Monday, January 30, 2012

Taking Responsibility for Your Future

The art is not in making money, but in keeping it ~ Proverb

In yoga philosophy, there is a concept called Samskara. Loosely defined, Samskaras are behavior patterns that are repeated over and over and create a “groove” that sets people’s thoughts and reactions on auto-pilot. These mental and emotional patterns are difficult to break. A pattern is repeated so many times that a person may truly believe that the way things are cannot be changed.

I have witnessed this behavior over the years. A woman is convinced she can’t move forward because of something she has internalized. Examples include: I can’t save, I don’t make enough money, my spouse spends too much - the list goes on and on. I’d like to show you how to turn a negative pattern into a positive one. I talked about social security in my last blog and today I am going to discuss the first step in taking an active role in saving for your future. Stop creating self imposed limitations and decide to take action now to prepare for your future.

Let me introduce you to a very common long term savings plan called a 401(k). If you work for a company that employs more than one or two people, there is a high probability you have a salary reduction plan sponsored by your employer, which could be a 401(k) plan. In simple terms a 401(K) is a tool to save money for your future. Money is taken from your paycheck before tax via payroll deduction by your employer and sent to an investment company. Both the salary reduction and the potential earnings on the money you save will avoid taxes until you are ready to use the money in your future for supplemental income. Currently you can start making withdrawals after you turn 59 ½ without penalty.

Let me use an example to illustrate the concept. Let’s assume you currently are in the 28% income tax bracket and you want to save $1,000. If you take that money from your paycheck you will have $720 after tax to invest.(280 is 28% of 1000 dollars).

In order to save $1,000 after tax you would have to earn almost $1,400 dollars ($1,400 less 28%, $392 equals $1008). By having your employer take the money pre-tax, the full $1,000 goes to work for you. It is equivalent to the IRS giving you a tax free loan of $280 to put towards your retirement. Many employers provide a “match” or what I like to call free money. How does that work?

The plan I offer my employees offers a 4% match if the employee saves 5% of their salary. On a salary of $35,000, an investment of $1,750 will receive a $1,400 match from me, the employer. That represents an 80% return on your money before it is even invested. If that is not enough incentive to run to your employer and sign up, then go back and re-read this blog entirely. Even without a match from your employer, it is still a great way to put money to work for you that otherwise would be paid to the IRS. The savings depend on what your income tax rate is.

Jack Canfield said, “If you don’t like your outcomes, change your responses!” You must take 100% responsibility for your own life. In order to do this you have to stop making excuses and justifying why you do not participate in a program that can have such a positive influence on your future.

No 401(K) available at your job? Don’t fret. My next blog will discuss what’s available for individuals to save for their future.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to Thank you. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.