Money Growth: How Much Should I Invest for Retirement?

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I had a low-key babysitting job when I was twelve but that income was entirely active income. Not a cent of it grew without me doing anything. I had to actually provide a service to someone in order to add to my piggy bank (ok, it was actually a doggy bank).

Retirement, however, is a passive form of income. When money is invested in something like a 401(k), it grows passively. Meaning, you don’t have to do anything. (For more information about a 401(k) and its tax benefits, check out my blog post.) You don’t have to do anything to make it grow aside from investing it in the right places. If you invest in a 401(k), you literally make money while you’re asleep. How ’bout that!

But how much do I need to invest in order to have a successful retirement?

First of all, the fourth “baby step” of the Dave Ramsey plan (if you have read my book, you’d know I’m a fan) is to put 15% of your gross income into retirement. That means 15% of your overall income, including your spouse’s, goes into your 401(k) after paying off all your debt (so that you pay off debt with more intensity).

Fifteen percent is generally agreed upon in the investing world to be the amount that will provide a reasonable retirement nest egg. However, depending on whose advice you’re taking, this amount does not include the money that is contributed as an employer match. If your employer matches 5%, don’t put yours at 10% and call it good. Do the full 15% of your income. That way, the employer match will just be icing on the cake when you hit retirement. Now, 15% feels like a lot (it is, especially for young people). You will likely have to work your way up to it. Currently, Bailey and I aren’t contributing 15% because we are also cash-flowing her school and are saving for a house. But 15% is the goal.

 

Let’s look at a pretend real-life example of how much to invest.

Let’s assume that you, at age 22, just graduated debt-free and your overall income is $50,000 per year. By the 15% rule, you would be putting $7500 into retirement per year ($625 per month). If you invested that at an 8% return and never got a raise (not likely), you would have $2,669,622 by the time you turned 65. The best part is that $2,347,122 was growth from interest! And that’s not even including employer matches. That’s remarkable!

That amount of contributions may be unrealistic for you. I know it is for us currently. If you could only afford $100 per month to put into your 401(k) at an 8% return and never increased the amount you contributed, you would still have $427,139 by the time you turned 65.

There is a very high likelihood that you will get a raise and that you’ll be able to contribute more than $100 per month (plus, in today’s money, $427k won’t get you very far in retirement). To put you just over $1,000,000 (making you a millionaire if you are debt free), you would only have to contribute $250 per month. Again, your contributions would equal only a fraction of the full nest egg when you reached retirement. Then, in retirement, you would (hopefully) be able to live off of the yearly dividends that your retirement account produces in interest.

On a $1,000,000 account, assuming 8% interest, that would provide an $80,000 income. Plus, it’s quite possible to get higher than 8% in interest!

 

Chris Hogan, a retirement expert, says this in his book Retire Inspired: “Retirement is not an age. It’s a financial number.” I like that quote quite a bit because we’ve been seasoned to believe that we have to put 40+ years into a job we don’t like (jobs and passion is for another blog post) in order to live comfortably for the last 20 years or so of our lives. But according to Chris, if we know what financial number we are shooting for, we can retire earlier.

On Chris’s website, he has an excellent tool to calculate your R:IQ (Retire Inspired Quotient). In it, all you have to do is answer some simple questions about your goals and desired living arrangements and it’ll give you an amount of savings you should shoot for and the amount you would need to invest monthly to hit it. Check it out here!

What are you doing to save for retirement? What are your concerns about the subject? I want to hear from you in the comments!

-Caleb

How to Avoid Being Old and Broke (And How a 401k Can Help)

cash-cent-child-1246954I wasn’t very good at saving as a kid. Money burned a proverbial hole in my pocket. I liked to get gum when we went to the grocery store because it felt good to spend a dollar. To this day, I tend to be a spender. In fact, in our budget, Bailey (my wife) and I call the money allocated to spending as our “blow funds” because it is for us to literally blow on anything we want. What makes me different from when I was as a kid is that I actually have a budget now to control that spending urge. I’m more future-focused! And part of being focused on the future is saving for retirement. That’s where the 401(k) comes in.

What is a 401(k) anyway? It is a saving system that allows you to invest money you earn so that it can exponentially grow for the future. This is how it works.

