Here’s how I manage to fully-fund my 403(b) retirement account, my Roth IRA, save for my kids’ college, and maintain a healthy emergency fund.
I pay myself first –
Before I receive my monthly paycheck, a portion is withheld, equal to 1/12 of my annual 403(b) contribution.
As soon as I receive my paycheck, I deposit it in my checking account. I then schedule several transfers. First, I transfer a fixed amount to my non-retirement savings account. Second, I transfer an amount to either my Roth IRA or my wife’s Roth IRA, depending on which account I’m working to fund in a particular span of months. Currently, I am working to fully-fund my wife’s Roth IRA.
I pay myself last –
At the end of each month, I take any amount remaining in my checking account (above a $100 cushion) and transfer it to my savings account. From my saving account, I transfer funds to either my daughter’s Education Savings Account or my son’s Education Savings Account, depending on which account I’m working to fund in a particular span of months. Currently, I’m working to fully-fund my daughter’s ESA.
I pay myself along the way –
When I sit down to create my monthly budget, I use only the income from my regular job. Any other income that I might receive, whether it be from blogging or writing or selling things on eBay, is deposited into my business checking account. The vast majority is then transferred to my non-retirement savings. A small amount remains in my business checking and is used to cover the cost of doing business.
At the end of the fiscal year, I make a contribution, from my non-retirement savings, to my SEP-IRA (a type of retirement account for people who have self employment income). The amount of this contribution will vary, depending on how much additional income I generate from blogging and writing.