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Pay yourself first

Mutual funds, stocks, bonds, REITs, annuities, real estate, 401(k), 403(b), traditional IRA, Roth IRA, CDs -- the list can go on and on. These are all vehicles that can be used to pave the way for a financial future.

Your financial future could include dollars that are required for a purchase in a year, or to fund college education for your children, your own retirement, death, disability. Again, the list goes on and on.

However, before we get into the vehicles that might assist in a savings plan, it is very important to understand a simple formula in order to attain your goals successfully.

Any investment that is implemented depends on 3 ingredients: Your dollars, time, and some sort of rate of return.

A simple formula for saving for the future could be to live on 90 percent of your income, and save 10 percent. Unfortunately, in today's world, many are living on 110 percent of their income and not saving at all. This is the reason so much of our U.S. population is strictly dependent on a government check -- that's kind of sad in this "Land of Opportunity."

And the sooner this formula is adapted, the better, as time is one of the ingredients to your success. For every year you wait to save on a disciplined basis, the future becomes more and more bleak, financially speaking.

Whether you have a $30,000 income or a $300,000 income, the formula stays the same. The key to this strategy is to pay "yourself" first. Surprisingly, the rest of the bills get paid, but instead of being on the bottom of the list, you move yourself all the way to the top. You are the first bill that is paid each paycheck.

Obviously, a bank draft or payroll deduction is the best way of making this happen, as what you can't see, you can't spend. But whatever way it's done, having a disciplined savings plan (even if it's for next year's vacation), helps achieve your goals.

Once this formula is in effect, then we can start looking at the strategies that best serve your particular needs. If you are saving for retirement, we would use different vehicles than we would use if you needed the money in 6 months.

The rate of return, the last ingredient to our savings plan, then comes into play. However, looking at the tax consequences that go along with a rate of return is important, too. It's really not what you make, but what you keep, that counts in the long run. So if your particular investment has a rate of return of 10 percent, but you're giving 3 percent back to Uncle Sam, then your true net return is really 7 percent.

There are strategies available that make your money work more efficiently, and also can be used to address more than just one aspect of your financial plan, instead of each dollar focusing on just one particular goal.

In summarizing, the key to a successful long-term savings plan is to live within your means. It's easy to want everything right now, but most people start with humble beginnings.

And many people have retired successfully with incomes that never exceeded $25,000 a year. How did they do it? They simply adjusted their standard of living to meet their incomes, paid "themselves first," and became responsible for personally subsidizing their retirement income.

They're not living like kings and queens, but they didn't live like kings and queens throughout their working years. Adapting to your own incomes, paying yourself first, and allowing your dollars, time and compound interest to work for you will help in making for a very successful financial future.

* Next month: There's more to retirement than money.

Tim Schumacher represents Strategic Financial Partners in Hays. tschumacher@htk.com