Want a Good Life NOW? Start Saving for Retirement.
"Working for 65 years only to LIVE for 15 before I die sounds like a scam."
"I just want to enjoy my life now. Who knows what tomorrow will bring."
An old classmate said each of these phrases nearly in succession while we were talking about saving once, as if he'd geared up for the conversation. He was about 17 years old, only a few years younger than I was at the time, and was planning on becoming a full-time musician as soon as he graduated high school.
Knowing that his biggest dream was to be a musician- and seeing how quickly and defensively he responded to each of my questions- I'm sure he HAD thought about it before.
Most of us face some variation of the classic dilemma when we're about to embark on adulthood: Do I "follow my passion" or do I "follow the salary"?
We see kids go through this all the time as they try to decide on a career they think they'll be in for the rest of their life or what their life's "purpose" is.
But little do we realize that the same question doesn't just go away as we get older. It evolves.
Every day, we make countless decisions about short term vs. long term gratification.
Do I spend my money now, or do I save it so I can enjoy it later?
Do I live for my resume or my euology (or neither)?
Do I do what I want to do now, even if it'll hurt my career later on?
I felt for my friend, but here's what I couldn't get across: I actually agreed with him.
People often die before they retire. Working your butt off for 65 years only to "enjoy" life when you're older seems like a massive scam. And every day is precious. I want to enjoy my life right now too because he was right- who knows what will happen tomorrow?
I would never have tried to talk him out of leaving for a new city or following his dream of becoming a musician. I ALSO want to live life on my terms, enjoy every moment, and take risks and move to new cities while I'm young.
The only difference is that I don't see enjoying life now and preparing for life later as mutually exclusive courses of action!
That's the secret I've found to saving for long-term goals. To rectify in your mind the harmful idea that if you have something now, then you can't have it later- and vice versa.
The truth is, saving for retirement (and saving in general) doesn't just mean saving for your 60+ year old self. It means saving for your future self, in whatever form that takes. And when you start taking steps to better your future self, your present self starts to feel the results.
If you start eating healthier in the hopes of aging more gracefully, you'll start to feel better day by day.
If you start working out to lose weight, you don't suddenly feel amazing once you hit that perfect number on the scale. It's a process, and you find that every step along the way can be a celebration in itself.
Saving for retirement works the same way. You don't only get more options at retirement. You also give yourself the gift of having more options along the way. In reality, that could be your self in 40 years or it could be your self next week. Saving for retirement has helped me in both the short and long terms!
That's it. That's the secret. To rectify in your mind the harmful idea that if you have something now, then you can't have it later- and vice versa.
Take a look at the following example:
(It's simplified but I think it gets the point across!)
Guess who's going to have an easier time doing what's important to them in the moment?
Kayla. Because even with a modest portfolio for her age, she has given herself more options.
Want to explore a different career?
Kayla will feel like she can take a break from saving if she needs to to fully focus on the transition. Julie might feel too unstable to do so.
Want to take a sabbatical or hiatus?
Kayla will feel confident in knowing she can get back on the wagon when she needs to. Julie will feel like she can no longer afford the "lost time".
Ever since that first $100 saved, Kayla has experienced more freedom.
I see saving for retirement kind of like hiking a mountain. The ideal destination for most avid climbers is the peak, of course. But anyone who's ever hiked knows that there are still beautiful trails and lookout points all along the journey up. At every fork in the road, you need to weigh the pros and cons of taking certain scenic detours. People who refuse to save for retirement because they don't think they'll actually need it at retirement age are like people who never try hiking a mountain at all because they don't think they'll ever make it to the top. They think, "Why bother?" And in the process they miss out on all of the fantastic views along the way.
I'm not going to lie, it's taken me a long time not just to understand this concept, but to really internalize it. In the back of my mind, I knew it was true. But on the emotional front, I never acted like it.
I've been saving for retirement for about 6 years now, when the manager at my fast food job initially told me to sign up for my 401k. That's not very long in the personal finance sphere! But I feel like I've had to learn a lot of smaller lessons about saving to make it happen.
