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If you are looking to have a comfortable retirement, here are six steps that you may want to consider.
Most of us have some government benefits, group coverage, investments, personal assets and insurance. Knowing what they are and where you are at is very important. So often I talk to people about their retirement and they say that they are fine. When we take a closer look they soon realize that they are not in the financial position that they need to be in.
2. Determine where you want to be:
So the next step then would be to determine where you do want to be. Where you want to get to is strongly influenced from where you are today. If you do want to retire one day, how much money will you require?
The idea is that today we are working for our money so that one day our money will work for us. In order to do that, we need to know the amount of money that we need on the day we want to retire. You will also need to know how much that is monthly based on the time that you have left. The more time you have until retirement, the less you will have to put away each month. The time value of money is a major factor in when you will be able to retire.
You will also need to know the rate of return you will require in order to meet your goals. The difference between 3% and 6% is not exactly double when compounded.
3. Pay yourself first:
What most people do is pay their bills, expenses and entertainment and then save what is left over. The challenge is that there usually isn't anything left over. Sound like you?
It seems to be an unwritten rule that we are to spend every dollar that we make and then spend a little more.
What wealthy people do is they pay themselves first and then spend the rest. 10% is a good rule of thumb. If you want to be wealthy, wouldn't it make sense to do what wealthy people do?
If you are unable to achieve the 10% you may want to either look at your spending or reassess your income. North America affords us the opportunity to make as much money as we want. If one person can do it, why not you? The best thing about North America is that you can be born poor and die rich. Many countries around the world don't offer that.
4. Live on the other 90%:
Now that you have adjusted either your income or your expenses and are paying yourself 10% of your income, you have 90% left to live on. Be sure to live within your means. Don't follow the masses and spend more than you make. Most people are broke or financially struggling so if you do what they do, you will be too. Debt is the cancer to financial health.
5. Build your plan from the bottom up:
Like any solid structure, the most important part is the foundation.
The foundation to your financial success is the plan itself. Without a plan it's like going on a trip with no map and no destination. If you did manage to get there how would you even know?
In building your financial plan you will want to consider Income Protection, Asset Protection and finally estate Protection. Build-Protect-Enjoy.
Income Protection: If your income stops for any reason (death, disability, suffering a serious illness, health issues etc…), where does the money come from. Without the proper protection you will have to take money from your savings and investments. If that's not enough, you will likely start accumulating debt. When you get better and back to work you will be older with less money if any. It's like stealing from your future self. Doesn't it make sense to protect you and your family against the uncontrollable events?
Next you will want to take care of the controllable events in your financial picture.
Things like setting up an emergency fund, debt reduction, retirement savings, educational savings and your home purchase or mortgage elimination.
Finally in your plan you will want to consider your growth opportunities in maximizing your wealth and preserving your estate. When you get to this stage I would recommend that you consult an estate and financial planner. There are many things to consider when it comes to your estate. There are tax consequences that you may have not considered.
6. Start now:
The key to this whole thing is to start now. The longer you wait, the more it is going to cost you. If you start planning 5 years before you want to retire, 10% of your income will not be nearly enough.
If you would like to know how to design a solid financial plan, call your local Advisor for a free consult. If you would rather learn on your own time, check out my web site. There are some great financial calculators that will help determine your financial needs.
Good fortune in your financial planning.
- Determine where you are now:
Most of us have some government benefits, group coverage, investments, personal assets and insurance. Knowing what they are and where you are at is very important. So often I talk to people about their retirement and they say that they are fine. When we take a closer look they soon realize that they are not in the financial position that they need to be in.
2. Determine where you want to be:
So the next step then would be to determine where you do want to be. Where you want to get to is strongly influenced from where you are today. If you do want to retire one day, how much money will you require?
The idea is that today we are working for our money so that one day our money will work for us. In order to do that, we need to know the amount of money that we need on the day we want to retire. You will also need to know how much that is monthly based on the time that you have left. The more time you have until retirement, the less you will have to put away each month. The time value of money is a major factor in when you will be able to retire.
You will also need to know the rate of return you will require in order to meet your goals. The difference between 3% and 6% is not exactly double when compounded.
3. Pay yourself first:
What most people do is pay their bills, expenses and entertainment and then save what is left over. The challenge is that there usually isn't anything left over. Sound like you?
It seems to be an unwritten rule that we are to spend every dollar that we make and then spend a little more.
What wealthy people do is they pay themselves first and then spend the rest. 10% is a good rule of thumb. If you want to be wealthy, wouldn't it make sense to do what wealthy people do?
If you are unable to achieve the 10% you may want to either look at your spending or reassess your income. North America affords us the opportunity to make as much money as we want. If one person can do it, why not you? The best thing about North America is that you can be born poor and die rich. Many countries around the world don't offer that.
4. Live on the other 90%:
Now that you have adjusted either your income or your expenses and are paying yourself 10% of your income, you have 90% left to live on. Be sure to live within your means. Don't follow the masses and spend more than you make. Most people are broke or financially struggling so if you do what they do, you will be too. Debt is the cancer to financial health.
5. Build your plan from the bottom up:
Like any solid structure, the most important part is the foundation.
The foundation to your financial success is the plan itself. Without a plan it's like going on a trip with no map and no destination. If you did manage to get there how would you even know?
In building your financial plan you will want to consider Income Protection, Asset Protection and finally estate Protection. Build-Protect-Enjoy.
Income Protection: If your income stops for any reason (death, disability, suffering a serious illness, health issues etc…), where does the money come from. Without the proper protection you will have to take money from your savings and investments. If that's not enough, you will likely start accumulating debt. When you get better and back to work you will be older with less money if any. It's like stealing from your future self. Doesn't it make sense to protect you and your family against the uncontrollable events?
Next you will want to take care of the controllable events in your financial picture.
Things like setting up an emergency fund, debt reduction, retirement savings, educational savings and your home purchase or mortgage elimination.
Finally in your plan you will want to consider your growth opportunities in maximizing your wealth and preserving your estate. When you get to this stage I would recommend that you consult an estate and financial planner. There are many things to consider when it comes to your estate. There are tax consequences that you may have not considered.
6. Start now:
The key to this whole thing is to start now. The longer you wait, the more it is going to cost you. If you start planning 5 years before you want to retire, 10% of your income will not be nearly enough.
If you would like to know how to design a solid financial plan, call your local Advisor for a free consult. If you would rather learn on your own time, check out my web site. There are some great financial calculators that will help determine your financial needs.
Good fortune in your financial planning.
Posted in: Personal Finance
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