This post is all about the saving behaviors that one should integrate into one’s lifestyle with the intention of living well after working. If you have a guaranteed Pension coming after so many years of service then your savings approach will likely differ. If not, read on.

• Pay Yourself First
• Start Early
• Employer Match
• Stay Employed
• Max Out Your Contribution
• Index Funds
• Dollar Cost Averaging

It is important to note that I am writing from the perspective of a 46 year old black male who works for a major airline that offers a 401k as it’s only retirement savings option.  I have been with the company I work for for 16 years. And plan to retire in anywhere from 10 to 14 years. Please chime in with alternate experiences i.e. self-employed, military, state workers, non-profits etc. All of us have a unique perspective on what the best practices are for achieving our goal of living well after working. Please don’t discount the importance of your experience. Remember that there are young people reading this who will benefit by not having to make the mistakes that many of us have made on this journey.

Disclaimer:

This is not legal advice. This is not investment advice. These are the sharings of individuals who have either achieved the goal of retirement or who are well on their way to that goal.

I read a book about a hundred years ago (I’m ashamed I don’t recall the title) that repeated the catchy phrase “Pay Yourself First” as its mantra. It might have been the Millionaire Next Door. (which I highly recommend).  It pushed the idea that part of the recipe for financial freedom after working is to move the concept of saving to the forefront of your financial agenda. The general idea is that by prioritizing your debts you include YOURSELF at the top of the list as the primary debtor. In other words, you pay YOU before you pay anybody else.

Of course this can be a daunting prospect if you’re just getting started but one of the magic keys to the entire game is recognizing when you first enter the workforce that your first priority is to establish a savings plan for the money you are now earning. Not a SPENDING plan, but a SAVINGS plan.  Why this isn’t a senior year high school mandated message I have no idea.  Notice I did NOT say college. I said high school. And I said it because saving is a concept that ANYONE entering the workforce needs to engage in. It is NOT earnings-dependent!

So no matter how much money you make you should be setting aside a part of it (preferably) in a tax deferred, interest-earning account to be used when you decide you’re tired of working. Many companies offer what is knows as an employer match where if the employee contributes up to a certain percentage the company will match that amount (typically as a lump sum cash deposit into your retirement savings account) up to a specified limit. If your company offers such a program and you don’t take full advantage of it then you are effectively walking away from free money.  It’s as simple as that. And if you’re not sure if such a program exists at your company call your HR rep and ask. TODAY.

The next point is significant from the standpoint of the article on this site that discusses the dilemma which is black retirement. The numbers are scary and have to be addressed. NOW. Blacks and Latinos earn less over our lifetimes than whites.  Consequently, we have less ‘left over’ to save. But I’m here to tell you that that excuse is unacceptable.  And it’s unacceptable because it does not matter how much money you make if you PAY YOURSELF FIRST.  5 dollars an hour? Put 50 cents aside for yourself for every hour you work. That’s 10% of your salary. 2 years from now you’re a supervisor and you’re making 13 dollars an hour and you’re putting away a dollar and 30 cents an hour. 3 years later you’re a manager and you’re making $20 bucks an hour, putting away $16 dollars a day. It adds up.  (If you only put the money in a Bond Fund earning 0% a year, after 5 years you’d have 10 grand. Working at Bob’s Mega Burger.)

BUT THIS IS THE SECRET…

If you start from the beginning of your fledgling career you will never MISS the money you save. You will have ALWAYS put away 15% of your pre-tax earnings. And therefore never know what it’s like to have that additional 15% available to spend (WASTE).

The studies show that one of the reasons Blacks and Latinos fall so far behind whites in the earnings category is due to the unproportional rate at which Blacks and Latinos are incarcerated in this country. SO, stay employed.  Stay working. As simple as this rule is it is very very significant. 5 years of unemployment can mean the difference between retiring at 62 and not being able to retire until you’re 75 years old.

Why? All due to the laws of compounding. I will add a link here that details how it works but the bottom line is that over time and as your money grows a snowball effect occurs. Growth is slow in the beginning and possibly even dauntingly so. But over time speed picks up exponentially and once your nest egg has grown over time it begins to grow significantly faster than it did in the early phase of your career. And that is when thing begin to get very, very exciting.

The key is to never stop putting money in the pot. And as my mother taught me… every time you get a raise increase your contribution to your retirement savings account. Until eventually they tell you sorry ma’am you’re maxed out. You cannot contribute any more. Once you hit this point you will have joined an elite club of people who typically retire comfortably (if the market is kind).

I know this post is long. But I will close with a brief bit on dollar cost averaging. The concept is very simple. If you invest a set percentage of your salary every month then when the market is down you will buy more and when the market is up you will buy less. Consequently, the shares you buy more of when the market is down will increase the value of your portfolio when the market gains. This method allows you to always buy more when stocks are cheaper. No timing the market. No trying to figure out the winners. Always buying more when it’s cheap and less when it’s expensive.

My early studies revealed that index funds are the way to go (we will discuss this topic in much more detail as we go). Especially, for the lazy under-educated, disinterested investor like myself. I just want the money taken out of my check and handed off to the investment gods who will deliver me returns that will send me to Puerto Vallarta as soon as earthly possible! SO, I invest in index funds which match the S&P 500 or the NASDAQ. I own one fund. And all it does is chase the S&P 500. Whatever the market does, it does. And if you’ve done your research you know that 9 times out of 10 that’s better than what all the actively manged funds do. But here’s the FINAL secret of this post: Index funds are the CHEAPEST of them all because they’re NOT actively managed. So the fees you pay to own them are significantly less than other managed funds. They’re the BEST DEAL OUT THERE!!

Please let me know what you think about my formula. I started late (at almost 30). But I can see the light at the end of the tunnel. Thanks for reading!