A 401(k) is offered by most employers. If one signs up for a 401(k), it gives the individual the opportunity to put a percentage of each paycheck into a retirement account. For me, I have my employer put 10% from each paycheck into my 401(k). This is called an investment because it will grow within the account. Generally speaking, one can expect a 7-10% rate of return on their 401(k) if the money is invested into good growth-stock mutual funds.

This is where the big bonuses of a 401(k) come into the conversation. They have major tax benefits! There are two kinds of 401(k)s: traditional 401(k) and Roth 401(k).

The traditional 401(k) is tax-deferred. This means that one defers paying tax to a later date and thus, the money put into the account is pre-tax. So when an employer directs 10% from an employee’s paycheck into the traditional 401(k), no tax is paid. In retirement, however, taxes must be paid when withdrawals are made.

The Roth 401(k) is similar but the employee pays tax before the employer directs the hypothetical 10% of the paycheck into the account. This means the money used is post-tax.

But when money is withdrawn in retirement, it is not taxed.

Let’s make this easy. Say you are able to save enough for retirement that your 401(k) is able to grow to $1,000,000 (which really doesn’t take much saving). Generally speaking, over a 40-year period with a 10% rate of return, you would have contributed 8% of your savings and the rest of it would be growth. So..

Contributions: $80,000

Growth: $920,000

Total: $1,000,000

With a traditional 401(k), your contributions would be pre-tax. Thus, you wouldn’t be taxed on your contributions, but when you retired, you would be required to pay taxes on the entire $1,000,000. This means that if you were in a 10% tax bracket, you would lose $100,000 to taxes and would have only $900,000 left.

With a Roth 401(k), your contributions would be post-tax, meaning you would pay taxes on only the contributions. If we assumed once again that you were in a 10% tax bracket, you would pay $8000 in taxes on your contributions but wouldn’t have to pay anything on the growth.

Here’s a summary on taxes paid:

Roth 401(k): $8,000

Traditional 401(k): $100,000

Now tell me, which would you rather pay? And which 401(k) do you think is better?

In some coming blog posts, I’ll cover the amount we want to save for retirement and what we can expect in growth.

I want to know in the comments, are you saving for retirement? What are your dreams for your “golden years”? Bailey and I want to travel. Let me know what you think!

Brand Yourself: How Your Actions Affect Your Impact

pexels-photo-708440-2.jpegPersonal brand – it’s definitely a buzz word nowadays. Think about big name influencers. Gary Vaynerchuk, for example, has built an enormous “personal brand,” as he calls it. A personal brand is what someone is known for (in his case, it’s his wine business and marketing knowledge). John Maxwell is known for his leadership and personal growth expertise. Dave Ramsey is branded as a personal finances expert. The funny thing is, none of this type of branding is what I want to cover in this blog post.

When you think of a brand, what comes to mind? I say “Nike,” you say “Just Do It” (or maybe “Colin Kaepernick” based on recent events). I say “McDonalds” and you think of burgers or “I’m loving it.” What do you associate with brands? Does your association involve trust? I’m an Apple fan. When I think of Apple, I think of a clean design and a user-friendly interface. But when I think of Microsoft, I think of the “blue screen of death” after many frustrating attempts at writing essays in high school (sorry Microsoft fans). My question is this:

When others think of you, how do they react?

Do people trust you? Can people rely on you being somewhere on time (this is a personal branding issue I am working through myself)? Companies put millions of dollars into developing their brands and the successful ones do so with great intentionality. Others don’t and they suffer for it. In the same way, if you want to increase your impact and influence, you must put great intentionality into your brand. How do I mean? Let’s look at one’s actions.

I would consider someone that I know to be a party seeker. It’s slightly different from a “party animal” but this individual definitely lives for the weekends. Here’s the problem. This individual doesn’t have much influence in my life because I have decided that I don’t want someone who drinks in excess (regularly) and has one-night stands to be someone that speaks into my life. I don’t trust this person’s opinions and advice because I see some major flaws with this individual’s actions and character.

Your influence with be accelerated or thwarted based on the brand you set through your actions.

On another scale, if you don’t develop the personal brand that you want to have, it can impact people’s opinion of you even in small matters. Do you get distracted easily from what you say you’re going to do? You start something aaand…. look there’s something else shiny that you can pursue! If this happens often, do you think someone will consider asking you to be a part of something large if they don’t think you’ll persevere?

