Standard of Saving, Pt. 1

I am quite curious, 1) how many people know they got a 2% raise on their paycheck starting January 1, and 2) what the people that did figure it out did with the extra cash.

On January 1 all tax payers got a 2% reduction in their social security tax.  That would mean your net pay increased by about 1.5%...since Uncle Sam will tax a bit of that 2%.  I'm figuring that most people said to themselves, "Cool, more money to spend"...on stuff.  I even have one coworker that said they were not going to tell their spouse so they could have a little more "fun money."  Spending it would be fine if it was spent putting extra money on paying down the debt most people have amassed.  But most little birds I've exchanged songs with lately tell me differently.  They've gone and raised their standard of living, albeit for one year, just a little bit more.  Then when 2012 arrives and the extra "fun money" is gone, it will be difficult to reduce that increased standard of living and then they go deeper in debt.  Why not raise your Standard of Saving instead!!!

Lizzie and I are on a quest to pay our house off in 26 more months...quite aggressive, but we have a plan.  Part of that plan is putting 15% into our individual 401k's first, with the remainder going toward our mortgage.  So when this "raise" came about, rather than spend it we decided to put it into our "plan."  At 15% my 401k is not max'ed out, especially since being over 50 I can also contribute an additional Catch-Up amount.  So I decided to simply raise my 401k by 2% for this year...a total of 17%!  No big deal?  Let's do some math...

Let's say you make $75,000 a year.  That 2% would be an additional $58 (pre-tax), or about $43 more on your check if you are paid every two weeks...$1125 for the year (while giving the government $375 of it).  Now, if you took that 2% and put that into your 401k, now it is pre-tax money.  To mantain the same net bring home, the same standard of living, you could actually contribute almost $75, because it is pre-tax.  You would have increased your 401k by about $1950 for the year.  If it was added to your mutual funds at an 8% annual return it would total about $2027 for the year.  So, instead of blowing $1125, you've just made $2027!!!  If you are not currently contributing to your 401k and your company has a match, you could actually make over $4000 for the year in your retirement account...all while maintaining the same standard of living (SOL), because you applied your new Standard of Saving!!!

Let me encourage all of you to find peace in your current SOL (funny how it is the same acronym as Shit Outta Luck), or reduce it, and increase your Standard of Saving!!!

Save Your Money!

News report are telling us that savings are up.  People are beginning to save their money again.  This sounds good but...most of the people/families saving their cash are those that make greater than $70,000 a year.  Those making less than $70,000 are not saving any money.  Although payroll has not gone up the last two years, commodities have come down in price, giving us a sort of in facto raise.  However, when inflation does start to occur, if those not saving do not have any extra cash, how will they be able to afford their needs?

It may sound disappointing, but it shouldn't be.  The reason those families with household incomes less than $70K are not saving is not because they don't have any remaining discretionary income, but because they are spending any extra money they have on crap.  They are the ones that over the last decade have built a mountain of debt they cannot now pay.  Those that can save are not necessarily able to do so because they make so much money, but because they were not out getting in debt, living higher than their capabilities, or setting a standard of living they were not entitled to.  I hate using the word entitled, but when you make your own money and it is not given to you through programs that encourage a lack of productivity, one is entitled to enjoy the fruits of their labor.

The people that are saving are not the ones that make a lot of money, but the ones that are not in debt!!!

~ Digger