Only Idiots Walk Away From Free Money
The 2019 baseball season gets underway this week, and I can’t wait to watch the boys of summer in action.
How do you think your team will do this year?
Hope springs eternal but I have measured expectations for my hometown Miami Marlins. Hopefully they’ll perform better than average, because average won’t cut it.
You can’t compete with the Boston Red Sox or LA Dodgers by playing just average baseball.
And every player on every team wants to be above average. A .250 batting average doesn’t get you into the Hall of Fame in Cooperstown. And a .500 win record won’t usually get you into the postseason.
All of us should strive to be better than average and that includes in our personal finances.
This Is How We’ll Do It Successfully
The Bureau of Labor Statistics (BLS) came out with a litany of financial averages for the typical American household. These are useful yardsticks to evaluate your financial condition.
The typical American household has 2.5 people and has an average household income of $73,574.
But here’s a number that surprised me: The average American household saves an impressive $9,898 a year.
Are you saving $10,000 or more a year?
If the answer is yes, congratulations, you’re above average! And keep up the good work to secure a comfortable, fulfilling retirement.
Do You Need a Swift Kick in the Pants?
If you’re saving less than that, sorry, but you need to pick up your game if you want to make the cut. And here’s a great way to do so.
A new survey from ValuePenguin found that 63% of Americans don’t understand how a 401(k) works. If you’re one of them, pay special attention to what I am going to show you next…
A 401(k) is an employer-sponsored retirement plan that allows you to save money from your paycheck to fund your retirement. Each payroll period, a small percentage — from 0% to 15% — of your pay is diverted into your own personal 401(k) savings account.
The best part is that the dollars you save are untaxed and employers typically (not always, but typically) throw in a free $0.50 for every $1 that you save.
Now let’s break down that math.
Say you decide to save $100 per paycheck. If you’re in the 30% tax bracket, that means that your paycheck only goes down by $70, since your contribution is pre-tax.
Furthermore, your employer contributes $50 ($0.50 per $1) to your account. That means even though your paycheck was reduced by $70, your 401(k) account is worth $150 more (your $100 plus $50 employer match).
Only Idiots Walk Away From FREE Money
You’d be a damn fool to walk away from any opportunity that turns $70 into $150 overnight. And the sooner you start the better.
Consider the results for someone who starts at 20 years of age versus someone who starts at 30 years of age.
Saver No. 1 who starts at 20 saves $100 a month for 10 years and stops contributing at 30 but leaves the money in the market for the next 30 years until 60 years of age.
Saver No. 2 doesn’t start until he is 30 years old and invests $100 a month for the next 30 years.
Who do you think has more money, assuming the same 7% annual return?
Saver No. 1 has $141,303 and Saver No. 2 has $122,708.
And if Saver No. 1 continued to contribute $100 a month, his/her account would be worth $264,112, just from a $100 a month contribution.
And if you factor in the $50 employer match, the account value increases to almost $400,000!
I know saving is hard when you’re living paycheck to paycheck, but even a modest $100 a month will turn into a mountain of money.
More importantly, you’ll be making solid progress to financial freedom.
And that’s priceless when you’re playing in your postseason retired years.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch