Importance of putting away money regularly: A path to FIRE (financial independence retire early)…

Regularly saving equals earlier retirement!

Warren Buffett:  “Do not save what is left after spending; instead spend what is left after saving.”

One of the most important things to do to realize your goal of financial independence and to retire early, is saving money regularly.  Whether that comes in the form of a regular paycheck on a weekly or biweekly schedule that puts away a percentage of your money into a retirement account like the 401k, or an automated savings from your checking account to a retirement account like the IRA/Roth IRA, it is vitally important to practice and to understand this topic.

I read so many people who didn’t have any retirement savings (or too little) lament this fact once they reach their retirement age.  They usually say if only they had money left over each paycheck, they would’ve put away money for retirement.  Or, they might say if only they had a company sponsored retirement account like the 401k, they could’ve put away money towards retirement.

Of course, all these are just excuses.  If you truly wanted to save, you would’ve done so already.  A habit will usually stay with you throughout your life.  If you didn’t save regularly while you were younger, you’ll most likely not save regularly just because you’re older.

There are so many reasons or excuses to not save regularly.  My wife and I had same type of excuses.  Here are some of those:

1. I have student loans
2. I have too much debt
3. I have to buy that latest thing
4. I have to go to that concert
5. I have kids
6. I don’t have any money left over
7. I deserve a vacation 
8. Fill in the blank…

Pretty soon, you’ll invent new excuses to talk yourself out of saving regularly for retirement.  This is not unlike exercising, or doing something you don’t want to do.  Most people will talk themselves out of exercising before they exercise, and in the end, they won’t exercise!  Same for saving for retirement.  Most people will talk themselves out of saving regularly so they won’t save at all for retirement!

Our minds will play us so we always take the easier path.  Why would I sacrifice the good times for some far away future?  Why should I forgo a fun vacation to Cancun now for this retirement thing, which won’t happen for another 30-40 years into the future?

Like most people, we lived this way for years until we were staring into our bleak future, that was no longer 30-40 years away.  This epiphany came when we were staring at midlife.  The onset of middle age got us worried all of a sudden, whereas before, we didn’t worry about it so much.

We worried how we were going to live once we retired.  We worried where we were going to get the money to pay for basic necessities.  In short, we knew relying on only social security would be a huge mistake. 

This eureka moment combined with our introduction to the FIRE (financial independence retire early) movement, propelled us to start our path towards a better future.  The future, especially one’s retirement, is not something most people think about or worry about when one’s in his/her twenties or even thirties.

As you age, and start staring into midlife, will worrying about retirement start to manifest itself slowly but surely.  Believe us, we’ve been there ourselves.  We didn’t want to be those people who are working into their sixties and seventies.  We didn’t want to rely solely on social security to make ends meet.

We wanted to finally do something we’ve been putting off for years.  We wanted a better future for ourselves, but we needed to do that right then and there…

Thanks to that newfound attitude towards our retirement at that point in time, we are now happily retired (early) and enjoying the freedom from needing to work.  We are also doing things we have always wanted to do (traveling and spending time with family).

Here are our recommendations on how to save regularly for a better future:

• If you have a company sponsored retirement account like the 401k:

The ultimate goal is to max out this account.  For year 2022, the maximum contribution amount is $20,500 with an additional catch up contribution amount of $6,500 for those over the age of 50.

If you’re just starting out, then at the minimum, start with the percentage that your company will match your contribution.  For example, if your company matches your contribution up to 4%, then you would contribute 4%.  This would equal 8% savings rate per year.

Start there, but do not stop there!  Aim to increase the contribution percentage every chance you get.  In most cases, raising the percentage by 1% will only decrease your paycheck amount by around $13-14 if you’re making $40,000, get paid biweekly, and with federal tax rate of 15%.

Most people won’t miss $13 every two weeks.  Make this a challenge for yourself and see how high you can go.  Keep on raising it until you reach the maximum amount for that year.

• If you have an IRA/Roth IRA:

Aim to contribute the maximum amount if possible.  For year 2022, that amount is $6,000, or $7,000 if older than 50.  You should aim to put away money automatically each month into the IRA/Roth IRA account. 

If contributing $6,000 per year, set up monthly automatic transfers from your checking/savings to your retirement account in the amount of $500.  Contact your brokerage if you need help on how to set this up.  

Note:  If you’re really ambitious and have already maxed out your IRA/Roth IRA, then open up a brokerage account.  Save into that.  This is especially useful if you’re planning early retirement, as you won’t be able to withdraw from your retirement accounts until you turn 59 1/2.  

• The concept of ‘Paying yourself first’

This is an important concept to understand.  It means not paying others (credit card companies, mortgage companies, car finance companies, etc.) BEFORE you pay yourself first in the form of transferring money into YOUR retirement account(s).  

What usually happens when you pay everyone else is that you won’t have any money left to save.  This is why you must get into the habit of paying yourself first always.  

Doing this requires budgeting so you can figure out how much money is coming in vs going out.  It also requires paying attention to things you buy.  Try to buy things you need and not want.  Have a budget to treat yourself, but keep it reasonable.  For example, your entertainment budget shouldn’t be more than your transportation budget, or your grocery budget.

In conclusion:

By understanding and putting this concept of saving regularly to become a part of your routine, you’ll be in a great position to reap the rewards of your hard labor.  Like most concepts, it’s not hard to understand, but it’s hard to actually implement.

If you’re currently not saving regularly towards your retirement account(s), set it up today.  Get help from your company representative or your IRA company if you need it.

Reap the benefits of compounding interest and see your money grow!  Remember, investing for your future is a long game.  Take the time to plan then implement your plan.  

Hard work, diligence, discipline, and sacrifice is how you’ll get to your brighter future.  We did it, and so can you.

Thank you all for reading!

Jake

Wandering Money Pig 

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