Hi. Welcome to The Thing We Never Talk About, a podcast about personal finance for weirdos. My name is Tim Iseler. I'm a certified financial planner and I run my own independent financial advisory business right here in Durham, North Carolina. And I help artists, musicians, and other people with weird jobs take control of their financial lives.
You can learn more iselerfinancial.com, and if you have a question about money or personal finance, please send it to me by visiting iselerfinancial.com/podcast and I'll answer your question in a future episode. Two weeks ago I shared some ideas about how to turn $7,000 per year into $1 million. If you haven't listened to that episode, you can pause now and give it a spin. Okay? You back? Did you listen to it? Spoiler alert to anyone who did not hear that episode.
You could turn $7,000 a year into a million dollars by putting it into a traditional IRA, using that money to buy a diversified US stock market index fund, and then waiting for about 29 years. That's it. There's no extra work. There's no super clever strategy. Just put your money in an IRA, buy the simplest investment, and let time do the work for you. But if you're like a lot of creatives and self-employed people, you might think to yourself, great, but where am I gonna get an extra $7,000?
It's a fair question, but I would counter that everyone existing above the poverty line can at least be saving something, even if it's not a ton. And that most people earning above, let's say $45,000 a year, should be able to manage something close to $7,000 a year. The trick is to adopt a mindset of paying yourself first. When I talk to my buddy Jeremy Lemos on this podcast, he put it really well. You have to pay your rent, you have to pay your bills, and you have to pay yourself.
And that applies to every single gig and every single paycheck. Some portion of that money is for you to keep, to make life easier for future you. You can't wait until you've bought everything you wanna buy and then see what's left over. That's paying yourself last, giving everyone else your money, and then hoping for the best, hoping there's something left. I'm here to tell you loud and clear. That's a recipe for failure.
Likewise, you can't wait until the end of the year or right before tax filing time to figure out how you're gonna save. It's true that you are allowed to contribute to an IRA right up to the previous year's tax filing deadline. So in a literal sense, you can procrastinate up to that point. But again, that's paying yourself last. Let me put it this way.
If you don't have an extra $7,000 laying around to invest this month, what makes you think it'll be different when it's time to file taxes next year? Will you suddenly, somehow have a lot of extra money then Maybe, maybe not. Okay, so that's enough of the old bad cop routine. Here's the good cop. You can pay yourself first by slicing up that annual contribution into smaller chunks then automating transfers to make sure they happen without any extra effort on your part.
$7,000 per year works out to about $583 and 33 cents per month. Now, that's still a big chunk of change, but lots of you will be able to handle a monthly contribution of that amount. If you can manage a $583 33 cents transfer into your IRA each month, automate that sucker and call it a day. Take it off your plate and move on to the next thing on your list. But if $583 feels like biting off a little more than you could chew, let me suggest that we break it down further.
That seven K per year works out to about $134 and 62 cents per week. I often find it helpful to frame savings contributions in terms of what else could you buy for that amount. If my sweetheart and I go out to dinner at a nice restaurant, once you add in a couple of drinks, dessert, a tip, it could easily be in the ballpark of 130 bucks. So for about the same price as a date night at a nice restaurant each week, you can max out your IRA.
Again, if you automate that transfer, it takes the guesswork out of it. But maybe you prefer less expensive restaurants and $134 a week still sounds like a lot of money. Totally fine. Let's continue reducing that seven K per year down to a daily amount. A contribution of about $19 and 18 cents per day, or about the same amount as lunch out with a friend or a movie ticket or a short ride in an Uber, will let you max out your IRA. I want that to really sink in for a minute.
For less than $20 per day, you can save $7,000 per year. Again, the key is to automate those transfers so that you don't have to think about it. Now, I'm not here telling anyone what they have to do. You have to do this, you have to do that. If you don't wanna save for the future, that's your choice. But the downside is that there is literally no reward waiting for you when you sit this one out. You either save your money now to have better options in the future, or you keep working forever.
Those are pretty much your choices. So if you're the kind of person who actually does want to make decisions now that will help make your life easier, I think that $20 a day is not a super heavy lift. Really ask yourself, how often do you spend $20 on something with no durable, tangible value? I do it all the time, and I don't feel even slightly guilty about it. Spending $20 on lunch isn't gonna make or break me, right? So just do both of them.
If you're comfortable spending $20 on something fun for yourself, you should also be able to pay yourself first by contributing $20 to your IRA. And listen, I get it. $20 a day is still a lot of money for some people. I want everyone to be saving today so that you have more and better options in the future. But if you really can't afford to put $20 a day in your IRA, then aim for something a little more manageable. Could you do $15 per day? That works out to $5,475 per year.
That's not bad, right? How about $10 a day? That works out to $3,650 a year. Still pretty good. Remember, you don't need to wait until everything is perfect before you start making good decisions. Don't make perfect the enemy of good. If you can't max out that IRA, that's totally fine. But don't let it stop you from getting started.
And one more time, make sure you pay yourself first, preferably by automating regular contributions, and save a little bit for yourself every time you get paid instead of waiting until after you've paid everyone else. Okay, that's it for today. If you have any questions about today's episode, shoot me an email at podcast@Iselerfinancial.com. Next week I'll be talking with my buddy Mikael Jorgensen from Wilco.
Mikael and I worked together at Soma Electronic Music Studios in the early two thousands when he got called up to the majors and started playing in Wilco full-time. I had a lot of fun catching up with Mikael, and he had a lot to share about the decisions he's made in his own life around money and investing. So I hope you'll tune in. It's that time again, it's disclosure time. The Thing We Never Talk About is for educational and entertainment purposes only.
It's not legal, investment or tax advice. People on the show, including yours truly, may have interests for or against any investments discussed. So do yourself a favor and don't make any investment decisions based on what you hear on this or any podcast. If you have a money or finance question you'd like answered in a future episode, please visit Iselerfinancial.com/podcast. Again, that's Iselerfinancial.com/podcast, and Iseler is spelled I-S-E-L-E-R.
If you like what you hear, please like and subscribe to this show wherever you get podcasts. And you can get my insights on money and more delivered directly to your inbox by subscribing to my Keep It Easy newsletter at Iselerfinancial.com/newsletter. Thanks for listening everyone. I appreciate you.