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Physician's Money Digest, February15 2003, Volume 10, Issue 3

"Pay yourself first" means just what it says. The next time you earn a dollar, before you pay anyone else any money they may have coming to them—before you pay the government its federal or state tax, before you pay your landlord the rent or your bank the monthly mortgage—you must pay yourself first.

The fact is that most of us pay everyone else before we pay ourselves. The first person we pay is the government through our withholding taxes. Then we usually pay the rent or the mortgage and the rest of our bills. If anything is left at the end of the month, then maybe we pay ourselves by putting a few dollars into a savings or retirement account.

Unfortunately, this approach simply doesn't work. For one thing, by letting the government take its portion first, there's often not enough left over to pay yourself much of anything. Fortunately, there is a way to pay yourself before you pay the government, a way where you don't lose a third of your paycheck to taxes. And best of all, it's legal.

It involves using what's called a pretax retirement account. There are many different types of these accounts (eg, 401(k) plans, 403(b) plans, IRAs, simplified employee pension-IRAs, 401(k)/profit-sharing accounts, and Keogh plans.

The following numbers may affect you in 1 of 2 ways. They will either anger you or make you anxious (which may be happening right now), or they can get you excited (which is what I hope they are doing).