Recently, the topic of my blog has been following the structure of my framework for a financial system that supports a life you want to live which I call Finding Margin.
Last month, in Building a Life You Want to Live, we stopped to think about living in ways that are actually important to us. It’s unlikely that money itself will make you happier. You’re much better off instead focusing on spending your days in ways that matter to you. Whether you’re in a season where you’re focusing on staying at home and raising your kids, or you’re focused on aligning your work with ways that fulfill you.
Then, in Controlling Expenses, we discussed how no matter how much you earn, you’ll always need to create a plan for your expenses that help you reach the goals that matter to you. A budget doesn’t have to be complicated, it just has to help you put your money in the right places.
For this next step, it’s important to look at how saving for the future is the most important long term strategy you’ll adopt to set up healthy finances.
I’m talking about investing a part of every paycheck now to save for your retirement.
The problem is that retirement can feel so incredibly far away. Right now you may be way more concerned with your ability to buy a house, much less save for retirement. Or as has been the case for us the last several years, paying for our kids’ daycare. The paradox of retirement is that your biggest opportunity to save for it is now.
Because of the power of compound interest when investing, what starts as barely a ripple will become a tidal wave by the time you reach retirement.
So how do you get excited for something that’s just a ripple now and you won’t see the benefit from for decades?
Just start.
The earlier and more you can put back the better. You want to immediately start investing and pretend that money doesn’t even exist. What will happen is your tidal wave will become so massive that you can create an income for yourself just by living off the interest each year. When it comes time to retire, you won’t have to worry about not having enough to do the things you want to do.
But only if you get started investing and commit to not touching that money until you retire.
We’re working up to saving 15% of our household income for retirement. If you can’t save the full 15% right now, start with what you can. Start with 1% of your income if you need to, but commit to learning about retirement savings and saving something, even if it’s not much.
As you get better with your finances and continue to improve your systems surrounding money, you can continually increase that percentage that you put back. But don’t be afraid to start with 1% today. You ensure that the hardest parts, learning about investing and getting started, are done, even though you don’t have much to invest.
What about debt and getting completely debt free before investing?
I think the best time to start saving is now. While you could work to eradicate all debt a la Dave Ramsey, the trap to avoid is always having a new goal you’re trying to hit with your retirement money.
You start out by paying off some debt, but then you have a house down payment to save up for, followed by some other important purchases you need to make for the house. What happens is the moment for saving for retirement never comes.
Dave Ramsey’s advice for debt payoff is brilliant, just make sure you get in, get it done, and move on.
The exception to starting now, even with debt, is that you do want to pay off credit card debt first. Since credit cards have such terrible interest rates, you literally get a greater return on your money by paying them off first before investing. But again, get it done, and get out so that you get back to investing.
Commit today to learn about retirement investing. My favorite book on this subject is the investing portion of Ramit Sethi’s book I Will Teach You To Be Rich.
There he shares how investing in a Target Date Retirement Fund aligned to the year you plan to retire in a Roth IRA is the perfect way to get started.. When you learn a little more, you can get fancier, but this is a great way to start.
The goal is to find balance in your money management. How do you build a life that you can take great advantage of now while also being responsible for your future self, who’s going to really enjoy those retirement years? The answer is making sure that you’re paying yourself first in the form of saving for your retirement now. Once you’ve set that aside, it’s time to enjoy the rest right now.
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