HOW TO BUILD A WINNING BUDGET YOU’LL LOVE FOR BEGINNERS – PART 4: INVEST
“As in all successful ventures, the foundation of a good retirement is planning.”
Earl Nightingale
Investing In Your Future By Investing In Your Present
Once you take care of your debts, you’ve got to start paying the future you.
Eventually you will probably want to stop the 9 to 5 and either retire to a new adventure of some sort, or to your tv. Hopefully you’ll choose the former over the latter.
Regardless of your retirement goals, you’ve got to start planning for them NOW!
The sooner the better.
Why? Two words: compound interest. I’ll explore this more in another article, but for the purposes of building your budget, just understand this: $500 per month placed in good investments could easily grow to over $1,000,000 over a 30 year career. And you’ll have only put in $180,000!
Compound interest.
Investing vs. Saving
Now, you can’t just stick that money in a savings account at the bank and expect that growth.
Under your mattress won’t work either.
There is nothing wrong with having some good, well funded savings accounts. My wife and I use several to keep funds allocated for different purposes separate and easily accessible. In fact, we’re going to discuss “saving” in a later part of this series.
“Saving,” is not “investing.”
Saving is putting money aside for an emergency or for an inevitability in the short term. This money should be “liquid,” or easily accessible in the form of cash. Typically, when we’re saving, we’re not too concerned with huge returns via high interest rates. (But if you can find a good saving account with great returns, you definitely want to grab it!)
When you invest, on the other hand, money is put away each and every month with no intentions to touch it for years. It is the method we use to provide for our future selves.
Now, Investing specifically for retirement can be done using a variety of tax sheltered vehicles that we won’t get into here. Just think Roth IRAs, 401(k)s, 403(b)s, etc. (You really want to get a pro to help you get started with this type of investing.) We’ll look more closely at these in a future post.
So, if you’re 25, and retirement seems like an unimportant event in the distant future, just remember: compound interest.
If this whole idea seems a little outside your comfort zone, take a breath and follow the steps below to get started. The sooner you do, the happier you’ll be that you did.
Do This Now
First, head over to Chris Hogan’s website and grab his investing guide. This is a great introduction to the what, why, and how’s of investing.
Second, while you’re there, use his R:IQ ASSESSMENT. Chris’s philosophy is that “retirement isn’t an age-it’s a financial number.” This fantastic tool helps you determine exactly how much you need to start putting away each month now to be ready for your future. It even allows you to adjust your earned interest depending on how optimistic or pessimistic you feel. All of the results are adjusted for inflation as well.
For more great information from Chris, be sure to grab his book “Retire Inspired,” where he covers all of these topics in depth.
Third, once you have a grasp of your ideal investment amount and where you want to send it (Roth IRA, 401(K), etc.), list out those investment vehicles in a new section of your budget.
If you haven’t set up any investment accounts yet, it’s time to get started! Go ahead and starting setting your planned amount aside, and get an appointment with an investment professional who is willing to take the time to teach you about where you’re money is going and why.
Budget At A Glance (So Far)
Section 1: Gross Income
Section 2: Paycheck Deductions
Section 3: Giving
Section 4: Debts
Section 5: Investments
“Retirement isn’t an age—it’s a financial number. It’s the amount of money you need in order to live out your retirement dreams.”
Chris Hogan
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What are your thoughts on retirement being a financial number more than an age? Have you ever considered this way of looking at it? For me, this was a huge (and motivating!) shift!
[…] As I mentioned in my article about investing on a budget, investing is a long term game that pays big in the end. It’s about patience. Investing is not a get rich quick scheme. […]