Time in, not timing
Our most significant accumulation goals – saving for retirement, a new home, an educational fund – take time to accomplish. The old adage is,”time in the market, not timing the market.” Invest a small amount consistently and let the “miracle” of compound interest work in your favor. Even if you set up a regular investment program, it’s easy to get discouraged when you look at the progress you are making on a daily or monthly basis.
We want to allow ourselves the gift of imperfection. Occasionally unexpected events may mean we can’t save as we had planned. If we have built a cash reserve of 3 to 6 month’s monthly expenses, most emergencies or opportunities can be handled. If we don’t have that emergency fund, we will find more situations where our regular investing will need to be interrupted.
Build a budget
The important thing is to have a regular program and include a cash reserve/emergency fund in it. I coach clients to build a budget around 50 to 60 percent of your total earnings. Save/invest at least 10% every year and allow the other 30 to 40 percent for taxes and unforeseen expenses.
Life needs to be fun, otherwise what’s the point? And it can be fun “financially” if we make realistic choices about how much to spend monthly and save/invest regularly. The millionaire next door – that individual who seems to live on a modest budget – may be able to afford to spend much more than they actually do. They just choose not to. And one reward for them is they never have the stress of a sleepless night when suddenly they need more money than normal for themselves or to help family or friends.
The Millionaire discipline
Few millionaires are born with that proverbially “silver spoon” having inherited their wealth. Many more get to that status by earning it the old fashioned way. My clients for the most part are comfortable financially. Some with more than a million dollars, others with barely over $10,000. But they all are comfortable because we build a spending/saving plan that fits for them.
One example will make the point and then it’s up to the individual how he/she wants to react to it:
Invest $2,000 per year from age 25 to 35 earning 6% and you’ll have $27,943.29. Let the account continue to earn only 6% for another 30 years, without adding any additional funds, and you’ll have over $160,000 by age 65.
If you waited until age 35 to start investing your $2,000 per year and invested for 20 years (not 10, but 20!) and then went to cash out at age 65 you’d only have $139,660. If you earn more than 6% per year the gap in amount of money gets even wider.
TIME IN THE MARKET, NOT TIMING THE MARKET!
Be responsible. Allow yourself a bright future. Spend reasonable, save regularly.
If you’d like help please contact me.