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- Auto-Increase Your Way To Wealth
Week 7: Save More, Tactic 2:
Auto-Increase your workplace retirement plan contribution
What can you do this week?
Set your workplace retirement plan contributions to increase automatically.
This compound savings effort compliments your compounding investment returns over time.
You create real wealth predictably.
Incremental increases in contribution each year can get you to a higher savings rate. This margin of safety improves your odds of reaching financial goals/there is less reliance on market returns.
I will cover many ways to save more money in this newsletter but any way to automate things is a great place to start.
Out of sight, out of mind works when it comes to saving money.
“The truth is that wealth is what you don’t see….The only way to be wealthy is to not spend the money that you do have. It’s not just the only way to accumulate wealth; it’s the very definition of wealth.”
Lifestyle creep prevents many of us from creating wealth.
Automated savings methods, especially when timed with annual increases in pay, prevents the urge to burn all your newly found excess.
“Lifestyle creep occurs when an individual's standard of living improves as their discretionary income rises and former luxuries become new necessities.”
Why You Should Auto-Increase Contributions
Below is an example of what’s possible:
40 year old who earns a $100,000 increasing at 3% per year until retirement age 65.
With an existing balance of $100,000, this person elects to increase their current contribution of 3% by 2% per year until they reach 15%.
Assuming an age 65 retirement and 7% average return:
With and Without CA is referring to Accelerated Contributions (the auto increase in contributions)
The above example is before factoring in any employer match.
Add a 3% match and the numbers are $1,077,799 without an auto-increase.
$1,923,476 is the balance when including those auto increased contributions and employer contributions!
How
This is how it’s done at my workplace plan. You can likely follow similar steps in your own plan.
This is only an example and if your plan doesn’t have this, it’s absolutely worth setting your own reminder on your calendar to do this manually.
Select Contributions and then Manage Contributions
Change pre-tax and/or Roth to increase by a % on a given date and to stop that once you reach your goal of income percentage saved.
What do you think?
What other financial topics do you want covered here?
I’d love feedback and questions anytime. Feel free to contact me!
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