The Automatic Retirement Plan.
In his book “The Automatic Millionaire”, David Bach shared some interesting ideas. One of which I find most interesting is the idea of automating your retirement plan.
Many people have difficulties keeping and sticking to their retirement plan. It takes a lot of self-discipline to contribute to your plan every month. Some people genuinely forget, while others “choose” to forget to contribute. It is inconceivable how people procastinate in following a plan that will ensure their comfortable future. So, what is it that's giving these people so much difficulty in contributing to their retirement plan? The answer is, the action of paying.
We don't think twice when we pay to watch a movie or have a dinner out. This is because we get to enjoy the benefit immediately. We can gratify ourselves immediately. However, when paying or contributing to a retirement plan, we only get to enjoy the benefits many years in the future. Because they can't enjoy the benefits now, that is why many people find it difficult to part with their money.
To ensure that these people contribute to their retirement plan every month, the key is to automate their payment to their plan. If you are one of these people, then this is just what you need.
You could have your employer automate your contribution. This is done by allowing your employer to deduct a set amount or percentage of your pay and channel the money into your retirement plan. It is always a good idea to max out your 401(k) plan because it is tax deferred. Therefore, this plan should always be the first to consider and max out in your retirement planning.
You could also arrange with your bank and your retirement fund manager to automate the contribution from your bank account to your retirement fund. You only need to set this up once, and the rest will be automatic.
So how does this affect you? You will have a comfortable lifestyle waiting for you come retirement. You won't feel the pain of having less money to spend because you won't miss what you don't see. And what you only see is the money avaiable to you after all automatic contribution to your retirement plan.