There is so much emphasis on saving that I feel people don’t fully enjoy their money. Do you ever feel like that? Just think about your last pay check, how much went to savings and how much did you allow yourself to spend?
I hate feeling restricted, that’s why I’m only saving 6% of my after tax income and I think it’s just fine. OK that’s not exactly true. That’s the amount I’m saving out of my pocket, but overall at the end of each year I save 32% of my after tax income.
You see I think the key to saving is to let other people do it for you. There’s no reason to take dollars and cents away from your spending and needs if you can just use money that you’re not expecting. That’s something else I learned about money, don’t ever count on money that’s not in your pocket.
This is how I let others pay for my savings:
Take advantage of your employer retirement plan
My employer offers a retirement savings plan which I take advantage of every year. I contribute 4% of my salary and they double it, that’s an additional 8% savings into my retirement account. The way I see it I’m already making 200% return on my money and that doesn’t even include the profit on the investments, it’s a great plan.
Inquire about stock options with your company
The other 2% of my income is spent on a stock savings plan with my employer. This money is saved outside my retirement account so I can access it any time. I contribute 2% of my income and my employer matches it 1:1.
In total I am spending 6% of my income and investing 16%. How fantastic is that?
Remember that most employer savings plans have specific withdrawal rules called a vesting period. It usually requires employees to leave their money in the plan for a certain period of time (my employer is 2 years) before you can make a withdrawal. Inquire about all plan conditions before you decide to invest.
Invest your annual bonus
I know that annual performance or sales bonuses are not always guaranteed so when they do come take full advantage of it. The annual target bonus for my position is 10%. If I took that annual lump sum in cash I would end up losing more than half in tax.
Last year for the first time in my life I transferred my annual bonus into my retirement account, increased my net worth and didn’t lose any money to the tax man.
Now my total savings are up to 26%. See how quickly the savings can add up when you know where to look.
Save your tax refund
I feel about my tax refund the same way I feel about my annual bonus. It’s not guaranteed, so enjoy it when it comes. In recent years I have always used my tax refund for debt repayment, but this year that’s not necessary. If you have the luxury to do so save your tax refund instead of spending it.
This how I saved 32% of my after tax income last year and I’m going to continue to do so since it seems to be a savings strategy that’s working. Unexpected cash windfalls can help build up an emergency savings fund, help save for a vacation or boost your retirement account.
What’s your best piece of advice for people who want to start saving?