Habits are more valuable than returns. For number geeks like me, this can be tough to admit. Mayby want to start saving for retirement but are still paying off our credit card at 17% interest, and student loans at 7.9%. It’s easy to put off retirement savings till we feel more ready. But the habit is more valuable than the return. So we need to find our own “No-matter-what-minimum-retirement-savings-number!”
I wish Mr. Mt and I would have done this from day one. We didn’t. We payed off the credit cards first. We made sure the student loan was handled. Then we tackled medical debt. In short, we lost nearly 3 years before we wised up. Our procrastination could have gone on much longer.
There will always be a “Next Thing.”
It’s tempting to think, “Once I get these things squared away, I will be ready to start.” But there will always be a next thing. You pay off your credit cards, but need to buy a car. You pay off your car, then work on student loans. Your student loans are about paid off, but you get engaged and need to pay for a wedding. That is paid off but now you are saving to buy a house. Your in a great home, but now that you have two kids one parent wants to stay home. The kids are in school but your parents need help. Your house is far too small. Wait, now your kids are in college. That’s life. You can’t wait till life takes a long pause in the action for you to start saving for retirement.
Find your “No matter what minimum retirement savings number!”
When we finally got our heads on straight, we decided to save the max amount for a Roth IRA. I think it was $3000 a person when we started. Ok, so $6000 all together. No matter what, that was our number. If there was a wedding across country, we HAD to make sure we could hit that target. If we needed a new car, we wouldn’t compromise on that number. If I wanted to switch jobs (I did that a lot!), we still had to hit our number. Buying and remodeling our first house? Still made sure we maxed out that IRA.
The government helped us out by slowly increasing that threshold of max IRA contributions. So we forced our savings to grow with it. But that was our bench mark. No matter what.
“But the interest rates!” you cry in pain. I know. I get it. It sucks, but here is why I still think investing and paying down debt at the same time is better course of action.
1. You are building your expense slashing/income growing skills twice as fast!
Paying off debt and investing at the same time requires personal growth. You have to learn how to lower your expenses. You have to learn to cook. You have to learn to be ok with a not so fancy car. You have to learn how to earn extra income. The learning curve is real! If you tackle two goals at once, you will learn those skills twice as well, twice as fast! Just trying to pay off debt will help your learning curve a bit. But paying off debt and coming up with extra income to invest will stretch you. It will force you to be creative. You will move out of your comfort zone to hit your goal. And that will serve you well for the rest of your life. No, you might not eat beans and rice forever, but when you are able to start making fajitas at home, you will feel like you really have arrived! If you never did the rice and bean stage, fajitas are so, “eh.” (I’m sorry I said that fajitas! I love you SO much, you know that!)
2. You are building a powerful habit
So for 11 years we have committed to maxing out our IRA’s. But we are currently taking a year long sabbatical this year. I wasn’t 100% sure how the numbers would look. So we decided it was best NOT to save this year. But…. It’s driving me crazy! After of years of sticking to our IRA max, it has also become a powerful habit.
The other habit we picked up along the way was keeping expenses low. Now, don’t get me wrong, I feel like we lived it up this year. 6 week road trip. New classic car. Bought a pop up camper. Bathroom build out. Geesh. But years of keeping expenses low have paid off. Every month we came out a little further ahead rather than behind. So we are going to max out our IRA again this year!
When our “No matter what minimum retirement savings number!” becomes second nature, we now have a habit that will consistently bring us more freedom rather than less. The longer you do it, the stronger the habit will become.
3. Take the money off the table
When we finally took that money off the table as an option to spend, we adjusted our cost of living and saved ourselves a few stupid mistakes. Before people find that “No matter what minimum retirement savings number!”, it can be easy to take on more payments and postpone the saving even longer. “As soon as we pay off the student loans, we are going to start investing.” Which totally makes sense, except I would say it only happens 50% of the time. As soon as those loans are paid off, the house is way too small and they really “need” to get a bigger place. Making it non-negotiable was a game changer for us. It saved us more than a few stupid mistakes. About 2 years after we made that commitment, we almost compromised and bought a house. A $400,000 house. At the peak of the housing bubble. But in the end after lots of number crunching, wishing, research and prayer: it just didn’t sit right. I think part of the reason was that we might not be able to max out our Roth IRA if we bought the house. I tried to justify the compromise because we would be “investing” that money into real estate (aka paying interest). Oh, a year later when we moved to Europe, that house had dropped nearly 100k in value. Perhaps the best non-decision of my life.
By taking that money off the table and committing to your investment plan it will help keep your expenses in check.
So we are going to max out our 2016 Roth IRA.
Our narrative says, that’s just what we do.
We max it out.
There is no benefit to changing that narrative now.
It’s worked well for us this far.
Do you have a “No-matter-what-minimum-retirement-savings-number!” or a certain % you always save?
Did you wait till other things were paid off before you started saving for retirement? Which ones did you pay off first?
What would you compromise your number for? Do you think you would follow through or throw in the towel like me? =)
Do you wish you would have started earlier? Like $25 a month during college, just to build the habit?