Wednesday, May 13, 2015
Why I'm Maxing Out My Roth IRA Every Month
As many of you savvy people out there know, saving for retirement is up there on the to do list, but not really a priority on an everyday to do list. We either have it automatically set up or have no clue what's really going on. Which for 20 - something's is a likely possibility. Who really wants to put money away for a future self you don't know at all?
Even with about 28k of debt (20k of student loans and about 8k left on the car loan), most people would think I would use the $5500 towards either one of my debts and get them wiped out quicker. That does sound financially sound and a great way to use my hard earned money in the short term. But after a lot of thought, I realized there were quite a few positives towards putting that big sum into an IRA each and every year.
It's not something I advocate for everyone, not only because everyone's situation is different but because everyone has different goals that they are trying to achieve. There are many people out there who would find being free from debt would allow them to lead better lives not only now, but in the future. Or some would rather have peace of mind of not being shackled to a creditor sooner rather than later.
Here are my main reasons why devoting that chunk of money a year makes sense to me:
#1: My job does not have a 401k. Yes, it kind of sucks, but a few months after starting my first real world job, I realized I needed to start saving. At the age of 23, I went to my local bank and had them withdraw a certain amount every week. It got me into the habit of not spending those $100 because they would never be seen. One day when I do have a job with a 401k, the extra amount taken out of my paycheck will be nothing to worry about because I've already become accustomed to living with less.
#2: Now is the time for saving and compound interest. THESE ARE THE YEARS! Not just for fun and having the time of our life, but for compound interest to take into effect. During these early years, those small pennies those first few dollars earn can turn into hundreds decades later. And not to sound greedy, but lots of money later on sounds pretty nice to me.
#3: It probably would have been going to things other than debt... Like dinners out, or fancy face creams that make my skin look like I never ever worry about anything... An extra $400 a month seems like a lot, but when its in your hands, it looks like the best night out since graduation.
I'm lucky to be able to allocate such a large amount of my income every month towards my goals and paying off my debt. But forcing myself at this moment to slowly but surely pay off my debt while funding my IRA is reinforcing my patience towards financial freedom. My small salary today will not wipe away all my debts, but in the long haul, it will make a considerable dent in the mountain. But along with that, each dollar saved right now, will be quite a few more later on.
What are your thoughts?