Making IT Profitable
A Guide for New Businesses & Freelancers
Chapter 7: Planning for Retirement
Part 1: Save for Retirement through Tricks + Discipline
David Dedman , president and wealth advisor of Lexington Wealth Management , boils down retirement savings for IT contractors into two key concepts:
- Any retirement savings plan that works for you is a good retirement savings plan. If developing a mental trick or a game or a challenge helps you put money away, do it. In other words, if the only way to get yourself to save for retirement is through trickery, then let there be tricks.
- Freelancers and small-business owners have to have double the discipline of fulltime employees. You don't have the option of checking a box on your paycheck and then not thinking about retirement savings ever again; instead, you have to actively put money aside every single time you get paid.
Got that? Great. Here are some tips Dedman offers for tricking yourself into building a retirement fund.
- Get competitive. If you're the type who can only find motivation to work out when you have a race or high school reunion coming up, set up a challenge system for retirement savings. Try to save a certain amount or a certain percentage of what you make each month. The present you will appreciate the short-term wins and the future you will appreciate the benefit of long-term savings.
- Treat retirement like a bill. It's harder to skip paying a bill than it is to skip savings. Make retirement savings part of your monthly bill-paying routine, and you'll be less likely to skimp.
- Start at the end and work backwards. If you're always "working for the weekend," determine what you want your retirement to look like and then work backwards to figure out how much money you need to put aside to make that lifestyle happen.
- Outsource it. It's not hard to find a financial planner who will work with you to set up a system that automatically deducts money from your bank account every month and invests it in a way that makes sense for your goals.
- Go by percentages. Dedman recommends reading The Money Book for Freelancers, Part Timers, and the Self-Employed as a way to jump-start your financial education. Here's a quick spoiler, though: one of the strategies the book advocates is putting a certain percentage of every paycheck into a retirement fund. You'll also need to put a percentage into funds for taxes and emergencies.
- Start small and build. If you can't save 10 percent of your income right now, save one percent. In six months, save two. Something is better than nothing and even a little savings will make a difference down the road, thanks to the magic of compound interest.
So what does Dedman have to say about discipline? Like anything else, he acknowledges, saving money for retirement over the long term is a mind game. If you don't truly believe in the value of setting money aside, you won't do it for long. So read up on retirement and investing — and maybe a little bit about what it's like to find work in your nineties .
Next: Part 2: Yes, You Can Save Too Much for Retirement (For Right Now, Anyway)