My son is in the military.  He has struggled with academics most of his life, achieving high marks in some schools and reaching certain goals and struggling with others.  The military has been very good for him, and he is a great young man.  After a few years fighting for our country, he became an officer.

My wife and I traveled 600 miles to see him be presented with his stripes.  After the ceremony, fly-over and reception, we went to lunch at a famous local establishment.  There he proceeded to tell me the good news.  After struggling for five years to make ends meet, his pay would almost triple.  What?  Yes, he would be making almost three times what he had been making earlier that day.

I congratulated him again.  His mother teared-up, and I brought the conversation back down to a very serious tone.  “Son, I have been wanting to tell you the Secret of Life for several years and now I have the opportunity. You are about to be faced with an incredible desire for your spending to catch-up to your earnings.  It will be SOOOO easy for you to once again spend, invest, blow, etc all of your income.  As soon as you return to the base you should create a budget out of your existing expenditures and add, say 15% so you can enjoy the fruits of your great accomplishments.”

There was not a pause.  There was not a reflection. There was not an immediate acceptance of the value of this advice.  What returned is, “You don’t understand.  There is NO WAY I can live on what I HAD BEEN making! I was living a dirt poor existence.”

Then I reflected … did I approach him too fast?  Should I have approached him differently?  Our relationship is like that of many parents of young teens and adults.  They cannot be easily taught, but once they learn the facts the old fashioned way, through hard knocks, they realize how smart their parents are.  We have had the “rebound conversation” several times on other issues, so I know one day we will revisit the Secret of Life discussion.

Our connection remains strong and positive.  If he “gets-it” soon, his practice of increasing his savings at a young age could have a substantial effect on his retirement date, retirement status and his quality of life in his senior years.  Your paycheck may not ever triple, but the formula should be the same.  Whenever you receive a windfall, whether a one time payment or a salary increase, save most of it. Pull a token $100 and enjoy a good meal and a cheap bottle of wine.  Draw down $100 and go on a day-trip to a surrounding city and see some sights you have been putting off, but return to normal life and save the rest.  You will be amazed at how fast it will grow through compounding.

Many employees participate in this type of plan through their employer.  They can usual either deposit into a standard savings plan or into a company sponsored 401k plan.  There are many advantages of the 401k which we will discuss later.

An automatic plan takes the decision (to save or not to save) out of your hands when you could become reluctant to save.  If you could elect each week, “Should I save for my retirement, or should I take my wife out to that fine, five-star steakhouse.  She deserves it.”  This automatic plan should be part of the budget process.  You keep enough cash available on-hand to make your savings plan secure.  For example, if you are tempted to raid your savings every 3 or 4 months, there is a problem.  Either the scheduled deposit is unrealistic, or you are not disciplined enough to maintain it.   Either way, you must make an adjustment.  Make the value that you plan to deposit realistic and workable. You’ll be surprised at how fast it will accumulate.

We all know people that do not have a savings plan.  When they land a windfall, they spend it as soon as possible.   Examples of windfalls would include tax rebates or the sale of a private residence.  Next week we will discuss the growth potential of regular savings.  Did you say you want to be a millionaire?  You definitely can be.