As a kid growing up in Southern California under the tutelage of his father Earl, Tiger Woods had one goal in mind – to be the world’s greatest golfer. This lofty goal needed a benchmark to measure his success and that benchmark became a poster that hung just above his bed. It was a chart of major 18 championships won by the great Jack Nicklaus which gave Young Tiger a clear goal to shoot for and hopefully surpass. At age 43 after a few years of injuries and public personal problems, Tiger Woods came back to win the Masters securing 15 championships under his belt, and trailing the Golden Bear by 3.
Fast track to today and your finances. What goals do you have to achieve financial success? What are your benchmarks? Goals are great to set for yourself, but you also have to be flexible to all of life’s curveballs. Goals will be very different depending on your age, your ability to save, your willingness to save, your health… the list goes on.
Let’s start with the basics. One of the best initial ways to invest is by way of your 401(k) and the employer matching feature. Many firms offer a match of “50% of the first 6%” meaning if you contribute 6%, the employer will kick-in 3% at no cost to you. That’s an instant 50% return on your investment. It is important to understand your employer’s 401(k) matching policies to ensure you are receiving the max employer match.
It’s important to keep going to build wealth faster as you progress through your career. Make it a goal to increase how much you save and invest each year. A great feature to help accomplish this objective is the ‘auto-escalation’ option in your 401(k) plan. Auto-escalation is simply increasing your retirement plan contribution periodically – usually on the 1st of each year. On January 1, your contribution automatically goes from 6% to 7%, for example. It makes sense since we normally get a pay-raise come January 1. Each time you get a raise, ‘reward’ your future-self by increasing your retirement savings.
Other ways to increase your savings include building an emergency fund of 3-6 months of living expenses and maxing out your Health Savings Account & Roth IRA each year. Maxing out a Roth IRA may be tougher since you have to do it on your own and it’s not a common payroll deduction like with an HSA. A good goal would be to invest the first $6,000-7,000 saved each year into a Roth IRA.
We’ve said it before – building wealth happens over time, not overnight. You need to be a diligent saver who also increases savings over time. For example, if you are in your early 20s, saving $100 per month, by your early 30s, make it a goal to be saving about $500+ per month.
Treat it like building a snowman (we Michiganders know all about that) – start small to literally get the ball rolling, it then gets bigger and bigger until you reach that magical point where you have a base big enough to build your snowman. Saving & investing for retirement works the same way.
To the 40 and under crowd – You have time on your side. Take advantage of that opportunity by transforming into a super-saver. If you invest as much as you can now, you can win the game early. If you have 40 years until retirement, you need just about $200 of investment contributions per month to hit $1 million. If you wait until 10 years before retirement, you’d need a whopping $5,000 per month (using historical market returns)!
To the over 40 group (and even those nearing retirement) – maybe you have already saved and invested enough to retire, but perhaps you still feel anxious. Continue to live within your means and invest in stocks and bonds. Even if you are 65 years old, there is a 50/50 chance you and/or your spouse will live to 90! You STILL need to be thinking for the long-term. Keep that ULTIMATE goal in mind.
Here’s the point
- Time is on the side of young investors. By setting attainable & lofty savings goals, you can fast-track your path to financial success.
- There are many great investment/savings vehicles through which to build investment portfolios (401(k), Roth IRA, HSA).
- Retirement is more like ‘making the turn’ on the golf course, not reaching the 19th hole. The point is retirement at age 60 or 65 means you still might have another 30 years to go – plan accordingly!
Action items
- Goal number 1 – invest in your 401(k) up to the company match, then increase your rate of savings each year throughout your career.
- Invest via a Roth IRA – contribute the max each year and invest in a diversified equity portfolio. Don’t know how to do that? You’ve come to the right place. We are experts in crafting the right investment portfolio for you and your goals.
- Nearing retirement? Or in retirement? You still have a long way to go on the golf course of life. Finish that back 9 strong by living within your means and even growing your portfolio.
- Sit down with us to craft a step-by-step strategy for building your savings and investment portfolio. Every situation is unique, and we strive to tailor investment plans to each person.
Featured Image: Photo by Adeolu Eletu on Unsplash