You probably have heard this phrase before and it is true. “It is not how much you make, it is how much you keep.” That is the truth. If you make $100,000 a year and you spend $100,000 a year you will not get ahead. If you spend more than you make, or spend everything you make, you cannot get ahead.
Life is about being happy. Spending money and having stuff does not bring happiness. Research from the San Francisco State University found that people who spent money on experiences rather than material items were happier and felt the money was better spent. The more you save and invest earlier in life the more you can enjoy later on. It is delayed gratification. But we live in a society where we believe we have to have everything today. Right here. Right now. That we have to keep up with the Joneses.
If we spend everything we make we then have nothing for our true happiness. At a minimum we first want to pay ourselves first. We want to save the max to our 401k to the point we get a match. Then we want to max our Roth IRA which is $6,000 a year. If you are over 50 years old, it is $7,000 a year. Then once you have maxed out your contributions to your IRA, go back to your 401k plan. You then want max out our 401k at $19,000 a year. If we are over 50 the max is $26,000 a year.
Once we have paid ourselves first for our retirement we then have our priorities of liquid money for emergencies. The goal is to have 6-12 months of expenses set aside in an insured money market account. This is for those things we don’t expect in life such as a medical emergency, job loss or car accident. Once we are on a great track for retirement and have money set aside that is available for emergencies, we can move on to our other goals.
The next goal could be our kid’s college, a new car, a business, a cabin, travel, or some Live It List experiences.
We want to spend money in accordance to what we value and what is important to us. If we keep our priorities in line life will be happier and we will not spend more than we make. It is not how much we make, it is how much we keep.