OK. 100% honesty here. I haven’t always taken advantage of the benefits that my roles have provided. There was a time earlier in my career when the HR Manager and financial institution rep brought the workforce into a conference room and went over the ins and outs of the company sponsored 401K. Basically, the message was “if you haven’t started saving and you are over the age of 25, you will never be able to retire unless you dedicate at least 20% of your income to investing.” I have NO idea who this person was trying to motivate into saving, because his message fell to the floor quickly. It felt like a collective eye-roll. This was a retail environment and many of us didn’t feel that there was any “extra” left after bills were paid, or were completely embarrassed that we hadn’t started saving, and really didn’t think there was any way possible to “catch up” by allocating 20% to a 401K.
Through some random water cooler conversations my supervisor overheard, he asked the department to connect up after coffee one night after the store closed. He was shocked at the number of coworkers who didn’t (at the very least) take advantage of the “free” investment money that the company gave away with some level of investing. He explained about how this type of savings actually lowers the income that you are taxed on so, when you are putting money away, yes you notice it, but if you are contributing 6% or 3%, it didn’t feel like you were losing that much out of your paycheck. That particular company matched 1/2 of a % up to 6%. So essentially, you could allocate 6%, but end up with 9% going to your 401K. For once, someone had put all of the investment jargon into words that made sense. I hope to share some of the common sense things that he shared, along with research I’ve done since then, throughout the blog.
I was always thankful for this conversation, it piqued my interest. Our brains aren’t wired for the future. Our brains are wired for today, the impulses and positive responses we receive today. How can we make investing feel like we aren’t getting something today, in favor of tomorrow, which could be something we may not ever know?
I don’t have a fantastically clear answer for that, but my best advice is to start small, no matter if you are 20, 35, 40, or 50 and beyond. If you have $0 in your savings account or 401K, go for the free money. If, after you do the math, you realize you can’t give up 6% of your salary (as in this example) to get all the free money. Go for as much as you can and slowly add a percent when and where you can. There are a lot of great calculators out there that can help you see how the tiny $20 investment today can add up to something bigger in the future.
OK, so what if you are self-employed? Unfortunately the “free” money doesn’t exist, but you can still invest in your future in ways that are friendly to taxes. The easiest way to start saving is to automate. There are a lot of tools out there to help you do this and figure out what you want your goals to be. I personally use STASH and Ally. I started STASH with $10/week going into a Roth IRA and Ally with $10/week going to a money market fund where I can choose mutual funds or individual stocks to invest in. I’m telling you how I started supplementing my savings because I want to emphasize that saving doesn’t have to be painful. Many people I know don’t think twice about going out for lunch ($10) or purchasing coffee at Starbucks a couple times a week ($10.) Changing a couple small habits today can have a huge impact on the future.
Now, what does $20/week even mean? It’s small, doesn’t seem to really matter, right? Well, maybe, but also maybe not. Every little bit that you put away can help you towards a better retirement and towards financial freedom. So, I used the investment calculator on DaveRamsey.com. Below are the results by age and what it can mean by the time you retire:
As I mentioned before, a little bit adds up, no matter what your age. Compound interest is an amazing tool that everyone can use to their advantage. This example is $20/week, imagine if you are putting more than that away, or this is simply supplemental to a typical 401K that you currently have in place. I find it exciting, to watch what seems like something small grow into security for my family. It doesn’t matter if you are rich or poor, or somewhere in between. The sooner you take advantage, the more it will compound over time.
I’ll be digging into compound interest, how the little things can add up, and more as we progress. Thank you so much for being on this journey with me, <3 Bobbi