Generation 42

Archive for June, 2009

No, no, no—this does not mean you should make less money; I hope you make as much money as you can! But there is a simple and remarkably effective way to make yourself spend less. You invest more. By putting more money into your retirement accounts, so your take-home check will be less and you will quickly train yourself to spend at a lower level, just as you used to do when you were making less money. (If you still don’t see how you can spend less, which will show you how to do so.)
If you do this now, if and when that day comes when you’re asked to attend an early retirement seminar, or when those rumors in your office about downsizing become reality, you’ll be ready. You’ll be the one with the $400,000 or more with which to face the future.
You may say, as many of my clients have, “But, I can barely afford to pay my bills as it is. How do you expect me to live today and still put money away for my retirement?”
If you think you cannot make it today, while you’re working and have a paycheck coming in, how in the world do you think you’re going to make it in the future, when you will have essentially the same bills to pay but no paycheck coming in? The answer is that you won’t. But if you set it up now, even on a modest salary, you can put aside an impressive amount of money.
Not long ago a couple came to my office—early forties, nicely dressed, two children, annual salary of $35,000. The wife didn’t work outside her home, because the children were too small, although she planned to go back to work in a few years. They owned their own house and had fourteen years left on their mortgage. They paid their credit card bills in full every month. They already had a sizable nest egg, because the husband had been aggressively investing the maximum in his 401(k) plan at work. They had a few other investments that were doing nicely, earmarked to fund their children’s education. I remember asking them, “How is it possible that you can do all this on just $35,000 a year?” He answered: “We only spend what we see. The company takes Out the maximum for my 401(k), and I also have them send money directly to our credit union. The credit union sends money directly to a mutual fund to invest it. Our take- home money isn’t much, but at least we know we can spend it all and not have to worry. So it works.” I asked them why they had come to see me, and they said they wanted to make sure they were covering all their financial bases. With immense respect for the job they were doing, I sent them home and told them not to change a thing.