Pay Yourself First by Financial Advisor Scott Rassler
These three words have the power to change your life.
In my over 30 years as a financial advisor, I’ve observed that the biggest challenge most have in saving for retirement is that there simply never seems to be any money “left-over” to put into savings.
And for those who do put money aside, it’s often only a form of deferred spending as typically whenever enough is accumulated to do something special, you buy a new car, go on vacation, make home improvements, or do something else and very little remains in long-term savings.
I get it; it’s hard to give up today’s pleasures for tomorrow’s uncertain future. And the good news is; you don’t have to.
As my dad taught me, life is all about choices. When you make good ones, you enjoy the rewards. When you make bad ones, you suffer the consequences.
All you have to do to succeed financially in life is to choose to take advantage of your right to retain ownership over some of all the income you earn. Once you internalize the fact that a part of all you earn, is yours to keep, it becomes exciting to approach life from a totally new perspective.
Think of what happens every month. You spend money all over town; paying everyone else for everything you do. You pay your mortgage or rent, car leases, cell phones, utilities, food, clothing, entertainment, etc. Most of us are pretty good at consuming; so good that as our incomes rise, so do our appetites. At the end of the day (or month) who’s the only one not getting paid? You!
The irony is that the more we consume, the less we benefit in the long run. And whether you like it or not, the time you’ll want to retire will come sooner than you think, and your retirement will last much longer than you imagine.
So rather than continuing to spend everything and always feeling stressed over trying to and not being able to save what you know you should, all you have to do is to choose to do the savings part first.
By “paying yourself first”, you take control of your financial future and you set in motion a plan to achieve life-long financial security. You also gain the psychological benefit of being “released” to freely do what ever you want with the balance.
Since behavioral scientists estimate that most of us could easily reduce our monthly expenses by 20%; starting with your next paycheck, begin depositing 10% in an interest-bearing account. It’s that easy.
Whatever type of account you choose to invest in, your principal must be protected, and it must be the type of account that can only go up in value year after year.
This enables you to take advantage of compound interest; a force so powerful Einstein described it as the eighth wonder of the world.
When it comes time to retire, you’ll want to have a safe, secure cash reserve equal to approximately four years income. Along the way, this account will serve as a safety net for emergencies and opportunities and it will also serve as a “volatility buffer” for your 401K and other variable account assets in retirement.
Only after getting on pace to meet your savings goal, should you explore other forms of investment that offer the potential for higher returns, along with the risk of loss.
For example, if you’re planning to have retirement income of $100,000/year, you will want to have $400,000 in fixed-account savings upon retirement. If you’re 40 years old and want to retire at 65, you’ll need to save approximately $915/month at 3%, $800/month at 4%, or $700/month at 5%.
Along with Social Security and other guaranteed sources of income for your future fixed expenses, you will maximize your income from invested assets if following years of favorable market performance, you harvest the gains for additional income. Following negative years, you should remain invested and take income from your cash reserve while you ride out the market cycle. When you never have to sell in a down market, you’ll retain considerably higher balances in your variable accounts.
Just like any other science, the science of wealth accumulation is based in fact and logic. It doesn’t care what anyone thinks, feels or believes.
As Einstein observed; those that understand compound interest, earn it; while those that don’t, pay it. The choice is yours. Pay yourself first.
This educational article is prepared and provided as a courtesy of C Scott Rassler, JD, CLU, ChFC, Registered Representative through NYLIFE Securities LLC, Member FINRA/SIPC, a Licensed Insurance Agency. 1300 Concord Terrace, Sunrise, FL 33323. Bus# 954.389.6620. Email Scott@ScottRassler.com. Mr. Rassler is also a Financial Advisor with Eagle Strategies LLC, a Registered Investment Advisor. New York Life Insurance Company, NYLIFE Securities LLC and Eagle Strategies LLC are New York Life companies.
Neither Scott Rassler, New York Life Insurance Company nor its agents provide advice on social security claiming strategies or tax advice. Please consult the social security administration and your tax adviser for specific guidance.