Is a maxed out 401(k) the new luxury item?

President's Advisory Panel for Federal Tax Reform

(Photo credit: Wikipedia)

Most of us have no idea what retirement is going to look like but we know we can’t work forever. After working hard for 30 years nobody wants to be stressed out about not making ends meet or out living their savings. Let’s talk about balancing the delicate mix of enjoying life today while saving for a comfortable future. When balancing fun and sacrifice the three things that you have to consider and adjust are how you spend, save and invest. It is not as much about how much money you earn but more about how much of it you can keep. Whether you earn $50,000 a year or $500,000 if you spend all that you earn you are broke either way.

Many are in the mind frame that we earn money to spend it. Where that may be true we don’t have to spend it all at once. Some money is for today and other money is for a rainy day or a later day. There is a battle between what we want and what we need. The best way to always end this battle quickly is to have a spending plan that reminds you of how much money you can spend and when. If you do not have one, visit my website to download the one I use with my clients. www.kinecorder.com/spendingplan

The percentage of spending, saving and investing is based on the risk tolerance, goals and time horizon of the client. I also consider their bad habits or vices. If you know you have a sibling who borrows and doesn’t pay back or if you know that you are going to travel 2 or 3 times a year just work it in. Do not try to pretend that it doesn’t exist. At least this way you may be able to sacrifice in other areas to prepare for these things. If we don’t account for them we are setting ourselves up for failure.

In your spending plan it is natural for living expenses to take up the majority of your earnings. The amount will be based on how much fun you plan to have verses how much sacrificing you plan to do. When it comes to saving and investing you decide how much you want to put there based on how many goals you have and how far off they are. The earlier you begin the less stressful it will be when the goals are right around the corner.

Savings are the liquid accounts that you would use if you became unemployed or if there was an emergency. Investments are the longer term goals like college and retirement. These goals are the two most common areas we have to invest for and it is often difficult to juggle how much to put toward each when you have to invest for both. There is a saying in wealth management, “you can borrow for college, but not for retirement.” For that reason retirement goals should take priority over college. The idea is that you should first save up 6 months of expenses, next max out your 401(k) investments and then invest for college. Also, most people want to include a portion of their spending plan to giving to church, charity and/or organizations that are dear to them.

All these things are important and choosing which one to fund can be tough when you want to live the luxury lifestyle. This is where you have to make decisions on what makes you feel better, driving a Lexus or knowing you are financially secure for your future. If you try to breakdown your earnings in to four sections and allocate a certain percentage to each section you will be able to keep yourself in line.

Give 10%, save 15%, invest 15% and spend 60% of your after tax income to enjoy life today and in the future. Cut cost where you can and make good financial decisions along the way. Impressing others with a remodeled kitchen or fancy cars will not make you feel safe. So secure your future first then by the luxury item.

Redefining luxury…Now That’s Presidential!

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About Kiné Corder

Kine' Corder is a best selling author, speaker, and member of the Financial Therapy Association. Formerly a Morgan Stanley Financial Advisor and currently a Financial Therapist Kiné runs Presidential Lifestyle, a financial wellness company focused on wealth in all of it's forms. www.presidentiallifestyle.com View all posts by Kiné Corder

One response to “Is a maxed out 401(k) the new luxury item?

  • Michael Johnson

    Great article Kine’. It seems that it is more important to most people to live like royalty now with no regard for how they will survive later. My grandparents executed an awesome retirement plan that encouraged me to think about that part of my future more seriously. Thanks again for pointing this out! ~Pastor MVJ

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