Do you get an annual raise from your employer?
If yes, listen up. There is a way to allow that 2, 3 or 4% your employer gives you to add enormous amounts of wealth to your pocket.
There is a thing called lifestyle inflation which ultimately means the more you make the more you spend. It is human nature for us to increase our standard of living as our income goes up. For instance, when I was in college, I rarely went out for a nice sit-down meal. Now, I go a few times a month. Lifestyle inflation is bound to happen to a certain degree. You make more money, you start a family. You start a family, you need a bigger house. It isn’t a perfect cause and effect relationship but you get the gist.
So what are you doing with your annual raise this year? If you are like most employees then you get a tiny piece of satisfaction out of seeing a slight bump in your paycheck. Not like an extra $30, $50 or $70 a paycheck makes a huge difference, but it can if it is put in the right place.
Let’s say you are the recipient of a 3% annual raise from your employer. Instead of letting the raise go straight into your paycheck take 2% of that raise and increase your 401k contribution by 2%. Then let the 1% add a little more to your paycheck. Now on an individual with a $50,000 a year salary, increasing your 401k contribution by 2% is only $1000. However, if you let that money compound and you continue to put your raise into your 401k each year, then over time it can add up to thousands if not hundreds of thousands of dollars.
Nobody ever looks back and says “I saved too much money.” So give it a shot, and let the savings pile up.
Budget Smart, Invest Wise