Theodore Johnson never made more than $14,000 a year working for UPS. But he took 20% of every paycheck and invested it. At 90 years old he had amassed $70 million.
Have you ever noticed no matter how much money you earn, you always find a way to spend it?
If you started out making $20,000 a year, you spent it.
If you got a raise or promotion and are earning $30,000 a few years later, you spent it.
If you changed jobs to make $40,000 a year, you spent it.
If you got married and your new household income was $80,000 a year, you spent it.
I’ve been there. I’ve spent it too. I know what you’re going to ask:
How can I save more money? I don’t have any.
Yes, yes, yes. Most people don’t have any money because they spend it all. We won’t get into how to create a budget and learning where your money is going.
Let’s just make one simple change and give you the best way to invest when you don’t have any money to invest.
How much you earn is not as important as how much you set aside for you.
You’re doing the future you a big favor. It’s so big you’ll wish you had a time machine years from now to go back and thank yourself for making such a smart decision. To set yourself up for a future worth living in, you have to do one simple thing:
Pay yourself first – every paycheck.
Today, set aside some portion of your paycheck – no matter how small.
It’s your number. I can’t tell you what it is. Nobody can. Financial planners try, but it’s a best guessing game. You don’t know how long you’re going to live. Where you’re going to retire. What your health will be. What you’ll be spending when you retire.
Even the online brokerages have software in their systems to help you guess. You can plug in various numbers and dates to see how likely you are to have enough money for when you want to retire, and how likely you are to run out of money before you die.
The only thing you can do is to save as much as you can, starting as young as you can.
There are only two scenarios available to you when you’re old:
Please spare me the debate about social insecurity. Financial rock stars do not rely on the government for paying the rent. We rely on ourselves. You should rely on you. You can trust you. You will be there for you. You will look out for you. Nobody else will. Hopefully, your wife/husband/partner/kids will, but you will be there.
Whatever number you come up with, it’s going to set the stage for your entire retirement. Huh?
If you pick 1%, what do you think your retirement might look like? Now some people are not financially savvy (yet!), and 1% may sound great. It is great if you’re current savings rate is 0%. Or worse, negative!
If you’re working career spans 30 more years and you put away just 1%, retirement will probably not look too great. Bump it up.
Most experts will tell you 10% is a minimum to maintain your lifestyle in retirement. Do you like to eat out? Travel? You still have to pay for those in retirement (though the senior discounts will help).
If you want to be pretty sure you won’t run out of money, saving 15% is a better target to shoot. 20% and you’re golden.
The best way to save money is when you never see or touch it.
Think about it. If you got a promotion that paid you an extra $1,000 a year, what would happen if you diverted the $1,000 to an investment account before you ever saw it?
You wouldn’t eat out more.
You wouldn’t buy more clothes.
You wouldn’t suddenly switch to organic produce and grass fed beef.
You would never see the money. Your checking account would look exactly the same as before your promotion. The opportunity to spend your raise wouldn’t exist. You would continue to live the same lifestyle as you did the week before. But…
You would be setting yourself up for a great life sometime in the future.
Don’t take my word for it that it works. But you might want to listen to Billionaire investor Warren Buffett:
The easiest way to be persistent is with automatic investing.
You can’t afford to save? You can’t afford not to.
Pay yourself first.
You may have heard that statement before. You may have heard it many times. But are you paying yourself first? If not, let’s get it done simply and in only a few minutes.
If you are paying yourself first – sweet! Fist bump to ya. Take a look and see if you can give yourself a savings raise. Increase what you pay yourself by 1%.
The 401(k) plan you are a part of is probably available online for you to change. Get with your plan administrator (usually the HR person) to see how you can divert some of your paychecks to a retirement account.
If you’re already participating in your company’s retirement plan, bump up the percent you contribute to your plan.
What if I own my own business or am self-employed?
Check out Ubiquity Retirement + Savings.
Ubiquity has a product called the Single(k) for business owners with no employees, or with W–2 employees. The Single(k) is a ‘solo 401(k)’ with reasonable fees to get started. You can contribute the same amount each year as someone working as an employee at a company with a 401(k).
Plus, you get an optional profit-sharing contribution of up to $35,000. Nice!
What if I’m on commission?
If you’re a sales person with variable monthly income setup an automatic transfer from your checking account into an investment account (like a Roth IRA).
What if my company doesn’t have a retirement plan?
Check out some of these top investment firms to find the best fit for you:
Pick one that has no minimum to get started. Throw in $50 when you sign up to build some momentum!
When should I start?
Seriously – yesterday.
Start right now and become an investor. Invest in yourself and your future. Decide what percent of your income to put away out-of-sight and out-of-mind each paycheck. You’ll go from no savings to ‘whoah, I’m starting to get rich!’ in no time.
It starts with you, and it starts right now.
Question: Have you taken the most important step in your financial future? Please leave a comment below.