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Never Save What’s Left Over

· · 40 Comments

by Craig Erwin, Ph.D.

Photo By Ale Romo Photography On Unsplash

If you save whatever is left over at the end of the month for retirement, you will never save anything. It is dangerous to use the leftover approach to retirement saving. You will spend it all on something that seems important or necessary (at the time) and your nest egg will languish.

That’s why it’s imperative that you save (and invest) as much as possible for retirement at the beginning of each month, not the end. At the beginning of the month there are myriad possibilities. You haven’t committed to paying bills yet or allocated your paycheck to this or that expense, which provides a great opportunity to save aggressively before the money starts disappearing.

It is easy to consider all kinds of things necessities at the beginning of the month when you are flush with cash. That’s when you make short-sighted decisions that will haunt you years later. You decide you can’t live without a pedicure, that your winter coat is too ugly to endure another winter, your sofa is unbearable, or you really must buy a new car like your neighbor’s shiny new one. But, many things that we convince ourselves we can’t live without or that we absolutely must buy now are actually luxuries that we may never need (or may not need for years).

What you must do is save aggressively for retirement at the beginning of the month before you have a chance to fritter the money away on luxuries and alleged necessities. Enroll in your workplace retirement savings plan or an Individual Retirement Account and save until it hurts. Invest the money in an S&P 500 Index fund and don’t touch it until you retire.

If it helps you be more disciplined, find an online calculator that enables you to determine how much each dollar you save today will be worth when you are retired. That may just motivate you to save until it hurts.

See the following post for a description of the best way for most of us to save for retirement. https://womenretire.com/the-best-way-for-most-of-us-to-accumulate-wealth-dollar-cost-averaging/

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  38. Great advice, Mr. Erwin. So many of my friends and colleagues spend an incredible amount of money on “wants” such as expensive homes, vacation homes, cars, boats, clothes, et al. A couple of them are living paycheck-to-paycheck, as a consequence. And the vast majority of them don’t have enough money saved for retirement. Even when I show some of them that they don’t have enough money for retirement, they still prioritize their “wants” over their “needs”. In fact, they’ve convinced themselves that some of these “wants” are “needs”. This is especially true when it comes to buying a home; quite a number of my friends have convinced themselves that they “need” to buy a big, expensive house or McMansion, when doing so would cause them to live beyond their means.

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