With tax day past, it’s time to think about how to make next year’s tax day less taxing, and how to make a little more progress toward retirement. I am working on an article about ministers and taxes, and will either post the article as a blog or note when the article is available. Today I want to talk about the importance of saving. Nothing makes a greater difference in one’s financial situation in one’s later years than the ability and commitment to live on less than one makes. One person observed, “If your outgo exceeds your income, your upkeep will be your downfall.”
A few years ago, a youth minister friend, 24 years old, had just started a new youth ministry position. It was his first ministry job after college graduation. Suddenly, he had more money than he was accustomed to having. He decided that he just had to have new truck. The one he wanted cost only $15000. (I told you this was a few years ago!) He asked me what I thought, and I advised against the purchase, suggesting that his current vehicle was sufficient for a while longer, or that a used vehicle could be a nice upgrade. My friend bought the new truck anyway. When I next saw him, I asked, “How do you like you half-million dollar truck?” “What do you mean?” he responded. I explained to him that the real decision he had made was to have the truck instead of having $500,000 at age 64.
A simple mathematical rule (the Rule of 72) says that when that the interest rate times the number of years equals 72, the result is that the amount doubles. For example, an 8% investment doubles in 9 years, a 6% investment doubles in 12 years. The interest rates were pretty good when my youth minister friend and I were conversing, and my calculations went about like this:
8 yrs–from $15000-30000; 16 years–from $30000-60000; 24 years –from $60000-120000; 32 years–from $120000-240000; 40 years–from $240000-480000.
Such is the power of compounding. When we are young, we have more time than we do money. A young family that forgoes just one new car in the early years, and instead saves the money that would have gone to the new vehicle and payments, takes a major step forward toward retirement funding.
The first eldership I worked with set aside $5/week and told me it was for retirement. They said I could not have it as salary, but that it had to be invested in a retirement plan. They said they would forward it to another eldership, but they would not give it directly to me. The retirement plan was established, and they put in $5/week during the first year I worked with them, and $10/year the second year. (Incidentally, those amounts were about 3-7% of my salary in those years.) After that, another church put in $10/week for two years. The next church I worked with put in $15/week for four years. When my wife and I purchased our own home, the pay package was restructured and the contributions to my little retirement plan stopped. We have never put in more money, and we have kept the funds separate. You can calculate the amount invested (about $5000), and you can make a close guess at the current balance in that little account after almost 35 years, using the Rule of 72 outlined above.
My wife and I are now at a place in our lives when we can clearly see the power of compounding from the results perspective. We are retiring this year, and we are grateful for the few dollars that we were able to save early on. We are grateful to that eldership that pointed us down the right path. My mother taught us to save at least 10%. We have done that, but could have done more. Through the years, Jan has worked outside the home from time to time. We have generally saved all of her earnings. Our regret now is that we did not save even more, and allow the value of time to multiply our savings.
The most important thing is not how much you make, but how much you keep.