NFIB

Pay Yourself First
04/ 15/ 2002


Employees of mid-size and large companies usually have the opportunity to put money away for retirement through 401K plans, which almost always are automatically deducted from wages. But if you're self-employed or own a small business, you don't have this luxury. Follow these tips from Workshop contributor Jeff Moses so your wallet isn't found wanting when you retire.

Whatever you want to put aside for retirement has to be taken directly from revenue to your business. No one else will do it for you -- and if you don't capture money on a regular basis, your retirement fund may look awfully skimpy just when you need it.

The importance of this fact can't be over-emphasized. A small business may take in just about enough for the owner to meet the bills, pay the mortgage and keep food on the table. But as the years roll by, a person simply must put money aside for retirement -- unless you want to count on social security to bankroll your golden years.

Capture money from every check. The only way to assure yourself a retirement fund is to capture money regularly. This doesn't mean every once in a while -- it means capturing something from every check that comes in. As a rule of thumb, most experts suggest capturing 10 percent of every check that you receive as payment for services or sales of product. Certainly you have bills. And you may have debts. But the rule is: Pay Yourself First.

There are several practical ways to accomplish this. Most direct is to get yourself into the habit of writing yourself a personal check for 10 percent of every business deposit you make. Then, when you're at the bank making a deposit, simply put the check you wrote to yourself into a personal savings account, and don't think of it as back-up money if things get tight down the road. This check is separate from any tax accounts or escrow accounts you may have. It's just for yourself, and for your family, to assure the rewards you deserve and need for the effort you're putting in every day.

A second way to assure yourself a growing retirement fund is to establish an automatic regular monthly withdrawal from your account. This can be sent to a money market fund or a mutual fund, and designated for an IRA. Any of the large mutual funds can set it up for you to regularly send money to one of their stock or bond funds. If you know that this automatic withdrawal is going to occur, for example, on the fifth of each month (and you can set them up for any date of the month you want), you'll be forced to have the money in the account at that time.

If you set up an automatic withdrawal for just $166.66 cents each month, at the end of a year you'll have put away $2,000 -- just the right amount for an IRA. If you and your spouse both work, set up an automatic withdrawal for both of you.

Once you start building up your retirement fund, your confidence in yourself and your business will grow. Your increasing worth will give you peace of mind, and could actually help your business as your feeling of self-worth increases.

Remember, studies show that starting to invest for retirement early in your career is the best way to build up a comfortable nest egg. Almost as important is to invest regularly. Get into the habit. You'll thank yourself for it later.

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