It’s Time to Begin Investing!

After you have paid off your consumer debt, meaning all debt outside of your mortgage, cars, and student loans, it’s time to begin investing for retirement. Up to this point, you may have already been contributing 3-5% of your income into your retirement account in order to get your employer match. If that’s you, fantastic! I actually recommend getting 100% of your employer’s match even from step one on your Fuel Gauge. Though pausing your 3-5% contribution could speed up the pace at which you save and pay off your consumer debt, it doesn’t make sense for you to miss out on a 100% return on your money. There are very few places in your life where you can put in one dollar and get out 2. In an employee match program, you often are able to double your money by taking advantage of this employment perk. So if your employer offers a program and you are not on step 6, no worries. Take advantage of the match and once you’ve completed step 5 of paying off your consumer debt, you can begin to crank up your contribution above the employee match. Because now, on step 6, our target is to invest 15% of our income in a retirement account. 

There is likely to come a day when you won’t be able to work and receive a wage for your service. We call it retirement and this is the point when you stop working and begin doing the things you love, like playing golf or pickleball, walking barefoot on the beach, and everything else they promise in Medicare supplement advertisements. There is a sense that one is supposed to work hard and put their time in SO THAT they can stop working and begin to enjoy their life. When many people retire, not only do they quit their day job, but oftentimes, they quit pursuing their purposes, seeing that their prime is over. Florida is overrun with retirees, many of whom have moved there just to enjoy their retirement in peace. There is nothing wrong with enjoying life, but enjoyment should never supersede our purposes here on earth. 

There’s a story in the Bible found in Genesis 41. God gives Joseph the extremely important task of planning for the future. God gave Joseph the interpretation of Pharoah’s dreams of the 7 good years and the 7 bad years to come. God’s command to him was to store away a portion of all of the land’s produce during the years of plenty so that when the years of drought came, they had sufficient resources to live. God shows us in this story that planning for the future is wise, but along the way, our trust should still be in God. I believe we are called to store up treasures in Heaven while still planning for our future here on Earth. 

Part of laying a healthy foundation is saving 15% of your income for the future. This money is not to be used for creating another stream of income for you right now. This money is not to be dipped into when you need a little extra for that special vacation. This money is not your savings account for a rainy day. This money, this 15% of your take home pay, is for your retirement, the years when you are no longer earning an income, or at least not much of one. 

By being disciplined, the power of compound interest will do its job while you’re working. If you put 15% of your income away for 25 years, at a conservative 8% average rate of return, you will have enough money in your retirement account to live off of the interest without ever touching the principle. 

I may have just lost some of you in those numbers, so let me explain how I came to that conclusion. The best retirement account is a ROTH 401k. This retirement account, offered through most employers in the United States, allows you to put away the most amount of money in a government tax advantage retirement account. Inside of a ROTH 401k, just like inside of a traditional ROTH account, you pay taxes on the money you put in, but you don’t pay any taxes on the interest you earn over the years. Here’s what this means in plan English: If you put 15% of your take home pay into a ROTH 401k, you’ll have a fully funded, tax free retirement within 25 years. 

Next week, we will dive into this a little deeper and discuss what to do if you don’t have a 25 year horizon. 

Subscribe for more Financial Health tips!

Zach Santmier is the owner of Trumble Agency, Inc. and the author of the personal financial course, Increase. He focuses on helping families escape paycheck to paycheck living so they can freely pursue their ideal future.