I work with clients to develop a very sophisticated and multifaceted plan to organize their finances. Oftentimes after that meeting (or meetings, to be fair), they leave with a series of detailed steps geared towards putting them on the “right path” to success. I recognize; however, many people work best if given just one singular goal — one objective prioritized ahead of the million other smaller things. Therefore, I’d like to break down the most important thing to focus on to help achieve a healthy financial life. As I sat back and pondered this topic, it became crystal clear there is a shift in focus depending on your stage of life — your “working years” stage and your “approaching/retirement years” stage. Together, let’s take a deeper dive into both.
Your Working Years
Regardless if you are a busy professional or a high powered executive, it’s no secret we have many things vying for our attention. Priorities often shift between family and work (i.e. spending on your children’s education, their activities, family vacations, or just getting food on the table). During these hectic years, many of us would like to cut back on expenses. However, there are often times just too many forces which make it extraordinarily difficult. Aha! This is why I can’t make cutting expenses the singular focus of an executive or professional. Rather, I find savings is the silver bullet for the working individual. It’s much harder to cut out music lessons than it is to increase your 401(k) contributions an extra percent (or two) on an annual basis. Additionally, many expenses won’t exist in those later retirement years anyway. Adjust that focus now to how much you can keep increasing your savings rate. You’ll see, the benefits will be immense! Saving more has a major trickle-down effect on finances. It slowly forces you to spend only what you have. It will increase your savings and thus, with the beauty of compound interest, leave you with a larger nest egg for retirement. (By the way, because your nest egg will be larger, you’ll certainly have more options when it comes to retirement. That’s a pleasant thought, is it not?) Think of it in these terms — which is easier to say: “Honey, you need to find $100 a month to stop spending,” or “Honey, our take home pay is $10,000 a month and you have to find a way to make that work.” If you’re like me, the latter is a much easier and a more realistic conversation. It brings me back to the old saying: “life is hard by the yard, but a cinch by the inch.” Let your annual increased savings be the one major financial focus during these working years.
Your Approaching/Retirement Years
Let’s change the focus from those young “whipper snappers” to the approaching and/or even already retired. Once there, your focus must change. Quite frankly, it has to change as now there is a shift in the affect and ability to save:
- Either you only have a year or two left, thus it has a decreasing benefit. (That’s not to say don’t keep saving.)
- You are currently retired and quite simply your “savings” years are finished.
As you can see during the draw down years one’s ability to save typically decreases or goes away completely. Thus, your key focus in these years has to change. So, what is the panacea for these individuals? Well, it’s shifting from saving to spending. During these years, it’s imperative to get a handle on spending. Introduce a bit of frugality into your life that (many times) was impossible to achieve during your family-raising, working years. Now, you not only have the time, but also the ability to budget. There are less forces pulling money out of our pockets. Maybe for the first time ever, you can actually focus on cutting superfluous expenses. As a precaution, I don’t suggest cutting expenses for the sake of cutting expenses; I completely promote enjoying ones golden years. However, most want a better probability of not exhausting your money and/or more flexibility in the “how and when” to retire. Assuming you’re now dealing with the impact of whatever you’ve saved through the years, attention now turns to figuring out what corners to cut on expenditures. For those in these critical spend down years, now is the time to make this a high priority. When looking to live a healthy retirement, just remember: Every dollar you cut out of your expenses it is not only a dollar less pulled from your nest egg, but it’s an extra dollar compounding for your benefit.Easy Peasy
There you have it! A little something for those of us looking to make “that one thing” our key focus. To be clear, I am not suggesting a professional, or executive, should not pay attention to their expenses. Just like a pre-retiree should not ignore opportunities to save. Maybe you (and your spouse) need one key goal to focus on, or compete against, to complete your retirement thinking. Hopefully, this article can help. Working with a trusted financial planner can take many complicated items off of your plate and allow you to have focus on what you can best control. So, let’s work together and make life a cinch by the inch!