Baby Steps 1–3 are a test of endurance. They represent a season of sacrifice and gazelle intensity.
But what about Baby Step 4?
Well, that’s when you finally enter the future-focused world. The weight of debt is off your shoulders. And with a fully funded emergency fund safely in place, you’re not worried that the next crisis will sink you back into debt.
Baby Step 4 says to invest 15% of your household income toward the retirement of your dreams. We recommend investing in mutual funds. And between your 401(k), Roth IRA and traditional IRA, you have options for how to do that. The important thing is to start as soon as your emergency fund is in place, because compound interest is your friend. The more time you give your investments to grow, the more cash you’ll have at retirement!
It’s tempting to let your foot off the gas at Baby Step 4. A little bit of a break might be okay, but don’t forget that you’re still meant to steward what God has given you, whatever step you’re in. As Proverbs 21:20 (NIV) tells us, “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.”
Ready to tackle Baby Step 4 and store up cash for your retirement? Here’s what you can expect to learn along the way.
1. You get used to a permanently smaller paycheck.
Baby Step 4 is a little different from the steps that come before it. That’s because unlike Baby Steps 1, 2 and 3—which each have a defined end point—Baby Step 4 continues through the rest of your working life.
So once you start investing, you’ll have to get used to a permanently smaller paycheck. At first, that might feel painful, but after a while, you probably won’t even notice it! Of course, you’re not losing that money forever. You’re just spending a few decades apart. And when you finally see it again, if all goes according to plan, that little pile of cash will have grown into a massive stash.
2. You learn to ride the roller coaster.
The only way people get hurt on a roller coaster is by jumping off before the ride’s over. If there’s anything investing teaches, it’s how to hold on for that ride—even when things get a little scary.
Investing in mutual funds means there’s no guarantee on your returns. In other words, you might have some really awesome years and some that make you sweat. You just never know! But if you look at the historical average annual return of the S&P 500, it’s not unusual to make a 12% rate of return over the life of your investments. Just remember that regardless of the market’s performance in any one year, you’re investing for the long haul.
3. You learn to make your future a priority.
In Baby Steps 1, 2 and 3, you’re gazelle intense. You’re head-down, and you don’t really have time to think about the distant future. In these stages of your financial journey, that’s okay!
But Baby Step 4 marks a turning point. It’s the time when you lift your head for the first time, take a breath, and focus on your future because your “now” is finally under control.
For the first time, fully funding your retirement causes you to think long and hard about what retirement means to you. How will you spend your time? How old will you be? When will you get there? How much money will you need to be able to live the lifestyle you dream of?
By investing your own income—your largest wealth-building tool—your retirement is in your own hands. That’s powerful! But it can only work if you invest and make your future a priority now.
Once you have a plan for your retirement, you’re on a path toward real wealth building that will change the course of your life. And it’ll create opportunities for you to do even cooler things with your money—like changing the lives of your family, friends and community, too.