Wednesday, January 8, 2014
More thoughts on Resolutions
One resolution that people make at this time of year is to put more money aside for savings, for trips or for retirement. As an older boomer (retired) my goal is to keep the money I have by being prudent and watching my investments carefully, but what can younger baby boomers do?
Get on with the job. The time to start planning for retirement is today. Younger boomers have to run a different race than I did, but they still need to start, regardless of other drains on their resources.
Re prioritize wealth accumulation. It's easy to give yourself a nice reward every time you get a raise, but it's much tougher to save a portion of that raise or use it to pay off debt sooner. I found that one of the easiest ways to start was when you receive the raise, pay yourself first. Take a percentage, say 5 or 10% of the new money and invest it into your retirement fund. If you're not contributing the maximum amount to tax-deferred retirement accounts, start now.
Don't buy the biggest house on the block. I have noticed that younger boomers are becoming more attuned to needs versus wants. Up until 2008, folks were buying the biggest house they could afford because real estate was an "investment." Houses weren't just homes, they were moneymakers—or so we thought. If you've opened a newspaper in the last five years, you know that's no longer true.
Use some common sense. I've made this same mistake more than once: I'd decide to get serious about diet and exercise and go way overboard. On day one, I'd exercise to the point of exhaustion and cut my caloric intake in half. By the second day, I could hardly move, and I was starving to death (at least it felt that way). By the third day, my commitment would vanish. Had I paced myself, I would have been a lot more successful.
The same principle holds true for paying off debt and saving. For most folks, the best way to start is by withholding incremental amounts from their paychecks, if your employer cannot or won't do this for you, contact your bank and set up a TFSA or other savings program and have the bank automatically put a certain amount in per month. Tackle debt the same way: cut up your credit cards and start paying a little extra on your regular payments. It is amazing how quickly you can make progress.
Become an educated investor now. It is easy to think, "Why do I need to learn about investing when I don't have any money to invest?" There are two responses to that question. First, you don't want to wait, because from day one you want to take what little capital you can start with and invest it wisely. And second, I found that the more I read about investing, the more motivated I became to have money to invest. The thought of my money working for me instead of the other way around sounded quite appealing. After all, isn't the goal to accumulate enough money and invest it wisely so we don't need to work at all?
The Tortoise and the Hare for is one of my favourite stories. Think about how much the fable applies to us. Both the Tortoise and Hare want to get to their goal, but their approaches are quite different. It looks like a lot of baby boomers who became parents later in life will have to start slow and plod along regularly so they too have time to read stories to their grandchildren. We all know who wins the race in the end. Make one of your resolutions to learn about your financial situation and then take steps to improve what you can.