Behaviors that will change your life – Part Two
Between now and the end of this year, I want to give you some pointers to think about to improve your retirement planning. This information is provided with couples and families in mind but the single person can cogitate on these points for future implementation. Each point is a behavior that is designed to help you, the reader, improve your chances of a successful retirement. The earlier you adopt these points the more impact they will have. I hope you find each behavior discussed of value to changing your destiny.
Live below your means
If the common sense makes sense, then seek no other sense. It is a common and simple mathematical equation; spending less than what you earn results in a surplus. Too bad our government can’t get this one correct. There is no secret to living below your means other than creating a system of priorities. This system has four basic categories: obligations, necessities, commitments, and wants and desires. Extrapolated out, obligations are items that are generally auto-drafted from your pay check such as taxes and company sponsored benefits. If you have a faith-based worldview, you might add tithing or giving as an obligation. Necessities are items that meet your physical needs of existence such as food, clothing, shelter (to include utilities), and transportation. These items are the necessities to sustain a comfortable life. If your income does not exceed these two categories, then you need to increase your income. If your income exceeds these two categories, then you can move to commitments. Commitments are self-imposed future financial expenditures that have been put in place to acquire material possessions now. In other words, you bought something on credit and you have to make a future payment for the privilege to own the item today.
Let me define the concept of credit and debt. Debt is a result of using the financial product known as credit. Banks, lending institutions, and many retailers are in the business of selling you the product known as credit. Credit is a product. It is not a tool, it is a product. People use credit as a tool to artificially inflate their incomes to purchase items and experiences today that they cannot afford. If you can cover your obligations and necessities, but cannot afford to purchase something you want or desire, then don’t purchase it. I include this priority in the list of priorities because many people reading this have already made the mistake of purchasing the product known as credit. Credit is a promise to make a future payment with interest, to take possession of another product that will lose most if not all of its value the second you remove it from the store. A better product to purchase with the extra income that is not committed to obligations or necessities would be stocks and bonds. In other words investing is a better product than credit.
Living below your means is a sure step to improving your retirement planning. By incorporating this behavior into your retirement planning, you might be able to purchase your retirement property while you still have a substantial income. If you own your retirement property, free of debt, you can reduce your expenses in retirement and you are likely to retire without a mortgage. Let me give you an example of living below your means. Let’s say your income is slightly above average at $71,400.00 annually. With total obligations of $20,244.00 (including taxes, company sponsored benefits) and no debt (including the mortgage), you would have a net income of $51,156. Assuming that your annual budget (the amount of money needed to meet your necessities) is $30,365.00, you would have $20,791.00 to save and invest.
If you were to reconfigured these numbers with a mortgage payment of $1,560 a month and debt payments of $385 per month, your net spendable income would be -$2,549.00. As you can see it is likely that in this scenario you would continue to increase your use of credit and continue to incur debt. Retirement planning would be a thing of the past. Living below your means requires you to build a system of priority and master your behaviors concerning the use of credit. You need to resist the desire to attain the material possessions and temporal experiences you cannot afford. Making this behavioral change alone can have a dramatic impact on your retirement planning.