Have you ever looked at your paycheck, along with all the tax, Social Security and Medicare deductions, and thought to yourself, “Is this really worth it?” You aren’t alone. Who wouldn’t want a bigger paycheck?
Interestingly, the effect of annual income on happiness seems to plateau at between $50,000 to $83,000. (Social Media Week, 2015) However, a recent survey by Ally Bank suggested: “a big savings account may contribute to happiness more than a big paycheck.” In fact, 84% of participants said having money in the bank contributed to their overall sense of well-being more than eating healthy foods, having an enjoyable job or getting regular exercise.”
So, how can you take advantage of this knowledge?
Set-Up a Savings Plan
1) Maximize Your 401K Match
It is important to understand your company’s retirement benefits. Many organizations have a 401(k) or a 403(b), and some offer very generously matching programs. In a matching program, your company will add money to your retirement fund IF you contribute first. For example, let’s say your organization offers a dollar for dollar match up to 5%. With a gross income of $50,000, you could be receiving an additional $2,500 in retirement funds if you contribute $2,500 first. And, who wants to miss an opportunity to earn $2,500? As plans vary, set aside time to speak with your HR representative. Otherwise, you may be leaving free money on the table. (The Balance, 2017)
What if your company does not offer a match? You should still consider contributing to either your organization’s plan or a traditional IRA (Individual Retirement Account). Both options offer savings and tax benefits.
2) Add to Your Health Saving Account
If you have a High Deductible Health Plan (HDHP), you can set-aside money in a Health Savings Account (HSA) for qualified medical expenses. Since this money is not taxed, it is a good way to lower your health care costs and save for emergencies. Unused HSAs funds roll over from year to year and many offer investment opportunities.
3) Contribute Automatically
If you have money in your pocket, you are likely to spend it. To save more, you may have to trick yourself into thinking you have less. Most organizations offer automatic contributions to both retirement funds and HSAs directly from your paycheck. If not, talk to your bank about scheduling regular deductions from your checking account to a retirement or savings fund. What if reducing your paycheck seems impossible? Start small. As little as $100 each month could add up to $1,200 each year (or $2,400 with a retirement match).
4) What About Debt?
Even if you carry debt, you still should strive to develop a saving habit. Most financial planners recommend a balanced approach. Decide how much money you can take out of your paycheck and send part to savings and the other part to debt reduction.