Live Today to Enjoy Living Tomorrow

When it comes to retirement planning, sometimes it seems so far away that it becomes hard to recognize that the decisions we make today impact our how (or if) we will be able to retire tomorrow.  The simple truth is that retirement planning begins with saving.  And when it comes to saving, the earlier, the better. Our choices today impact our lives down the road.  Here are two essential concepts to put into practice now in order to reap the benefits tomorrow.

Kids' Take on Retirement

Vanguard Video

You Reap the Benefits Later and Greater

Start Saving Early

We've all heard the cliche, "You reap what you sow." However, the hidden principle that is far more powerful is that you will reap LATER and GREATER.  This is a foundational concept in life and in finances.  Another important aspect of this is that it works both to the positive and to the negative.  Poor financial decisions may start small, but consider how over time credit card debt snowballs into a massive burden.  Eating out a lot, buying more clothes and more expensive clothes than you need, taking luxurious vacations that you can't afford may impact your credit score, may keep you from having the opportunity to buy your dream house, postpone your retirement, etc.  In other words, you reap a consequence later that is far greater in magnitude than the original purchases. 

The power of this concept comes from leveraging it to your advantage.  This article is about finances, but I'd encourage you to leverage the later and greater principle with your relationships as well (particularly with you spouse and children).

We know the power of compound interest is phenomenal!  Put it to work in your favor by saving for retirement with your very first paycheck.  If you're fortunate enough to have an employer with a matching 401(k) incentive, take the free money.  It will grow over time.  I started saving for retirement at the ripe old age of 22 by simply contributing the minimum amount to max out the matching contribution from my company. 

Here's the concept of later and greater in action.  When my daughter was born, I started contributing a small amount each month to her college savings account ($50-$75/month).  Overtime with each raise I got, I immediately made a modest increase to the monthly amount I put in.  Without much thought, I am currently saving a couple hundred dollars per month without any impact on my lifestyle.  My daughter is now 7 years old.  If I simply maintain my current contribution levels (i.e. no more increases), by the time she is 16, I'll have saved the majority of her college tuition before she even learns to drive.  So, the later and greater is this - when she's 22 and graduates from college, her college bill will be fully paid and she'll start out life debt free!  That means she'll be able to start saving for her retirement with her first paycheck (because there won't be any student loan bill each month).  That is a gift I feel blessed to be able to pass down.  I am leveraging the concept of later and greater to use our money for things that we value highly - education and financial freedom.

I look forward to reaping later and greater the benefits of my saving for retirement with my first paycheck.  Until then, I'll keep using this concept to my advantage as I continue to increase  contributions as our family income goes up.

You Live on a Percentage of Your Income

Choose What It Will Be

All of us live on a percentage of our income already.  The probelm is some of us live on a percentage of our income that is close to or greater than 100%. In order to save, you must live below your means.  I'm not going to prescribe a specific percentage, but consider where you want to end up and figure out what it'll take to get there.  You must take ownership of this concept and decide what that percentage will be.

In my home, we value living generously and want to set an example financially for our children.  That means we live on roughly 55% - 60% of our gross income.  It's not like we live in poverty.  In fact, I think we have it pretty good.  The thing with percentage living is that as our income goes up, so does our savings.  In fact we have a goal of continually striving to live on a lower percentage of our income (but that's a personal perspective - we are happy with our lifestyle and want to use our earnings to give/save more and spend the same or less).  To do this requires intentionality.  It's not that we don't ever spend money.  We focus on making sure that we spend money on things that we value. 

Here are some practical examples.  Most meals we have are at home and we love having friends over for dinner.  It's a better environment for building strong relationships (which we highly value) and costs a lot less than eating out (which we don't care much about other than it's nice to not have to do the food prep and clean up).  A real splurge for dinner is walking to get take out Thai food and eating by Lake Washington - that's waterfront dinning for about $20. I rarely buy lunches during the week, as I opt for leftovers from dinner the night before.  We are a one car family, because I'm walking distance to a bus stop that takes me a few blocks from my office downtown (saves on an extra car,  insurance, gas, and parking in the city).  We don't have cable TV (we actually don't even have a TV right now but we're still pretty normal if you met us) as we'd rather play games as a family or walk to a nearby park.  Most of our summer vacations are adventures oriented around camping trips.  We bought good gear that will last us many years, and basically our vacation money is spent on gas and food that we cook over the campfire.  This summer my daughter sawed through her first log on her own (with my close oversight, of course), lit her first campfire from branches and twigs we collected (again, I was close by her side cheering her on), and learned to pee in the woods by herself.  Our family excursions build a sense confidence, independence, a free spirit, and give her an appreciation for the great outdoors (all of high value in our book).  That's just a sample of how we have a high quality of living by being intentional about spending money on things we value.  The money we used to spend on things we didn't care much about...well we save that these days.

The point is not to talk you into becoming an outdoors enthusiast or crockpot connoisseur.  I want to encourage you to decide what percentage of your income you will live on ahead of time.  Then identify the way of life that you value and spend your money wisely and efficiently.  

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