I don’t know anybody who has enough money to save for retirement at the end of each month. It’s all been eaten by the 30th. I don’t like the idea of obsessive budgeting nor “labeled envelopes:” utilities, new car payment, food, eating out, rent, mortgage, entertainment…. So what can one do?
It’s easiest for people who have an automatic deduction from their paycheck, taking out between 5-10% of our pay each month. Someone who is saving for the kids education might put an added percentage into a “steady as she goes” fund, such as Vanguard Wellesley (in a 529 education plan). Of course the closer to when these funds will be taken out, the safer the investments need to be.
A friend asked how to handle an overgenerous husband. I would join him in establishing a fair allowance for our generosity: add that percent to the amount for our retirement (and the kids’ 529 plan). These items (you may want to add others) comes out of all family income (salary, tax refunds, lottery winnings, inheritance, tips, etc.) at the beginning of each month. The “generous” part of the pot might remain cash, and the other two parts of the pot go into separate inviolate places: a 529 school plan, and a long-term retirement plan for us.
We anticipate a long healthy retirement, knowing this isn’t always the case, but if it happens we can commit to each other now that we are planning for that time and won’t have to worry along the way.