I’m currently working on a series of blog posts about this personal brand topic and will continue posting about it in the near future. I believe it is the first step to developing the influence that you want to have. Everyone wants to make a difference in the world but that must start by developing consistency between your actions and your words.

How have you branded yourself and what actions can you take today to improve trust in your brand? For me, it means giving myself 5-10 minutes extra to get anywhere because I have an unrealistic expectation for the amount of time I’ll be on the road. I don’t want my lack of punctuality to impact my ability to influence others. Let me know in the comments what you are going to change today!

-Caleb

Read the next post in this series titled Brand Yourself: How Your Words Affect Your Influence on Others 

Linchpin: Are you Indispensable? (Book Review)

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Since last August, I’ve been reading a lot. Like, way (yeah, italicized and underlined) more than I’ve ever read before. Given that I am a recent college grad, I chose to start reading a lot more in areas that interested me to help myself continue to learn and grow intentionally. Consequently, I have read 11 books since August of 2017. Welcome to a new series of blog posts dedicated to reviewing books.

The first I’m going to write about is Linchpin by Seth Godin. The premise is that if you are a linchpin, you hold important things together, specifically at work but applicable in other areas of life. If you are a linchpin, you are indispensable. He starts the book by discussing the current conditions of work. Work used to have more meaning to it. Everyone was an artist until factories were developed. At that point, people became “a cog in a machine,” doing meaningless and replaceable work. Since then, work has become increasingly automated.

“The only way to get what you’re worth is to stand out, to exert emotional labor, to be seen as indispensable, and to produce interactions that organizations and people care deeply about.” (p. 27)

How? Emotional labor. That is why working at a fast food restaurant is so replaceable. It doesn’t require emotional labor. You show up, make fries and leave.

“It’s called work because it’s difficult, and emotional labor is the work most of us are best suited to do. It may be exhausting, but it’s valuable.” (p. 63)

His first suggestions involve choosing something that requires emotional labor and is not asymptotic in nature. When something is “asymptotic,” it means that there is only so good you can get at it. Take bowling for instance. The best you can get is 300 points. That’s it. So by choosing something you can always get better at and in which you can grow more, it expands  your ability to become a linchpin.

This is where being an artist comes in. He doesn’t talk about artists in the sense of those who can paint, draw and sculpt. In fact, he has a section specifically labeled Artists Who Can’t Draw. Godin’s argument is that literally anyone can become an artist. The reason is because the word “art” is intrinsically deeper than what is conventionally understood. Because art is anything that require emotional labor.

What do you put your heart into? That is what require emotional labor.

And it doesn’t have to be “artistic” in nature. Recently, a coworker of mine told me that he isn’t a creative individual because he is an engineer. Having read this book, I countered.

“Don’t give me that. You are an engineer which means that you are creative. You have to develop creative ways to solve problems and make designs more efficient and effective!”

In the section titled, Do You Need to Be an Artist to Market Tofu?, Godin thinks you can. He says,

“I think art is the ability to change people with your work, to see things as they are and then create stories, images, and interactions that change the marketplace.” (p. 91)

However, it goes deeper than that. Godin argues that being a linchpin stems from generosity.

“Becoming a linchpin is not an act of selfishness. I see it as an act of generosity, because it gives you a platform for expending emotional labor and giving gifts.” (p. 153)

Essentially, you are an artist and a linchpin when you are giving what you put your heart into as a gift. That gift may come with monetary compensation, but it can still be a gift. He used the beginning of the Linux operating system as an example. When Linus Torvalds developed the system, he gave it as a gift to his friends. But when the popularity spread, he became a linchpin because his gift turned into something that helped people domestically and internationally. When you are generous, you become a linchpin. When you go an extra mile for a customer, you are a linchpin.

I liked this book. What it did for me was it expanded my view of art and creativity. It helped me understand more about the creativity of all individuals and how it isn’t confined to just those who are right-brained. He gives a very detailed perspective of how artistry creates indispensability. It helped me understand more about how I can apply those principles to my own work.

This book will help motivate you to change up things in your workplace, challenge the status quo and grow personally and professionally. You can find it on Amazon here.

