover their discretionary spending, and then stick whatever money is left over into an IRA. The problem with this approach is that you risk getting to the end of the month with little to no money left. Over time, that could leave your IRA sorely underfunded.

That's why a better approach is to automate contributions to your IRA so that money lands in that account every time you get paid. That way, you'll be meeting your savings goals right off the bat.

Let's use our example above and say that $3,000 is normally enough to cover your basic spending, leaving you with $1,000 a month for leisure and retirement savings. If your car needs a $500 repair toward the end of the month, you might use your IRA money to fix it.

If you send $500 into your IRA at the start of the month and get to the end of the month in need of a $500 repair, that money might have to come out of the "fun" part of your budget. And while that definitely stinks, it keeps you on track in terms of your savings.

Set yourself up for success

One big advantage of having access to a 401(k) plan through a job is that contributions to these accounts are taken as automatic payroll deductions. In other words, you never get to see the money hit your checking account, so there's no opportunity to spend it.

But if you're funding your own retirement savings because you don't have a workplace plan that can deduct contributions from your pay, it's important to create as similar a setup as possible. Automating IRA contributions before you spend your paychecks is a good way to do that and set the stage for long-term success.

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