Baby Step 4: Invest 15% of your income into Roth IRAs and tax advantaged retirement accounts
When I was 18, my grandparents helped me start my Roth IRA. During my college years, they added to my IRA, matching the amount that I earned working each year. At that time the maximum yearly deposit was $4,000 but you also had to make more than that to contribute that much. As I was working part-time at school and summers at camp, I never had that kind of income but we added as much as we could. I continued adding the maximum amount each year through 2011 when I left working outside the home to stay home with Annabeth.
Mark is blessed with a job in the public sector which means that he puts money into retirement two different ways. First, his job comes with pension after a required number of years of service and successful retirement. Mark also adds to a retirement fund through P.E.R.F. (Public Employees Retirement Fund).
Why does Dave say 15%?
At this point, people working through Dave's steps are debt free, minus the cost of where they live. Thus, they should begin looking to invest their income to grow their wealth. Too many people live in a "right now" frame of mind. That is all well and good right now, however, at some point we all will want to retire! And to retire, you have to have money. 15% is a fair amount because it is enough to really amount to something over the years. However, it leaves plenty to live modestly in the moment and work on Baby Step 5 which is "College Funding for Children." Dave discusses the fact that a lot of parents tend to want to save every extra penny for college but he argues that children can earn scholarships to help parents pay for school and that their degrees will not pay for the parents' retirement.
On our honeymoon, enjoying a day at Honeymoon Island
We hope to enjoy retirement traveling as well!
Why is this important to us?
Although there are times when we would love to take a big vacation every year or own more than one car or do fun projects on the house, we really see the value in being able to retire comfortably. We would like to retire and travel, to have lots of time to spend with Annabeth, and maybe even grandchildren some day.
We know that life is, probably, not just right now. We want to be prepared for the future.
Our favorite Dave quote is:
"Now you must live like no one else so later you can live like no one else."
Anytime one of us wants something big, that isn't a necessity and doesn't go along with saving for the future we remind ourselves that this is worth it. We don't have a $200,000 house or two cars or a vacation home or a boat or... But we do have a solid start on saving for our retirement which feels, at least to us, so much better.
We thank, praise, and give all credit to the Lord for providing our family with the paychecks that allow all of these financial decisions to be possible. To Him be ALL the glory.
See you tomorrow for Baby Step 5!