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At this point, we've decided to make a change in our finances, we've saved $1,000 for an emergency fund, we've paid off all of our debts, and we've increased our emergency fund to cover 3 - 6 months of expenses. You must be feeling pretty proud of yourself by now. Which brings us to Step 4.
Step #4 - Invest 15% of your Income
Investing 15% of your income is Dave Ramsey's idea of a retirement plan. While it will get you to where you need to go, I'm not sure if everyone will have enough years left to succeed. Let me explain, let's say you make $50,000 a year. You invest 15% of your income, and after 30 years you'll have $937,000 if your investments have an 8% return. Sounds pretty good right? The thing is, if you want to retire at 60, you'll have to start investing 15% at age 30. Perhaps, you're further along than I am, but I'm not going to be able to invest 15% at age 30. I won't have all my debts paid off, and I won't have 3 - 6 months of expenses in savings.
This is why I'd recommend investing as much as you can, as early as you can. If you're employer has an employee match 401k plan, you'd be crazy not to take advantage. Right now I'm investing 5% of my income, and my employer is matching 4%. Not too bad. My wife has a Roth IRA (whats an IRA?), and she is investing 3%, and her employer matches that 3%. Put all that together, and we're actually investing 15%. I didn't even realize that till just now. So maybe we can retire early after all.
Whatever you do, don't put investing for your retirement off. Compound interest is your best friend, and the earlier you start investing the better. If you can only invest 5% of your income, do it. You'll be amazed at how much that 5% can add up to after 30 or 40 years.
Step #4 - Invest 15% of your Income
Investing 15% of your income is Dave Ramsey's idea of a retirement plan. While it will get you to where you need to go, I'm not sure if everyone will have enough years left to succeed. Let me explain, let's say you make $50,000 a year. You invest 15% of your income, and after 30 years you'll have $937,000 if your investments have an 8% return. Sounds pretty good right? The thing is, if you want to retire at 60, you'll have to start investing 15% at age 30. Perhaps, you're further along than I am, but I'm not going to be able to invest 15% at age 30. I won't have all my debts paid off, and I won't have 3 - 6 months of expenses in savings.
This is why I'd recommend investing as much as you can, as early as you can. If you're employer has an employee match 401k plan, you'd be crazy not to take advantage. Right now I'm investing 5% of my income, and my employer is matching 4%. Not too bad. My wife has a Roth IRA (whats an IRA?), and she is investing 3%, and her employer matches that 3%. Put all that together, and we're actually investing 15%. I didn't even realize that till just now. So maybe we can retire early after all.
Whatever you do, don't put investing for your retirement off. Compound interest is your best friend, and the earlier you start investing the better. If you can only invest 5% of your income, do it. You'll be amazed at how much that 5% can add up to after 30 or 40 years.
1 comments:
Put all that together, and we're actually investing 15%.
I would say that you're investing somewhere between 6 and 9% of your income. If you and your wife make exactly the same, it's 7.5%. (You can't add up percentages like you're doing.)
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