This Christmas season is especially meaningful to me because of the imminent arrival of our baby. We learned about him Easter week. He is due on Christmas day. It’s impossible for me to ignore the parallels with the “reason for the season”. Becoming a dad prompted renewed consideration of the legacy I would someday leave. Launching my personal practice was a step towards making a difference for people who need it. In the spirit of the American Christmas season, and all that brings, I would like to share some advice about retirement and consumer debt.
Each of us needs to be planning for the time that we can no longer work—or don’t want to. When that happens, will we become a burden to those we love? I prefer to give up some things now so that I can someday exit stage left with dignity and generosity. Investing in your retirement is a powerful tool at your disposal. Let’s look at what your tax-deductible contribution to a 401(k) can accomplish:
If you have 30 years until retirement, a contribution of only $100 to a qualifying plan every month can grow to $226,000 (or more!) by the time you begin withdrawing. 84% would be from passive growth, and only 16% from actual contributions. Every dollar invested in that first year has a growth potential of 20x, with diminishing returns as retirement approaches. Check out this excellent growth calculator by Ramsey Solutions and run some numbers yourself.
Except for a medical catastrophe, the single greatest danger to any American’s financial future is consumer debt. A fixation with acquiring more (or nicer) things is a surefire path to becoming and staying poor. A very small act of financial discipline, such as regularly contributing to a 401(k), will be rewarded many times over—but later. Sacrifice now can yield tremendous future gain. We all have the ability to make our world a better place. This is done by giving of our time, energy, or money. Let’s not neglect our character just to put more things in our home.
Retirement and consumer debt oppose each other. Debt is an obligation to your creditor(s), whether a mortgage, car payment, or credit card balance. A meaningful part of my recent practice has been assisting clients with their bad debts. In particular, credit cards have amazingly predatory interest rates. If you are not paying off your card every single month in full, you are flushing potential down the pipes. Credit card debt grows even faster than a solid retirement account. It can easily reach a point where your payments only cover interest accumulated since your previous payment. Unless you then dramatically increase your earnings, that debt could stay with you for the remainder of your life. It can even affect what your loved ones inherit from your estate. When there is no reasonable possibility of digging out…
Bankruptcy is the nuclear strike that obliterates debt, but the collateral damage is extreme. Consequently, bankruptcy is only beneficial under the most extreme of circumstances. There is a time and place for cleaning the slate, but there are many indirect costs. Also, the process has procedures, criteria, and exceptions.
Contracts with any creditor will be subject to a multitude of regulations imposed at the state and federal levels. Unfortunately, that doesn’t stop many creditors from putting unlawful terms in their contracts. You likely won’t know what’s legally enforceable, however, until already embroiled in a dispute and paying for legal counsel. Entire books could be written about the risks of letting any creditor into your life.
If your creditors currently dictate the terms of your life, or you need other guidance on your retirement and consumer debt, an attorney can help you take back control. Change the trajectory of your legacy. Good financial discipline will help.
Little Guys Law Firm is a general transactional practice located in Cheyenne, Wyoming. If you need tailored assistance, we offer a variety of services and pricing options. Any guidance provided above is for informational purposes only and should not be treated as a substitute to retaining knowledgeable legal counsel (i.e., an attorney).
