Don’t Save for Retirement

One of the big mistakes we all make when considering making a change is trying to do too much at one time. We decide we need to eat better so we plan to eat less meat and more vegetables – better make those organic, and even though I don’t cook, I’ll make it all from scratch. On and on, our plan gets bigger and better and as a result, less likely to be executed.

What we should do is plan in baby steps. Start small and celebrate your successes.

Today while listening to a coach advise one of his clients, I just wanted to yell, “Baby Steps”.

The client was a 28-year-old living in Chicago making 45K a year. She has a student loan balance of 30K, a $1000 emergency fund and a very generous employer who monthly pays an amount equal to 15% of her gross into a 403b. The coach was harping on and on about getting this student loan paid off so she could save more for retirement.

Really? Come on; she’s trying to live in Chicago on 45K. First thing we need to do is throw this girl a party; she is a rock star – 28 with 37K in retirement and no credit card debt. Who does that? The answer is very few.

The coach was right when he said that she needs to focus on paying off those student loans. But let’s not try to inspire her by tempting her with calculations of how much she could be worth when she’s 67. She has a lot a life to live before 67. Maybe a really cool vacation, a wedding, a condo? Live a little, girl.

We need to give this young woman a chance to learn that saving is not a bitter pill; it is not a diet devoid of chocolate. Once she sees herself as a saver, her financial future will be much more secure.

The way to learn to be a saver is to start small. In the beginning,  it is a lot easier to save for a want rather than a need. So what do you want that we can get in three paychecks? How much can you set aside out of each check?

Swim with Manatees – $35 plus lunch and gas, $35 out of each check

Take your mom to Julio Iglesias – 2 tickets at $60, $40 from each check

4 night Cruise with your friends – $300, $100 out of each check

Try it. Pick a three paycheck goal, something fun and get going.

Once you can successfully do the three paycheck goal, try a six paycheck objective.

Visualization helps a lot; so draw a thermometer, post it on the fridge, and color it in after every check. Get the kids involved and they will naturally grow into savers.

It is easy-peasy to learn to be a saver:

1)       Pick a little goal

2)       Set the time period and the amount from each check

3)        Record each increment as you save it – in color on the fridge door.

4)       Party! You are a saver!

Of course you know that we do need to save for cars and retirement and less fun things like roofs and medical needs, but once you become a saver the rest is easy.

It’s all about what you want

Finally, we get around to your favorite subject. Personal Finance is very personal. What you want and what I want may be quite different.

Winning with money is about using your  earnings to get what you want from life.

As long as you are progressing toward your goals at a pace you are happy with, there is no need to feel guilty about lattes, dinners out or your fancy car. You should spend money in ways that make you happy.  Just don’t make the two fundamental errors that will prevent you from winning.

Fundamental Error #1: Failing to set Personal Financial Goals

This was me, and I bet it is you too. To count, a goal has to be clearly defined, measurable and have a completion date attached.

I want to retire comfortable someday is not a goal; it is a Dream.

I want to retire with a monthly income of $2500 in six years. That’s a Goal.

I want to get out of debt – another Dream.

I want to be completely out of debt, excluding the house, within 36 months. –  Goal.

I want to buy a house – Dream.

I want to save $20K for a down payment on a house by this time next yearGoal.

Ok, you’ve got it. Now take some of your dreams including your “great-big-won’t-happen-for-a-long-time-dreams” and turn them into goals.

Fundamental Error #2: Failing to have a plan

When people make error #2, their behavior does not align with their goal. It is not that they lack self discipline; it’s that they have no plan.

If your goal was, I want to save $20K for a down payment on a house by this time next year, how are you going to do this?

How much a month do you need to save? Do you need to cut back expenses to get there? Can you increase you income? How?

Break your goal down into the little actions required to get there; draw yourself a map. Put in on paper and then tell someone about it. Check back on your progress frequently.

Whether you are on baby step 1 or 7, you need to have a goal if you’re going to win.

Shiny Things

The constant desire for new stuff can be our undoing while trying to build wealth.  Unlike the crow, you were not born with an attraction to shiny objects.

Marketing is powerful.

The car you thought you liked last week becomes the car you can’t wait to replace when you are inundated with ads for the newer cooler model. Every new tech toy captures your imagination, becoming the one thing that would make you happy. Not one of the 33 pair of shoes you already own will do for Saturday night, once you catch a glimpse of the latest Jimmy Choo’s.

Marketing is powerful and if there is any hope of you controlling your own life you must be prepared to fight back with some formidable strategies of you own.

Long Term Strategy: ALWAYS

Always have a plan and a goal for your money. Make both the plan and the goal specific and measurable. Having an overall plan helps you resist temporary temptations.

Once you have lived for a while with your long term goals in place, you will find in becomes much easier to be very intentional with your spending.  But until then, give these three mini-strategies a try.

Mini-Strategy One: Blow $

Set up a blow budget; allow yourself a fixed amount of money every month that you don’t need to account for. But do not spend over this limit.

Mini-Strategy Two: Wish List

Keep a list of things you want. Don’t buy anything that’s not on the wish list unless it can be paid in full from your blow money. Having a wish list forces you to consider an items worth to you relevant to other wish list items. Prioritize your list and create a goal in your Mint.com account or put a jar on the kitchen counter or set aside a little extra in your savings account for the desired purchase. Make a chart tracking your progress and hang it on the wall. Wait until you’ve saved enough to buy your wish list item. You’ll be surprised how fast you can save for something you want, once you’re focused.

Mini-Strategy Three: Cooling off

Set a hard and fast unbreakable cooling off period before you buy, even if you have the cash. Wait 24 hours for decisions less than $50, a week for less than $200, a month for $500. After the cooling off period, if you still want it and you can pay cash for it and it’s the number 1 item on your wish list, go for it!