Written By: Davis Barry
It all starts with savings. Whether you are working part-time in college, starting your first full-time job, just got that big promotion or are making $1 million a year, you need to have a savings goal. For those who are not already financially independent or retired, it is ideal to save 20%+ of your gross income, but everyone should strive to save at least 10%. (And while amortizing debt service can act as a forced savings mechanism, this should not be included in your savings goal.)
By avoiding lifestyle creep (where your lifestyle becomes more extravagant over time), being smart about big purchases and living below your means, everyone can attain this goal of saving 10-20%+ of your gross income. There may be some years where that goal is not attainable, but there will also be years where you can and should save more.
“Pay yourself first” is the old mantra and we couldn’t agree more here at Agili. Saving early and often will set you up for success down the road and I’ve yet to hear someone say, “I wish I hadn’t saved so much money.” This doesn’t mean you shouldn’t enjoy your money and must work excessively, but be sure to pay yourself first. Depending on your current income and expected future income, this generally means saving and investing via a pre-tax retirement plan (401(k), 403(b), TSP, IRA, 401(a), SIMPLE IRA, SEP IRA, Solo 401(k) or Cash Balance Pension Plan), an after-tax retirement plan (Roth 401(k) or Roth IRA), a taxable brokerage account or some combination thereof. Automating your savings via payroll deduction or direct deposit from every paycheck is the most reliable and effective way to establish your savings plan. Dollar cost averaging these savings into investments over decades is also a highly effective strategy.
Hoping for a windfall, planning on an inheritance, expecting to save your discretionary bonus or putting all of your chips on the next hot investment are not strategies with a high probability of success. Pensions are much less common than in the past and social security benefits generally replace less than 40% of an average retiree’s desired income.
Unfortunately, just like with exercise, nobody is going to do the saving for you. Please contact us at Agili to answer any questions you might have about this material or to help get your savings plan in place!