When you figure out the income tax withholding on your paycheck, do you have nothing withheld for the IRS and hope for the best? No. The US government demands their share and it must be paid in a timely manner. In the same way a whole number of other items are deducted from your paycheck. Disability insurance, Social Security, State Income Taxes, and payments to Future You. Obviously that last one is the one I want to talk about.
It’s a concept that I like quite a bit. Part of your paycheck is going to the government for taxes or Social Security, because it really doesn’t belong to you. In that same way, the payments to Future You also don’t belong to you. They will, but not for many years. Roughly 13% of your paycheck should be going directly to Future You, through a 401k plan, IRA, or other retirement vehicle. There are almost no generous corporate pension plans any more. So it’s up to you to make sure that Future You is not broke. 13% of your paycheck is a bunch, I know. But doesn’t Future You deserve to be taken care of later in life? You’d make that sacrifice for your parents, your partner or your kids. So make it for yourself. Future You will thank you for it, I promise.