Here are a couple of things I've learned since then that have helped me change my mindset and save more for retirement:
1. Enjoying life and spending money are not synonymous.
When people say, "I don't want to save, I want to enjoy my life now," they're equating "spending" with the phrase "enjoy my life."
Money does not equal happiness. When you imply that you need to spend all of your money now to enjoy life to the fullest, then you're arguing that money buys happiness. It doesn't.
2) There can be a happy medium.
Okay, let's say you totally disagree with Point #1. You believe that the more money you spend, the happier you will be.
I've lived on a pretty low income myself, and know just how much basic necessities like food and a safe place to live really do contribute to overall well being.
Even then, so many people set up their own false dichotomy in their personal finances order to justify their spending.
A false dichotomy is a logical fallacy in which two options are presented as the ONLY options to choose from, when in fact there might be numerous more options.
For instance, if you say, "We can have either sushi or spaghetti tonight." Maybe those are the only things you're in the mood for, but usually those aren't the only two options. Maybe instead you could have Chinese food, Indian food, Mexican food, etc.
In short, a false dichotomy says: "Either this or that."
Which, all too often, turns into: "Either I spend money and enjoy myself or I save money and I don't."
Wrong. Personal finance is PERSONAL, and as such it is filled with variations and nuance.
You can save just a little bit more (<5%) and probably won't even notice the difference.
You can save a moderate amount and potentially enjoy your life just as much.
Or you can save a lot and think of enjoying your life in ways you never have before.
The "this or that" sentiment- or false dichotomy- should never apply to broad swaths of your life like "happiness". It should only be applied small decisions:
Either I get takeout tonight or I save the difference.
Either I get new insurance quotes today or I stick with the one I've got.
It's only once all of these little decisions add up that you feel satisfied or unsatisfied with how things are going.
3) Automation makes your good decisions for you, repeatedly.
If you wake up in the morning and immediately have to make the choice to either buy or not-buy a delicious latte on your way to work, then of course you're going to create a dichotomy in your mind between saving money and actually enjoying life.
Those little decisions mentioned in the last paragraph sound exhausting, right? I used to blame myself for failing to make the best decision for every tiny little choice. I thought that I didn't have enough discipline or willpower (which, in my opinion, is really just our culture's way of throwing systemic issues back onto the individual more often than not!).
If you wake up in the morning and immediately have to make the choice to either buy or not-buy a delicious latte on your way to work, then of course you're going to create a dichotomy in your mind between saving money and actually enjoying life. The same goes for Amazon purchases, takeout, alcohol, etc.
Now, I simply bypass those tiny little decisions as often as I can through the power of automation.
Instead of needing to make a decision first thing in the morning, I loaded up my Starbucks card with a set amount of money each week and when it ran out it was out.
Instead of trying to remember to send money to savings each payday, I adjusted my payments settings through my employer to split my checks between checking and savings automatically.
I even meal-planned for a while to help avoid the temptation of takeout.
“First, never underestimate the power of inertia. Second, that power can be harnessed.” - Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness
Give yourself fewer decisions and less work by automating as much as you can in life.
4) If you can, harness the power of a Roth IRA.
But what makes Roth IRA's especially alluring for new investors is that unlike other retirement accounts, you can take your own contributions out penalty-free! This is simply because you've already paid taxes on the funds. Read that again. You can take your own contributions out at any time (NOT capital gains), penalty-free.
This is AMAZING for anyone who's new to investing or not sure if they'll need the money sometime in the near future*. You can take advantage of the tax shelter that retirement provides- without fully committing to using the money only in retirement.
*please keep in mind that this only applies to your own contributions and all investments are susceptible to potential losses. Do your own research before putting your money in any account!
There are countless articles that can help you get started with the technical side of saving and investing for retirement. But in my experience, the most effective and long-lasting change will come from a shift in your mindset.
Treat your future self as if you care for them as much as you care for your current self, and before you know it people will be asking YOU how you do it!
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