Becoming Rich: Automate Investments

Almost 2 years ago, when I was figuring out my financial future, I decided to put a 401k in place for our business. I chose this retirement vehicle because it seemed to offer the best tax-advantaged strategies to saving for retirement.

When I set up the 401k, I did not contribute much each pay period, instead opting to save up and then pay myself and my wife a lump sum bonus at the end of the year. I then deferred that bonus into our 401k, making sure to max it out to the yearly limit.

My thinking behind this was that since I am never sure how much I will make from month-to-month, I didn’t want to fall short on the business cash flow just to save for retirement. In theory, this was a solid idea. Protect the cash flow. Rule number one for staying in business. In practice however, it lead me to stash a large amount of cash into a savings account, and then worry for several months about whether or not I would need to dip into it to cover business expenses. Also, I was making zero dollars in interest, while the market steadily made gains.

There had to be a better way.

I had to find a way to worry less and still save for my early retirement goals. At the start of the next year, I decided to divide the max contribution out over 24 pay periods ($18k/24 = $750), and then from my paycheck defer that much towards the 401k. I did the same thing with my wife’s paycheck, and just like that, we were investing $1500 per pay period.

And as far as cash flow goes, I was already putting that money into savings, so it didn’t affect our business one bit. And since we deferred some from each paycheck, we began living on a little less. We had to cut back slightly on some household expenses, which is always a good thing to do.

Now this may not seem like rocket science, and surely it isn’t. But over the past 16 months, automating my investing has eased my worry and unloaded my concern about putting money into the 401k. I have not thought about this retirement vehicle for several months, and have freed my mind to focus on other aspects of my life and finances. And instead of earning 0% interest in a savings account, it has gained a healthy 16% interest since we started the plan.

Automated investments move the money before I even see it, in essence allowing me to recommit myself to my own financial vision every couple weeks. I don’t even think about spending the money because it’s never really in front of me. However, if I ever hit a speed-bump in our practice’s collections, I can easily suspend contributions to the accounts; or if things really go south, the funds in the 401k could act as a last-ditch emergency fund.

Automatic investing has helped me stay focused on my long-term goals, without my short-term self getting in the way.

 

My Neighbor Has a Vacation Home, Jet-Skis, and a Drone…He Must Be Happier Than I

Do you ever buy-in to this line of thought? I know I occasionally do; like a dumb bass I swallow it hook, line, and sinker. When I do, it is extremely damaging to my soul if I let it marinate in my brain for too long.

This thought process is implanted in our subconscious on a daily basis; maybe even an hourly basis. This is the entire premise of the current consumer marketing industry. We are directly and indirectly told that other people are happier than us, and that what we have is not enough. We don’t have enough toys, enough fun vacations, enough beauty, enough friends, enough, enough, enough…you get the point.

The mommy blogs with a spotless home; the exciting YouTube videos detailing products; the targeted ads for the new iProduct while surfing the internet; the social media posts showing a beautiful filtered picture of a moment of perfection in someone else’s lifestyle. These are all tactics used by companies to create discontent with our current life, and encourage us to spend our money in the pursuit of greater happiness. Advertisers and multinational corporations have found the secret path to happiness, and they are so graciously willing to let us join them…for a small fee.

We are told my advertisers that all we have to do is buy that extra toy, this skin care product, that fancy article of clothing, or that new car, and poof…we will be happier. And since the objective in life is to find true happiness, millions of consumers go along with what the advertisers tell us.

The funny thing is, just before we watch an advertisement, or read that mommy-blog, we may have been perfectly content and happy with our lot in life. We may not have known that our phone was outdated, or our clothes were not as stylish as they were just yesterday, or that our comfortable home was actually ridiculously uncomfortable. We were likely oblivious to how terribly unhappy we were until the marketing firm altruistically pointed it out to us. (Is sarcasm shown best in italics?)

Truthfully, if we try to find happiness in the form of an object, the majority of those purchases ultimately let us down.

The fact is, happiness is not dependent on any external factors. Plenty of people throughout the world live below our American poverty-line, and choose to be very happy. And the reverse is also true; plenty of people live extremely luxurious and opulent lifestyles, and are utterly miserable. When people are truly grateful for what they have, they will always be happy. When people only focus on what they do not have, they will always feel discontentment and then miserable.

Happiness is a choice. An internal, daily choice. We are free to choose how we feel about anything in life. Events happen all around us, some ‘good’ and some ‘bad.’ We don’t get to choose what happens in the world or in our lives, but we always get to choose our reaction to those events.

So, my neighbor has a vacation home, jet-skis, a drone, and many other expensive toys. Is he happier than I? Perhaps. But if so, it has nothing to do with his toys.

When I remember to be grateful for what I do have in my life, I can’t imagine anyone in the world being happier than I.

What would you buy with $10,000?

Or $5,000, or $20,000, or $50,000?

I recently was faced with this question. Last year, I had withheld a boatload of federal tax since we were having a great year, but when I took our paperwork to my CPA, he did his magic and minimized our tax liability, so we got a 5-figure refund.

As I left my accountant’s office, ideas started swirling of how we could spend the money: I could buy a newer car, we could renovate our kitchen counter-tops and bathroom vanities, we could take a trip, or we could buy a fancy home entertainment system.

Almost as quickly as those thoughts came to my mind (I say almost because I’m not perfect), they were driven out of my mind by my overarching personal financial goals and vision. I knew where the money was going; I had just forgotten for a moment.

High earners are often in a similar situation where they get a lump sum of money, whether it be a bonus check, a royalty check, a profit-sharing check, or some other way. Often in this scenario, the big check comes, they look around as if they just won a small jackpot at the casino, and the question is then asked, “What should I do with all this money?”

The problem with this scenario is that if you wait until you have money to make a plan for your money, you are already set up to lose. You will never become rich until you make a plan for your money.

Having an idea or plan for where this money should go, before you have it, can help you avoid some common pitfalls and snares that are set by and for our consumer-driven society. Every year many people experience this situation when a large chunk of money shows up in the form of a tax refund. Marketing companies and retailers know this, and are hyper-vigilant to get people to spend it on stuff they don’t even need or want, even before they actually have it. Some companies offer, or used to offer, a high-interest loan against the tax refund for those individuals who couldn’t control their urge to spend the money for a couple weeks.

There has to be a better way, especially if you experience lump payments on a more frequent basis.

Now, my financial situation is not yet perfect (again, I am in the ‘high earner, NOT rich yet’ consumer category), but three steps I have taken have helped me avoid some pitfalls I see in my way of ‘becoming rich.

  1. Make a personal financial dream/vision board. Don’t rely on someone else’s vision or dream or goals. Make it personal so you can stick to it. No one else is making it for you; it is self-prescribed. It can be big and lofty, or simple and minimalist. The point is, it’s YOUR dream, YOUR vision.
  2. Make a plan to accomplish your dream. Start with the end vision in mind, and work your way backwards from there. How much debt do you need to pay off? What are your interest rates, and terms on your debts? Where will you invest? And most important in this plan, address what aspect of your financial plan keeps you up at night the most. Be sure to include all aspects of saving, investing, and paying off debts in your plan that will help you accomplish your goal.
  3. Finally, execute the plan that YOU made to accomplish YOUR goals and dreams. You are not accountable to anyone else for making YOUR dream happen. At the end of the day, you are the most accountable to yourself. You had the dream, you made the plan, now make it happen.

I personally have a dream and vision of early retirement, and the freedom that will allow me. So I wrote up a plan, including paying off my student loans and  investing in mutual funds and retirement accounts (and eventually real estate). In my dream, I envision taking a family trip yearly, to create lasting memories for my young children. So I plan for that, and save for that. Nothing in my personal dream has anything to do with consumer goods or products, because I have found that they do not bring me as much happiness as experiences. (Of course, everyone may have different dreams which may include a product or object. Mine just doesn’t).

Over the past year and a half, I have been executing my plan, and I am loving the results. I am watching our retirement accounts grow, our investments rise, and my student loans drop. I can see some light at the end of the tunnel, and it is very satisfying to work towards a goal that I set.

What would I buy with $10,000? I’ll check my plan, but I’m sure it’ll say that I should buy my freedom.