By Kristi DeRycke, Registered Assistant
We spend the first two decades of our life dreaming about being an adult. Then we become one and wish for the carefree lives we had as kids. It is not all that bad but things get kind of crazy in the world of adulting. We are all so busy with work, keeping up at home, finding time to focus on family and friends, volunteering, recreational activities…oh and using 1/3 of our lives sleeping so we can do it all over again the next day.
Here at Johnson Insurance we think about and discuss finances on a nearly daily basis. This is a passion of ours! I am guessing that many of you do not find thinking about saving and investing as an enjoyable or interesting way to spend your days. That’s okay. Do what you do and do it well!
So how can you take care of yourself financially without focusing on it daily or weekly? Automate! With a little time up front, you can set it and forget it! One of the things that I dread the most each month is going through and paying bills. I have two that have been sitting on the counter as we speak. I just keep cleaning around them. Typically all it takes is to call the company to have them walk you through how to set it up so that your bill is withdrawn from your account monthly. You can still get a statement mailed to you so you know the amount. This way you do not have to actually sit and write out the check. Taking this step can make sure you don’t get too busy and forget a bill which could over time hurt your credit score. And, yes, I intend to take my own advice with the two bills on the counter.
Retirement is super easy to automate. If you are offered a 401K plan at work, go into the website to quickly check that you are getting the full match. You may have to call Human Resources to be sure you know what the match is and how to be sure you are getting all of the FREE MONEY. After you are sure you are getting the full match with your company, consider increasing by 1 or 2%. You can even set up that every year your contribution goes up 1% per year without going back in or changing anything. You can set this up for the month that you typically get any cost of living raises so that you do not even miss the money. This way 1% goes to future you and the rest goes to you now.
You may not have a 401K and are using some kind of IRA or other retirement vehicle. You can start a traditional or Roth IRA with a $500 one time or commit to $50 per month without a minimum initial investment. These are minimums for the brokerage firm that we work with. This may differ depending on where you are investing.
For easy numbers, let’s say you make $50,000. If you increase your contribution to any retirement vehicle by 1% that would be less than $20 per paycheck (assuming that you get paid 26 paychecks a year or biweekly). Would you notice $20 if it was taken out before you received the paycheck? It actually is less per pay period if you are in a Traditional IRA or 401K as you are not taxed on that money at the time of the contribution. You may choose a Roth 401K or Roth IRA versus Traditional which means you would be taxed on that money you contribute as income during this year but you would never be taxed again on that money or the growth of that money when you take it out. Can you find ways to save $10 per week for your future you?
If you are needing a little boost to be motivated to save the extra $10 per week go to www.savingscalculator.org and type in a starter balance of $1. Take .01 times your salary. Divide it by 26 paychecks. This number goes into the box for biweekly. For example, if you make $50,000 x .01=$500. $500/26=$19.23. The amount saves when I added the $20 per paycheck over 30 years at a hypothetical 6% was roughly $44,000. That would be a nice kick to your 401K balance!
Do you want to pay your mortgage off earlier? You can call the mortgage company and ask to pay biweekly versus 1x monthly. This would have you paying 1 extra payment per year. This can cut years and tens of thousands of dollars off your mortgage. If you want to know how much it would cut your mortgage, go to an online mortgage prepayment calculator like www.daveramsey.com/mortgage-payoff-calculator.
Maybe you want to build up your emergency fund. Many books and magazines recommend that this fund should be equal to 3 to 6 months of your income needed to cover expenses. You can easily set up a taxable account and have whatever amount you want drafted from your checking account each month. You will be surprised how fast you can meet your goal. This can prevent you from having to use credit to cover an unexpected expense.
Taking the time initially to set things up to automate will set you up for financial success without eating up your precious time each week, month or year. Set it and forget it!
By Greg Johnson
Most people spend more time planning their annual vacations than they do planning for their financial futures. I get it, who wants to think about stuff like planning for your future when you can think about the next adventure you are going on. However, per Kristi’s points in this blog you can very easily get yourself started and find yourself well positioned after a few years. I think of all my friends from college that started saving $50 per month in a Roth IRA and contributed what they needed to in their 401k plans to get the full match from their company. Every single one of them is now in their late 30’s and are sitting on well over $100,000 in their investment accounts. That’s roughly 15 years of automated savings with small increases as their incomes allowed and now they are sitting well ahead of people I am meeting with who are nearing retirement. The key is to automate as much as you can to put yourself on track to reach your financial goals. Don’t overthink things, make them simple and get started. The earlier you can start the better, but it’s never too late. Let compound interest work for you instead of against you.