Posted By Mr. Imperfect on January 25, 2011
We all read the same information whenever we begin to look at our personal finances and retirement accounts: a person that saves a little in their late teens and early twenties and then stops will out perform those of us who start late. While mathematically this is true beyond a shadow of a doubt, realistically it does not happen. Every now and then we will see the story of someone in their early twenties that are on the right track and behaving like a financial golden child. However, in almost each of these stories we are informed that this is NOT the norm. My point is, do not let these financial calculators get you down (as they did me for the first couple years of my third decade on earth) and paralyze you into not acting.
The best time to start saving mathematically may have truly been years ago; realistically the best time is now. Don’t beat yourself up and think about all the bad decisions you made financially-focus on the good choices you made. You did not make any you say? Well, neither did I my friend. I had to start making good choices to focus on. A literal start from zero (negative when I did the net worth).
Now the conventional wisdom of the day is that we should slash and burn all unnecessary expenses, use this “fluff” to pay off debt and save. There are countless programs, spreadsheets, and other tools to help with this process. Accordingly, we should scrounge through piles of coupons and sales papers to find the best deals; we should haggle small business owners at the checkout to lower our total by 2%; we should find ways to reuse an item three or more times before we through it away, etc. Malarkey is all I have to say.
When we first started this website we were of this mentality. Be frugal, save and reuse, and then slowly get out of debt and build wealth. While this may work for some, it failed miserably for us. Now before we are drawn and quartered, we are still frugal and try to waste the least amount possible of any of our resources. Yet, it was getting us no where near our goals. Also, we have yet to read the story of how someone became wealthy by saving on everyday expenses. Now here we are, mid thirties with little to no retirement, and debt out the wazoo. It was time for another change.
Since the outgoing being reduced drastically was not moving us in the direction we wanted to go fast enough, we took an alternate route. We decided to do what ever it took to increase the income. The days of finding a job and working there for forty years and having a nice pension waiting in your retirement were the days of our grandparents. We are now more than ever responsible for our own retirement-unless drastic changes are made we will not even have full social security benefits to look forward too.
Back to the matter at hand, when you are starting late it is best to put all the odds in your favor in order to help propagate success. First and foremost, if you have a retirement plan at work that matches you ANY amount, do it! This is free money! Our work place offers a 100% match on anything up to 3% of our income. That means that no matter what the stock or bond markets do, we have a 100% return on our first three percent. Secondly, if your employer does not offer retirement accounts, set one up for yourself. We will be writing articles on this in the near future, so if you want to get the information as soon as it is available, please consider subscribing to our RSS feed in a reader or email.
An important aspect of a self directed retirement plan is to place it on automatic. Talk to your Payroll department about having withholdings made each payday and placed into your account. If this is not an option, set up automatic withdrawals from your checking account to make it happen. If you try to do it manually, you will either forget, make other use of the money, or chose not to do it. Make it work so that you don’t have to think about it.
“I don’t have any extra to save” is a phrase we hear often. Two solutions here: 1) Read through some of our past articles and learn to save on living/working expenses or, 2) increase your income. We are going to focus on the latter on this blog. This is where we have had the most success. We will be telling you exactly the jobs and pay that we have achieved in order to speed up the process of reaching our goals.
Finally, when starting late we just have to do more than we would have if we had started younger. But you must ask yourself several questions such as: What do I want my retirement to look like? Will I rely entirely on investment income and social security, or will I still work part time or make money from a hobby? How willing am I to place at risk money that I have (the stock market model of buy and wait is a flawed system in our opinion. With so many emotional players on the field, it is to us the same as going to Vegas and shooting dice.)? How hard am I willing to work and what will I sacrifice to achieve my financial goals?
Thanks for reading, good luck, and we hope to hear from you soon. Your comments, criticisms, and questions are always welcome. Have a great day!