It is true that we must set aside money so that we can spend it when we are no longer collecting a paycheck. Some day we will need to provide the equivalent of our own paycheck. But the term saving doesn’t adequately relay the concept. To many of us it sounds like saving is optional, or that we can at least put it off. Expenses, on the other hand, must be paid.
When you spend money, you typically hand it to the cashier or send a check to your credit card company or other service provider. The money quickly disappears. We can’t get to it because it is gone. We may eventually want it back, but we know that won’t happen.
Another way to “spend” your money is to have up to 20% deducted from your earnings each time you are paid. Two simple ways to do this are through a payroll deduction or recurring automatic payment from your checking account.
The best way to spend your way to retirement is to get rid of the money before you are tempted to spend it. Adjust to being satisfied and appropriately cared for with 80% of your after-tax income rather than 100% of it. There are many options and decisions to be made that can further enrich the life of you and your family by reducing the amount of taxes you pay.
Families need a “Financial Picture” of what is going on with their daily, weekly and monthly finances. There are many standard categories of expense. At the top of the list should be categories such as Mandatory Pension Contribution, Health Care Savings Account Contribution to pay co-pays and other medical expenses with pre-tax dollars, 529 Plan Contributions to fund future education expenses for any and all of your family members, and so on.
To fund your future pension liability, you will need to spend your money first on a pension contribution. Put it where you can’t spend it without penalty, invest it and watch it grow as you add to it and it earns interest, dividends and capital appreciation. A growing stash of cash will give you peace of mind and please your banker when you need a loan for this or that item that possibly provides a larger benefit in your life over time.
We can discuss which strategy is most suitable for you and your family. This conversation is key to successful family strategic planning and management.