Retirement Savings Made Easy

Do you consider budget a four-letter word? Does the idea of a budget just smack of self-deprivation? Is it hard to think about retirement when it is several decades away?  If this describes you, then it’s not hard to figure out that such negative connotations would have a difficult time succeeding. That’s why diets work for so few people. Restriction in the face of plenty is exceedingly difficult.

Maybe you would prefer the term spending plan? It sounds innocuous and even has a pleasant ring to it. But it sure sounds like a lot of work. While this might stand a better chance of helping your financial woes, there ought to be a better way. And there is:

PAY YOURSELF FIRST!

This is certainly not a new or unheard of concept, but it can be very powerful. Essentially, all you need to do is set aside part of your income before you pay any of your other expenses. If you’re anything like me and most others, you suffer from this intractable disease called human nature. Human nature causes us to want to spend everything we make on instantly gratifying stuff. However, saving for the future forces you to not spend, leading to that deprived feeling.

But, if you trick yourself into thinking that you have less to spend, you will adjust and spend less. This concept is described by George S. Clason as the first of seven cures for a lean purse in his classic text, The Richest Man in Babylon . David Bach, in his book, The Automatic Millionaire , goes so far as to suggest you make it automatic via a pre-tax retirement account. (I own both of these books, have read them, and would highly recommend them.)

Personally, I go about paying myself first in two ways. First, I contribute about 12.5% of my pre-tax income to my retirement accounts. If we assume I am in the 30% tax bracket, the actual decrease to my after-tax spending ability is 8.75%. So, the hit really isn’t as big as it sounds. Second, because I have kids whom I would like to be educated, I have a set amount withdrawn from my checking account each month and placed into a 529 college savings account. I just treat it like a regular bill that I know has to be paid each month. So, if you do this with the things that are important enough to save for, you may just find that saving for those things can be relatively painless.