Today’s post is going to be short and sweet. When making financial decisions, take a look at the long term view first.
Most people go through a life path where they start their careers, progress with their careers, buy a house, maybe have kids, pay off all debts, save for retirement and eventually retire.
The biggest expense areas can be grouped into the following:
- Housing costs
- Retirement savings
- Living (basically any other spending).
One of the problems that I see with some people is that they spend too much money on living and not enough on retirement savings and paying down debt.
If you are a person who makes the minimum payment on your debts (including mortgage), doesn’t save much for retirement and only saves for things like vacations – you are headed for a bit of a crash at retirement time.
One of the biggest problems with an “I’m not saving for retirement” strategy is that the strategy will work exceedingly well for a long time. You’ll have a great life and won’t have any money worries assuming you can balance your budget. The problem is that once you retire, you’ll have to adjust from living the high life to living in near poverty.
If you are middle class or higher, you need to save for retirement in order keep some sort of decent living standard in retirement.
Cut expenses, save for retirement
If you are young (less than 30), then I wouldn’t be concerned with retirement savings. If you are over 30, you need to start thinking about saving for retirement. Even if it’s not possible now – think about how to make it happen in the near future. The retirement savings money has to come out of your living budget category. Yes, that means you will have to cut back on your living expenses. You can decide which ones to cut.
Housing is a funny category. It’s common for people to buy an expensive house, but then only make the minimum mortgage payments for 30 years or even longer. It shouldn’t take 30 years to pay off a house, in fact it shouldn’t take more than 20 years in my opinion.
Make a plan to pay off your house in a reasonable amount of time. This extra money will come from your living category.
If you spend too much money on ‘living’ and aren’t putting enough money into future expenses like retirement – try to think ahead and how you would like your life to be. Do you want to be debt free someday? Do you want to retire early or work part time in your 50’s? Those things won’t happen by accident – you need to do some planning and some saving.
This post was part of the Blog for Financial Literacy effort organized by Glenn Cooke from LifeInsuranceCanada.com