Although you can consider certain factors – like your health, relationships with family and friends, hobbies and social activities – as better than wealth, obviously money and personal financial status are extra important factors to your future lifestyle.
Getting really caught up in preparing your financial future is very easy. After all, your money is measurable and many things revolve around the money component when you plan for your future. So what should you do to successfully prepare for retirement? You could simply work really hard and spend lots of time making as much money as possible. But is it worthwhile if you have too little time to enjoy with your family? Fortunately you can carry out these strategies when preparing for retirement.
Saving encourages wealth
You may guess that a high income is an important factor for having a prosperous future, but research proves that the best strategy to retirement bliss is to consistently save. Research shows that wealth accumulation is determined by the ability to save (instead of spend) than it is by your current level of income.
A study tried to challenge the notion that most households with low incomes don’t get enough money to both save and pay their bills or debts at the same time. It was found that that the majority of the differences among these households are attributed to variations in the amount that households allocates for save. The variations in saving choices among these households with equal lifetime earnings lead to significantly different levels of assets accumulation when retirement period comes near.
It isn’t what you make today but in reality what you save (keep) that’s important when you want to amass wealth. Certainly, earning more money should make it very easy to save, but many people allow their spending to grow with their revenues.
Keeping your balance
Many people you know have multiple goals when it comes to planning their money management and personal situations. For instance, say, you are at age 50 right now, and want to scale back on work to a part-time basis while spending more on your hobbies. The reasons, you don’t want to wait until you are 60 or 70, when you are less healthy. But, you also want to help your adult children with their graduate school costs and maybe even buying their first homes. Your situation – of having a few competing goals and also limited dollars, is sadly often the norm nowadays. Thus, a recurring theme is how we can trade off competing goals, which takes balance and personal considerations in your life.
Except if you really have deep pockets and decent goals, you should prioritize and measure each of your financial goals.
Knowing that planning is an ongoing process
A good musician is always learning something new, likewise, to have a comfortable financial future you should adjust your plan continuously. Financial planning is an ongoing process. Too many people conclude their financial plans and then think they are finished. Taking this path is a sure way of running into unpleasant surprises years to come.
A plan is built upon forecasts and assumptions. However, no plan -regardless how carefully it is developed – gets every forecasts and assumptions correct. Even the best, most careful estimates may completely miss the mark.
Therefore, every few years, you should review your financial plan. As you are reviewing, assess how much facts differed from your forecasts. Often, you will be pleasantly surprised, a portfolio may earn a lot more than you previously expected, or you may spend far less than you thought.
Other times the plan review won’t be as enjoyable. The markets probably have dragged down most of your portfolio returns and your spending may have surpassed your estimates. In both cases, you aren’t accomplishing your goals.
Even if you can meet the mark in many cases, you still never complete your planning and revising. You are bound to experience fluctuations in your life, the markets, the economic situation, tax law, and other sectors. You may come across fresh opportunities that were not available a couple of years ago or were not right for your situation then but somehow make sense now. You should continually adapt the plan to these developments. You should change your investment portfolio or spending accordingly.
You don’t need to be obsessive. Monthly or even weekly changes in the portfolio that are moving away from your original plan aren’t a good reason to return to the drawing board. However every year (or if you have a critical change in your financial situation) you need to take a fresh look. Reexamine the plan and your current progress. Find out what works and what don’t. Decide whether your situation or goals have changed and if any modifications are necessary. Finally, implement your updated plan and enjoy your life. After all, that is what your money is for.