Most of us pay our bills and mortgage by direct debit every month. We know what is due and we ensure the money is there. What is left after that is our discretionary income that we can spend on what we want. But from that discretionary income, how much do you use to build wealth that can be used in the future? And how are you saving it?
There is private pension coverage of just 40% in the private sector but 100% coverage in the public sector. Why is that? Because in the public sector, you join the pension scheme from day 1 and the pension contribution is deducted from your very first pay cheque. The net salary you always receive has already had a pension contribution deducted so you don’t know any better.
Meanwhile, the rest of us in the private sector are humming and hawing about when we should start saving for our retirement, waiting for that perfect moment when we have loads of spare cash and nothing to do with it. We all know that time never comes!
I saw it with myself. Starting off a new business from scratch 4 years ago, I simply didn’t have the spare cash to make pension contributions. As the business grew, I decided that I’d make a lump sum payment at year end. But I paid the tax and took the money as income instead. Then, I had a number of meetings over a week with people who were much younger than me and who had massive pension funds. At the end of these meetings, I printed off a proposal form for my own pension and just started paying into it each month. It’s now automated and comes out of my account each month. It’s just another bill.
How do you save money? Do you save at the start of the month or with what is left over at the end of the month? If it is the latter, I bet you don’t save much. In today’s world of consumerism, we always see things that we want but not necessarily need. If you know there is money in your bank account, you will spend it and not save. If you save at the beginning of the month, you are less likely to spend money on things you don’t need if the money isn’t in your account.
You need to turn your savings and pension funding into a bill, like everything else. It has to be paid each month and it is deducted by direct debit, straight out of your account. It is a slow process but it is a surefire way of building wealth over the long term.
It also gets you into the discipline of living below your means; one of the cornerstones of how to build wealth and achieve financial independence.
If you are having trouble automating your savings, let me know at firstname.lastname@example.org