He replied that he, too, was committed to the same goal. I asked him what strategies he had in place to ensure this happened. He said he always reviewed what his options were at year-end with his CPA, but there never seemed to be any cash left to fund any kind of program. He asked me some general questions as to what my plan would be, and I answered that it was the same plan that I’ve been following for the past 30 years. I always pay myself first.
In the early years, while raising three small children, being diligent in saving the maximum allowable contribution for my IRA was sometimes challenging. I could always come up with an excuse regarding something we needed more than to save for the future. But, my wife and I always stuck to our plan no matter how difficult it became. Starting to save at age 27 became second nature for us and the commitment has paid off as we reach retirement age.
As my son became involved in the business, I’ve encouraged him to “pay himself first,” just as we have. As our business grew, we changed plans a few times, from the basic IRA, to a profit sharing program that funded our employees’ retirement with no contribution from them. We then switched to a Simple IRA that allows each employee under the age of 50 to contribute up to $11,500 annually with a 3% match from our company. For those of us who are more than 50 years old, the amount goes up to $14,000. With the challenges the stock market has recently faced, I’m thankful for the opportunity to accelerate the funding of my account.
As I continued to discuss with my colleague the discipline to commit to his financial future, I was reminded of the conversation I had with my financial advisor as I began to explore the options when I was a young man. He told me:
1. No one would look out for my best interest as it pertained to my retirement;
2. It was my job to look out for my future; and
3. If I were smart, I would make that my top priority.
We discussed the basics of starting to invest early and the magic of compounding interest, as he showed me how saving $2,000 per year in the early years was so much easier than trying to play catch up in the later years. Of all the choices I’ve made over the years regarding my business, this has been the most important one.
I’ve consulted with numerous shop owners over the years and “pay yourself first” has always been my message. Starting a retirement plan for your company is easy and a great benefit to you and your employees.* I advise my employees: start early and be committed. The 3% match from our company to their accounts is free money and gives their contributions a great jump-start. When you factor in the tax advantages for both you and your employees, it truly is a win/win. Any match you make as an employer is deductible as a business expense, and any contributions made by employees are tax deferred.
The costs associated with a basic plan are surprisingly low – usually just a few hundred dollars. Check with your financial institution and see what makes sense for your company, your employees and your family. Your company will have minimal expenses associated with a basic plan, your employees will appreciate this benefit to help their family plan for the future (and it should help retain employees), and your own family will greatly benefit from this plan.
Paying yourself first may not seem important in the early years, but I can assure you, after 30 years it feels great to know that a choice I made in my 20s is really paying off for my family as I approach my 60s.
*Consult with a financial planner to determine what is best for you and your company.
John Volz, co-owner of Volz Bros. Auto Service, is a 38-year industry veteran.
