Every day we make many financial choices. Some are directly and obviously retirement related... but most are not.
Or so we think.
The fact is... choice is pervasive in our lives.
And the reality of choice is that... every act is an act of self sacrifice in some manner.
In other words... when you choose anything... you reject everything else.
By choosing one thing... you give up other things.
This same truth applies to personal financial choices.
Choosing to either do or not do something carries with it "easily overlooked" implications that can dramatically influence your final retirement outcome.
Its the proverbial "other side of the coin"... so to speak.
In the span of your working years...the combined consequences of these many choices... plays a huge role in determining whether or not you will be able to retire in the manner that you desire.
So much so, in fact... that the difference between having a minimal or a maximal retirement very likely lies in these daily financial choices that do not readily appear to have any direct relevance to retirement... but in fact do.
And so... the key to your retirement success or failure may very well hinge on... your understanding of how much and why... the ordinary, the daily, the common, the
typical, and thus perhaps "the not so obvious" personal financial choices really matter... when it comes to your retirement.
This sort of attitude and choice to "put off" saving for retirement will dramatically limit the amount of money you will likely be able to accumulate by the time that you reach retirement age.
Say your goal is to save $500,000 for retirement at age 65. The monthly savings required (assuming a 10% growth rate) would be
Time may be the most under-rated commodity in building financial security.
By choosing not to act... but instead to "worry about retirement later"... you are giving up the huge advantage that the powerful commodity of time provides.
This one seemingly inconsequential choice... perhaps more than any other... has wreaked disaster on retirement after retirement after retirement.
Do you know that most people have no idea how much money will be required to fund their envisioned retirement?
Think about this... if you don't even know how much money will be required... then what do you suppose the chances are that you will end up with the right amount?
It is imperative that you know "early on" how much money will be required so you can retire... when you want, with the cash flow that you need, and with enough to last your lifetime.
Most people greatly underestimate how much money it will take to fund the retirement they perceive for themselves.
I promise you... it takes a lot of money.
Failure to determine this crucial number for yourself... for whatever reason... results in you essentially "hoping" that you will have enough money at retirement.
Act now and determine your retirement need in total dollars. By choosing to act... you are rejecting relying on "hope" when it comes to your retirement outcome.
If you are like most people... you spend money on things that you really don't need.
Instead of managing the money you have... you just spend as things come up.
Don't feel bad... we have all done this.
It takes a committed effort to develop a management attitude about your spending habits. But it is essential that you take control of your spending.
The best way to do this is by budgeting. The main purpose of a budget is to cause you to actively decide what will be spent and where your money can best be put to good use.
So the truth is... a decision against budgeting is ultimately a decision against effectively managing your money... and the result of no management is always wasted money.
Some may be inclined to merely accept that they will waste some money each month and see it as "no big deal".
But is it really... no big deal?
Suppose that by simply focusing your attention on your daily spending... you were able to reduce your cash outlay by just $5 per day. Over the course of a month you would save $150.
But say you invested that $150 each month for retirement. And say your investment earned an average annual rate of return of 10%.
So the question is... is it worth it?
Is what you are getting for that $5 each day really worth forsaking future assets of such magnitude?
Stop diminishing your retirement by overlooking the "not so obvious" difference that just a few dollars per day can make.
Of all the threats to your financial security (and hence your retirement)... none is more dangerous than debt.
Debt is also a family's most common financial enemy.
Being in debt ultimately means that you are willing to "pay more than asking price" for something.
The danger lies in the fact that people generally don't realize just how much more they are going to end up paying.
Credit is designed, marketed, and processed in a manner that maximizes how much you are going to end up paying.
It is also designed, marketed, and processed in a way that minimizes your awareness of how much you are going to end up paying.
Buying things on time is similar to the $5 per day example in the previous paragraph... but in reverse!
Instead of working for you... the power of compound interest now works against you.
The net result is always the same... borrowing (in order to have it now) guarantees that you will ultimately pay much more than asking price.
Continually paying such a premium over the course of your life... will dramatically diminish the number of dollars you will have available to save and invest for retirement.
When it comes to debt... two things are going on at once... you are greatly overpaying for items and you are thereby greatly diminishing your retirement possibility.
People often save into their retirement accounts with little or no knowledge as to whether they are saving enough and earning enough to actually get the job done.
This is a recipe for disaster.
Failing to understand... years before retirement... what will be required in both contribution and return to reach your goal is a common oversight that has dire consequences.
It can ruin your chances to obtain an adequate retirement balance.
When saving and investing for retirement... it is prudent to take no more risk with your hard earned money than is necessary.
But at the same time... it is critical to know what is necessary in order to attain your goal.
In other words... your monthly contribution amount will dictate what rate of return will be required to reach your goal in your specified time frame. A different contribution amount will require a different rate of return.
Many people will only invest their money in what they consider to be "safe" investments. Investments with little or no risk. Like bank savings accounts, CD's, money market accounts, etc.
There is absolutely nothing wrong with such a safe approach... unless it prevents you from being able to grow your retirement balance to the level necessary to meet your retirement income goal. A goal defined by both monthly cash flow and duration.
It may be that you really can't afford such a "safe" approach.
It may seem ironic, but quite often... the so called "safe" approach is in fact... simply too risky.
The point is... no one should take more risk with their hard earned money than is necessary... but make sure that you know what is necessary.
A critical key to building financial security is rate of return.
Many people don't realize the dramatic effect of a higher rate of return.
The difference of a few percentage points may seem minor... but the impact of the rate of return when combined with time is significant.
It may seem reasonable to think that if you could earn a 10% return instead of 5%... your money would double. Not so! The difference is much greater than that over time.
For example... $100 per month earning 5% over 40 years will grow to $153,240 dollars.
However, that same... $100 per month earning 10% over 40 years will grow to $637,680 dollars.
If your retirement goal requires more than $153,240 and you do not... or cannot... contribute more than $100 per month... then you must seek a higher rate of return.
Failure to do so will guarantee that you will not reach your retirement goal.
Act now to protect yourself from the "often overlooked" impact of saving for retirement blindly.
The key difference between having a minimal or a maximal retirement very likely lies in daily financial choices that do not readily appear to have any direct relevance to retirement... but in fact do.
Honestly ask yourself...
Are your personal financial choices diminishing or improving your retirement opportunity?
"Because It Matters"... Jim
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