How to save? Pay yourself first. : LUSENET : A Village Commons : One Thread

First, let me say I finally got back online today after a period with neither PC working properly. For anyone who responded to my 'compound interest' post, I just posted a reply.

Once again, I'd like to make sure any and everyone knows I'm no financial guru, don't do this for a living and don't hold myself out as any kind of expert on finance (or anything else, for that matter).

That having been said (my version of a 'warning label), I'd like to address how to save some money for your retirement and investment. I'm not going to take credit for this idea. It's been around for a long, long time. The reason, of course, is that it works.

I think I read of it most recently in 'The Richest Man in Babylon' by George S. Clason. I found that rather thin book to be a wonderful read. It has been criticized for that older language (thee, thy, thou, etc.) used, but I liked it nonetheless. I'm sure it's at your local library and you can decide for yourself. In any event, here's the idea.

Simply put, you take a given percentage of your income (say 10%) and, before you do ANYthing else with your money, you put that 10% aside for yourself. Admittedly, it'll be difficult at first. It gets easier as time goes on and you become accustomed to working with the 90% you have. The key here is to be faithful to your plan. Pay yourself before you spend any money on anything else and you'll be amazed at how quickly your little nest egg will grow.

I know we all have bills and mortgages and other wants and needs. Just make sure you list yourself as one of those and make sure you put yourself at the top of the list. After a while you'll almost forget about having done so but the money will keep growing. Personally, I'm a big fan of IRA's so I'd recommend putting the first $2,000 every year into one of those. Whatever you choose to do with the money, remember it's not for spending, it's for retiring. ;o)

Again, thanks for reading my post and feel free to respond if only to tell me I'm wrong. I hope this helps.

-- Gary in Indiana (, September 12, 2001


Gary I sent you an e-mail. Hope that's the right e-mail addy.

-- Kenneth in N.C. (, September 12, 2001.

Gary, that's ok that you aren't a finacial guru. :) Relatively informed is fine. LOL! Anyway, you mentioned IRAs. I had a thought today, and then immediately felt guilty as heck considering what the country is going through with this terrorist attack, but it occurred to me that the stock market is probably going to drop substantially for awhile and that this might be a very good time to fund my IRA for the year. (Yes, I know you are supposed to fund it January 2 each year, but I never have the money then.) Of course the flip side of this is that I've heard this attack may topple the whole shebang into a world wide recession, that the only major economy not in a slow down right now is China. If that happened I don't know if it would matter when I get it funded, as long as I did it before Feb. 28 (farmer's taxes are due in one payment and forms filed by Feb. 28 each year, not in quarterly installments with the main forms due in April like most non-farmers). Got any opinions on this?

-- Jennifer L. (Northern NYS) (, September 12, 2001.


If I only KNEW when the market would go up or down I'd be retired already. ;o)

I might suggest you follow the London or Japanese markets while the US exchanges are closed to get a feel for how the US market will reopen. Keep in mind that just because a market closes at a given point does not mean it reopens the following day at the same level. If you do follow the Nikkei Dow (Japan) or the FTSE (London, I believe) you'll get a good idea where the US will likely open when it reopens. I did note Japan opened down 5% following the attacks. I would expect the US to open down, regardless, but this tended to confirm that in my mind. If you're investing for the long haul, I'd think this would be a good time.

Think of it this way. If you're going to invest a fixed number of dollars, wouldn't it be better to invest it when it'll buy you more shares of the same stock? I'd rather spend my $2000 to buy 50 shares of Acme Widget stock at $40 per share than to spend it on 40 shares of Acme Widget stock at $50 per share.

As to funding your IRA January of each year for that year, you make an excellent point. In so doing, you get the advantage of an entire year's investment return on that money. I usually do that but, fortunately, didn't this year. I'd love to tell you it was advance planning based upon exhaustive research. It was dumb luck.

Your comment on not having the money in January certainly hit home with me. I know it's always easy to say this, but if you put a couple twenty dollar bills away every week beginning in January you'll have your $2,000 waiting for you the next January.

I hope this answers your questions. If it doesn't, post again and I'll try to do better. If I'm out of my league, I'll raise the white flag and admit it, too. I hope this helps.

-- Gary in Indiana (, September 12, 2001.

Hi Gary,

I look forward to your posts because saving money has always been a hobby of mine. I just want to add to your above post by saying that in addition to paying ourselves 10% off the top, we also save any additional unexpected monies such as raises, bonuses, gifts, etc. Since we've already gotten used to living on the 90%, we consider anything else "gravy".

Keep posting. I always look forward to learning something new.

Wishing you enough.

-- Trevilians (aka Dianne in Mass) (, September 13, 2001.

Hi Gary, My mind is not 100% on business right now But I would like the opportunity to pick your brain on financial issues. Specifically, funding for an emerging business. There are a lot of other financial issues we could discuss for FUN. Bank notes, world banking systems, LBO's, etc. What do you think?

-- Kenneth in N.C. (, September 13, 2001.

Basically what seems to work for me is CDs. I set aside a set amount a week for these plus stay on a budget. Any Fed. Tax check, Christmas bonus goes in the CD. If I get any raises at work 1/2 of it goes to the CD, it don't hurt because once you get used to a budget even half of a raise helps. Plus I always compound my interest.

-- Tom (, September 16, 2001.

Tom, that sounds like a great way to do it. Putting away a little bit on a consistant schedule is a wonderful way to go. Adding bonuses, rebates, refunds and any other little 'windfalls' will only help more. The compounding, as you said, is the key. Keep it up.

-- Gary in Indiana (, September 16, 2001.

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