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Many people earn a paycheck, but haven’t been paid. When you hold your paycheck in your hand or view the EFT online, consider that the amount you see doesn’t represent what you earned; taxes were paid first. Next, you’ll pay the mortgage or rent, electricity, water and sewer, cell phone, internet, cable, property tax, oil, automobile loans, groceries, etc. Once all is paid, how much remains? Did you get to keep any of it? If the answer is no, then you have not yet been paid.
Consider redefining what you are “paid” as what you “get to keep.” Consider opening an account for yourself that is for the future version of you; the person who might have a financial emergency and need cash, or the person who wants to someday retire and have a solid nest egg.
If you have debt, consider the interest rates and terms of that debt and decide the best way to pay it off. Once debt is eliminated, consider building an emergency fund that is equal to six months of expenses. Next, consider investment accounts. You do not need to put away a lot each month; a little bit of money over a long period of time can quickly become significant.
When you invest money into an IRA, 401(k), 403(b), TSP, or some other pre-tax investment account, you are investing money before taxes are paid. This is what we refer to as “paying yourself first.” Before anyone or anything touches your paycheck, put some away for yourself; you’ll thank yourself later.
With these ideas in mind, consider saving and investing at least 10 percent of your pay. The average American will need to save and invest at least at least 10 percent of his or her pay to retire in the way he or she desires. For some, the number is closer to twenty percent.
Here is what I promise: When you pay yourself first, the future will be a little brighter.
See you all next month.
Jac Arbour CFP, ChFC
Jac Arbour is pesident of J.M. Arbour Wealth Management. He can be reached at 207-248-6767. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
