The financial benefits I discovered from getting an early night
I love setting my New Year’s Resolutions: I start thinking about them as soon as I’ve sent back my Halloween costume.
Over the past few years I have focused more on building better habits than setting short-term goals.
These “better habit” resolutions include things such as calling my grandfather more, adopting a continuous exercise routine, cooking more and volunteering.
However, the one resolution that turned out to have a surprisingly positive impact on my finances and investing goals, also turned out to be the easiest.
Going to bed earlier.
You may ask what sleeping more would have to do with your finances and investing goals?
Simply put - if you are asleep, you are certainly not spending money. And if you are not spending money then you have more money to invest.
But there turned out to be other aspects to an early bedtime that helped me improve my finances and jumpstart investing for my future.
Matthew Walker, founder and director of the Center of Human Sleep Science at University of California, Berkeley (and @sleepdiplomat on Twitter), has focused his life’s research on why we need to sleep and how to achieve optimal levels of shut-eye. In his book, Why We Sleep: The New Science of Sleep and Dreams, he discusses how our health and productivity are impacted by the number of hours we spending sleeping.
“When you are not getting enough sleep, you work less productively and thus need to work longer to accomplish a goal.”
Is the key to multi-tasking and excelling at work just eight hours of sleep?
The early bird gets the worm
If you go to bed earlier you also tend to wake up earlier.
After I abandoned the regular late nights out (which in New York can also cost quite bit of money), I had more energy and time to focus on work.
I started to be more proactive and strategic to find ways to grow professionally and increase my long term earnings potential.
This included job searching and networking, as well as being open to moving cities for the right opportunities.
To be honest my initial objective was just to find a higher paying job so I did not have to live with roommates, but I also started to think more about my retirement savings rather than burying my head in the sand.
Looking at very basic calculations (very basic), we can see the upside potential that salary growth can have on your retirement savings. For example, let’s say you start out making $40,000 a year and decide to contribute 6% of your salary to your income.
If you never change your contribution amount, but average an annual salary increase of 3% every year compared to 1%, your retirement contributions over twenty years grow by 20% more in your first few decades of working.
This does not take into account impacts of factors such as inflation and compound interest. But it does highlight the importance your career and salary can be to your overall retirement plan.
Mornings are for reading, not just sleeping
Once I stopped hitting snooze, I discovered the morning was a great time to read and catch up on news.
Fewer people are awake in the early hours of the day and even fewer people want talk with you. Also my brain feels more refreshed before starting my workday and capable of handling complex financial information.
In the wee hours of the morning, I decided on two things that have the potential to increase my long term investments.
1. Increasing my pre-tax retirement contributions
Even though my grandparents had really hammered in the importance of pre-tax retirement benefits and corporate matching, I discovered my contributions were too low. I was missing out on my employer’s matching benefits, which is essentially free money.
The plan at the time matched 50% of the first 6%. I adjusted my contributions so I was taking 6% out of my pre-tax pay and then getting an additional 3% from my employer.
2. Establishing automatic annual increases to retirement contributions
I also decided to establish annual increases to my contributions. My account provider’s calculator showed me what small annual adjustments would do over the next 20 years. By increasing my contributions by 1% each year, the projections for long term retirement savings grew significantly.
The 1% increase was also small enough (and combined with the impact of New York’s lovely city and state taxes) that the actual impact on my net paycheck was minimal and I was able to continue saving for my rainy day pot.
This annual increase will happen every year until I change providers or reach the amount the government allows for you to take out pre-tax on an annual basis.
Sleeping more has health benefits and keeps you from spending money, but the clarity of mind it brings can also shape your financial future.