An ancient Chinese proverb states, “The best time to plant a tree was 20 years ago. The second best time is now.” What do tree planting and retirement planning have in common? Both reward you by starting early and expecting the harvest much later in your future.
One of the “seeds” we plant in the lives of younger professionals is that the future arrives much sooner than most anticipate. I don’t mean that time speeds up but rather that life has a way of causing you to focus on many other tasks that will rob you of your future savings goals. For example, when you were graduating high school and received all of those beautiful congratulatory cards filled with checks and cash, you thought the future was so distant that you were immortal.
However, in just a short period of time, you go to your mailbox and find the ornate envelopes addressed to you. Opening the envelope, you quickly realize it is a graduation announcement from a friend’s child! “How can this be?” you say out loud. Time has a way of moving consistently forward in our lives and, if we aren’t careful to notice, passes us by without our comprehending the importance of events and people around us.
What does this have to do with retirement, you ask? Everything! We provide financial planning and counseling services to younger professionals. When we inform them of the balance needed in their lives to meet all of their lifetime goals, they are quick to point out that the amount of funds allocated to their retirement seems excessive since they are so young. I love it when this statement is said so boldly by the young person! This recognition of time being so far away from their current reality allows us to demonstrate the difference between a little invested today and the required larger amount to invest if she starts 20 years later to save for retirement.
After the calculations and graphs are reviewed with the person, you can literally see the look in their eyes as to how fast time truly passes. The key to planting the money tree needed for retirement enjoyment is today. Too often people come to our office to discuss retirement planning and leave with less confidence in reaching their goals because of the lack of time to accumulate assets properly.
To help you start today, we have produced our “Top Ten Tips for Saving Today”:
Tip #1: Elect to participate in your employer’s retirement plan. Even if the amount is small, the plan will typically match a certain percentage of your contributions which will help you grow your funds more quickly.
Tip #2: Forgo the cup of latte, double shot, no foam every other day and place these funds in your savings. You will be surprised how much you can save in a year!
Tip #3: Pay yourself first. This is our mantra when clients ask us how to save for the future. You must take advantage of the tax laws to plan for all applicable deductions possible. Invest in your future, not the government.
Tip #4: Find an accountability partner. Saving is like exercise; you must perform both on a consistent basis to see the results. When I started exercising (again) regularly, I didn’t notice results for a month or so. Then the magic came alive one day when I was putting my suit pants on – they were too big! Your saving for the future will work the same way. Find someone to hold you accountable for exercising and saving.
Tip #5: Do what wealthy people do. Budget each year and consider your savings goal as the first disbursement for your monthly funds. The key difference between the behavior of wealthy people and ordinary people is their approach to saving for their future. Wealthy people will save their desired portion of income first and spend the rest. Ordinary people will pay their bills first then save what’s left.
Tip #6: Don’t stop investing your savings in difficult market cycles. Emotions rule a lot of people. However, to be successful in saving for the future, you must be consistent in your investing. Think about the process as if you were shopping. Look for bargains that have fundamental characteristics of a good investment. These are typically found when the markets are in recession or downturns.
Tip #7: The stock market is an auction use it to your advantage. In its simplest terms, the stock market is based on someone selling something and someone else buying it. Don’t be confused with the technicalities of the market. Consider a well-balanced portfolio and consistently fund it through good and bad markets. You may find that you are well rewarded in the long run.
Tip #8: Rent don’t buy. Before you think you know what I am referring to allow me to explain further. Don’t buy assets that are low utilization but require significant investment of time and money. One primary example is a boat or recreational vehicle for most people. Besides maintenance, insurance, storage, taxes and other costs are borne with these assets that could be alleviated by renting one when you need it. Recently, we rented a house boat for a weekend on the lake. The gas tank was full and the maintenance, as well as all the required safety equipment, was completed by the leasing company. All we did was enjoy the weekend and turn the craft back in after we were through.
Tip #9: Invest your raise in salary. Instead of increasing your monthly living expenses by the same amount of funds you received in your recent raise, consider allocating the raise to your future savings. If you have been living comfortably, why should you change your lifestyle simply because you make more money?
Tip #10: Recite often the nine tips above so that you are not easily distracted by the “bright shiny objects” that appear before you while living your dream life. One word that I have used, on purpose, throughout this article is “consistently”. Without reviewing your actions periodically, it is easy to find yourself off course and in treacherous waters.
Seek out a professional to help you establish a plan and work the plan like your life depends on it – because it truly does! See you on the golf course.