Last week I met with a client who has had, financially, a very profitable year. After rolling over a 401K from an old employer to an IRA and adding a $4000 deductible contribution for 2013, in 2014 she has since received a 50% pay raise, increasing her salary deferral in the employer’s 401k plan from 3% to 4%. So in general, a good year financially. Understandably, however, this new situation raised many questions for my client. How will the raise affect her tax situation? How the IRA might have performed? Is she spending too much money because her savings hasn’t increased since last year, although it also hasn’tdecreased?
We discussed adding another IRA contribution, starting a planned savings program, and the benefits of her job’s 401k plan. I congratulated her on increasing her participation rate and encouraged her to make it a goal to go even higher, to the highest maximum allowable amount. While she initially grimaced at the idea of putting away even more money, I gave her some advice that is important for everyone to know: even though retirement seems many years away, once it is time to retire it will be a much nicer and more rewarding experience if you start planning intentionally, intelligently, and as early as possible.
Since she is paying most of her bills online she is going to look into the bank’s online expense/budgeting feature which will really help her track and analyze where her money is going. One last bit of advice came when she expressed the desire to travel more, but thought it was too expensive. I told her not to be afraid to take a couple of trips, because she is planning and saving wisely, and she seems to have a good head about her finances, she can afford to enjoy some rewards of her success.
My takeaway from this meeting was this: it is always wise to start planning for retirement early. There is no age too young to begin planning. Find the right plan and steps for you and begin them. You will thank yourself when you reach retirement and have zero worries. Furthermore, if you are planning wisely and understand your finances and your future financial plans, don’t be afraid to enjoy your money a bit and take a trip or two. Your future self will be very grateful.