-Caleb

3 Simple Ways to Read Your Way to Leadership Everyday

pexels-photo-324129.jpegReading is considered an absolute must in most successful circles. Reading opens you up to new ideas, concepts, and strategies that can help you in your personal, spiritual, and business growth.

At the beginning of this year, I made a goal to read 4500 pages of books. That’s about twenty-two 200-page books in a year. Only twelve pages a day. Growing up, I didn’t read much. I was too busy exploring the pasture field or having supersoaker battles with the cousins. Up until I was 20, I had read probably fewer than ten full-length books. So this goal of 4500 pages was significant. But I decided it was worth it because as Harry Truman said, “Not all readers are leaders, but all leaders are readers.”

As of today (August 13th), I am one day ahead of schedule on my reading goal. I have read over 2700 pages and am working through my thirteenth book right now. It’s a habit by now so I want to share with you three ways to get your reading in everyday so that you can work towards being a leader.

First, if you don’t consider yourself a reader or you don’t think you’re fast at reading, reading gets easier the more you read. I sincerely believe I have gotten faster at reading since the beginning of the year. Also, fiction certainly has its place in your reading schedule (great for mental breaks) but ensure that you read mostly non-fiction to spur growth. Books on personal growth (Intentional Living by John Maxwell), business growth (Good to Great by Jim Collins), and spiritual growth (The Treasure Principle by Randy Alcorn) are great for spurring you to leadership. So are historical biographies.

Alright, let us look at the three steps. These are shockingly simple and will get you to twelve pages daily, too.

1. Read four pages before work in the morning

This isn’t for everyone. Some people barely make it to work on time. But if you can get up just a little earlier, you can fit a few pages in before you get to work. Do you eat breakfast before work? Pound out your four pages while you chow down your cereal. Four pages, that’s it. Or you can do it when you get to the office!

2. Read four pages on your lunch break

I have an hour lunch break so this isn’t hard for me. I know some people (even many at my company) only have a half-hour lunch break. You can still do it! Based on average reading speeds, you should be able to knock this out in about four minutes. Four pages, that’s it.

3. Read four pages before going to bed

Think you can stay up another four minutes before your bedtime or get in bed four minutes early? I know you can.

I know, unbelievable how simple those are. But think for a second, how might this simple habit get you to your goals and dreams? It’ll open up your mind to new perspectives, ideas, knowledge, and processes. Might a book motivate you to actually start a business? Or maybe it will help you solve relational issues at work. It’s almost unimaginable the direction that simply picking up a book can take you.

Let me know in the comments how reading affects you and what your goals are!

Mastering the Simple Starts Here

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Mastering the Simple is where it all starts. If you are here, you probably want to become the expert in your field. What that field is, I don’t know, but in order to get there, we need to master the basics in order to become the leaders others want to follow.

The basics are the things with which we frequently get impatient. Like public speaking. Who wants to become immediately astounding at communicating to a lot of people? Or writing. Or habits and your use of time. Or your health and how it relates to success. These are the basics we need to master in order to become the expert that others will look to for guidance. Now, of course, we’ll never completely master these things, but if you work on them daily, it’ll make a big difference on the direction of your life and will help you become an expert.

That’s what I’m here for. I’m learning right along side you and that’s why I write this blog.

Here’s what you can expect from me in my blog posts:

My actions

I’m going to tell you about what I am actively doing to help myself grow everyday.

My insights

I’m going to tell you about what I’m learning that directly benefits my growth and how it’s applicable for you.

My resources

I’m going to give you tons of resources. These are resources that I’ve found helpful in many realms including personal, business, financial, career and relational growth. They may be books (probably a lot of these), podcasts or other blog posts.

My attention

I want to communicate with you. What are you doing to grow? In what areas do you want to grow the most? When you put effort into communicating with me, I will do the same with you. If you comment, I will respond because I want us to benefit from each other.

This blog is to help you become who you were made to be: an influencer. An influencer is someone who helps change people’s minds and impacts their actions. That’s how you change the world. And you have significant potential to do that. It’s just it takes intentionality. I’m certainly not an expert. I’m learning just like you are. Let’s be intentional about the direction of our lives together!

-Caleb