I can hear your protests now: "But, David, I can't afford to put away more than I do." Here's why I know that you can. If you are investing using a retirement plan like a 401(k) or an IRA, then every dollar you invest actually costs you less than 70 cents.
How is that possible? It's the magic of pretax investing. As we know all too well, every time we earn a dollar, before that dollar ever makes it onto our paycheck, the government grabs something like 27 cents in federal income withholding taxes (often more—and before very long probably a lot more). On top of that, local governments may grab another 5 cents in city and state withholding. (Exactly how much depends on where you live.) And then there are Social Security taxes, Medicaid and unemployment. But it doesn't have to be that way. If you are contributing to a pretax retirement account—like a 401(k) plan or an IRA—the money you put in is entirely tax-deductible (up to certain limits). In other words, it comes in off the top, before Uncle Sam takes his bite. You get to keep the whole dollar for you and your future.
What this means is that if you decided to start saving an extra $50 per paycheck in your 401(k) or IRA, you would not see your take-home pay go down by $50. In fact, it would go down only by $35. The $15 that normally would have gone to the taxman goes to your future instead.
And if your employer has a matching program, you may be able to add another $25 to that $50. In other words, a $75 investment is costing you only $35. If you have ever shopped a sale, how can you refuse a bargain like this? The bottom line is that you can save much more than you think, easier than you think.
What I'm talking about here, of course, is the tried-and-true concept known as "paying yourself first"—putting some of your hard-earned wages into your retirement account before the taxman takes his cut. I'm going to be blunt here. If you want to be financially secure and ultimately finish rich, you have to do this. There is absolutely no way to start over and finish rich if you allow the government to continue muscling in ahead of you. I mean, think about it—how can you possibly expect to get anywhere if you're willing to give up 30 to 40 cents out of every dollar you make before you ever have a chance to spend—or invest—a penny of it? There's no getting around it. You must pay yourself first. Not doing it is simply not an option.