By Tom Grandy, Founder
The key to saving is automatic withdrawal and time! That’s right, a little saved consistently tends to mount up quickly. Before we talk about retirement let’s review a few saving principles when it comes to your children’s education. When my first grandson was born money was tight, as it often is when starting up a business. However, my wife and I decided we wanted to begin putting at least some money aside each month towards his education. After a bit of research, we discovered the 529 Education Accountants. Money put in is taxed but all growth (like a Roth IRA, which we will discuss shortly) comes out tax free. We only invested $25/month but that was 21 years ago. Today that small amount of monthly savings has grown to nearly $10,000!
Looking back, one can’t help but think what the current amount would have been had we invested $50, $75 or $100/month. As life would have it, we now have eleven grandchildren, so our monthly 529 investment has changed considerably.
Another example of money invested over time came from my mother. When she died in 1991, she had saved roughly $2,000 for each of her five grandchildren. We had three of the five grandchildren, all of which were very young at the time. We placed each of their $2,000 into a mutual fund. The original $2,000 grew into a significant down payment for each of them by the time they were ready to buy their first home.
Money invested over time grows!!! This principle becomes significant when it comes to saving for retirement. The key to making it work is automatic withdrawal. There is not a business of any size that would be seriously hurt if $100/week were taken out of the weekly revenue. Simply meet with your financial advisor and/or your banker and set it up. If $100/week were saved that equals $5,200 a year. Try doing the math on 5, 10 or twenty years…plus growth. The number gets big, fast.
The best place to invest money for retirement is a Roth IRA. Money going in is taxed as ordinary income, but the growth is tax free. Below is a chart showing how much should be invested each year based on income.
Notice the limit for most people, again depending on income, is going to be $6,000/yr. That equals $500/month. Now let’s bring that back to reality by thinking about how it will affect the company’s hourly rate.
Let’s assume the company has two service techs and one install crew. The two service techs will bill out roughly 1,000 ++ hours per year, while each installer will bill out roughly 1,500 hours/year. That makes a total of 5,000 billed hours for the year. If the $6,000 is divided by the 5,000 billed hours that equals $1.20/hour. Keep in mind that the customer pays for everything, including your personal retirement! If you want to create a significant retirement account raise your rate $1.20/hour (or do the math on your number of billed hours) and start the automatic withdrawal/investment program tomorrow. When you retire, send me gift certificate to go out to dinner as a thank you.
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