When investing for Retirement, there are some things that are always true. We call these -
"Timeless Truths"
Timeless Truths are statement that will be true over time whether it be now, 10 years from now or 50 years from now.
I will only be touching on two of these timeless truths but there are many, many more as well. The two that I will be sharing today are:
- Always spend less than you make.
- Pay yourself first.
Spend Less Than You Make
"Spend Less Than You Make".
This seems to be a no-brainer but most people are living paycheck to paycheck and do not know how they got there. They end the pay period with nothing to show for their hard work except more bills including new credit card bills from things they purchased during the past pay period.
There is one easy way to know if you are spending less than you make. How, you might ask? Take the time to track your spending for a few of the next pay periods but it would be best to track over a few months to ensure you take into consideration bills that you need to pay on quarterly basis. This should include anything you buy on credit plus bills that you must pay during the pay period. Oh and don't forget the items that you purchase with cash out of your pocket. Most people forget about this type of spending.
If you don't want to track going forward and you want to know right now. Review your spending and cash inflows from the past several months by reviewing your bank statements, credit cards statements and any other bills that were received. This will get you real close but you will probably miss all of the times you used cash out of your pocket to purchase things.
By spending less than you make, your life will be much less stressful since you will always have a little bit left over for those unexpected things that just happen.
Pay Yourself First
"Pay Yourself First" When you get your pay check, did you notice that you have already paid the government and the company for things that have been set up on auto deductions. Things like "Taxes", "Company provided Insurance", etc...
Then once you get your check, you make out checks or schedule online payments for the phone, electric, water, and all other bills you have received. By this time, you have little to no money left that you keep for yourself since it was used to "Pay Others First"
To really get ahead of this, you must learn to pay yourself first. When you get your paycheck deposited to your bank account, move some of this money to a separate savings account. If you receive cash for jobs worked, take some of the cash off the top and set it aside in a piggy bank or a lock box, where ever you feel that it will be safe from you spending it on the current months bills.
Or set up an auto deduction, similar to the ones used to collect taxes from your paycheck. Most companies will allow you to set up an auto deduction directly into your retirement or savings plan. This would keep you from seeing the money and thus not really have it available to spend. I found that setting up and putting your savings on auto pilot is one of the best ways to grow your savings for retirement over time.
Just think where it will be if you start this habit at 25 years old and work in the same business for 30 years. Over this time period, the amount you save and the compounding of the investments over time will have you a very large nest egg to use for retirement.