Planning for your financial future while living a full and rich life is a juggling act. These 10 tips will have you taking a critical look at how you think about money and how you spend it.
Planning for your financial future while living a full and rich life is a juggling act. Between the financial demands of mortgage payments, kids’ activity fees, the car payment and, of course, trying to save for retirement, sometimes the here and now can get lost.
The sad fact is that many people compromise things they truly value, like spending time with the people they care about, out of fear they will come up short one day, says Mark Ciucci, senior vice president of advice at United Capital, a financial advisory firm in Newport Beach, California.
“They work overtime instead of attending their kid’s soccer game or, like most Americans, do not take full advantage of their eligible paid time off every year,” he says. “They are living poor in spite of the fact that they may well end up dying rich.”
When it comes to living rich, Ciucci says there are three key questions investors should ask themselves now:
— What do I want my life to look like?
— Do I have the resources I need to live that life?
— How will I handle the inevitable surprises that life throws my way?
The challenge for investors is to strike a balance on the planning tightrope that allows them to live their life as richly as possible without sacrificing a secure retirement, says Robert Solimano, certified financial planner at Angel Oak Financial Services, based in Montvale, New Jersey.
Here are 10 tips to help you live rich while still saving for retirement.
Take a hard look at your spending. It is too easy to spend money carelessly in today’s market-driven, fast-paced world, Solimano says.
“The advertising that is omnipresent alters everyone’s spending patterns whether they realize it or not. People need to think long and hard about how they define what will give them satisfaction before they are caught up in a world where those decisions are subconsciously made for them through marketing, tweets and Facebook ads,” he says.
Make small changes. If you’ve been a big spender, try to change some of the behavior that may put your financial position and future in jeopardy.
“Going to a county park for a Saturday stroll instead of to the local mall can do wonders,” Solimano says. “The shirt or dress that you buy will be soon forgotten, but a person you meet or memory you make at the park may be with you for a long time. A much richer experience. If you love to eat, learn how to cook. This is a much healthier and economical alternative to spending money on dining out.”
Make a mind shift. Money is just the tool to access life experiences. It’s easy to frame our financial lives in destructive ways, says Tyler Landes, fee-only financial planner at Tandem Financial Guidance based in Kansas City, Missouri.
He cites two extremes: those who have a negative attitude toward saving and those who refuse to spend money on any enjoyable things now.
“This defeatist attitude toward our finances leads to overspending and under-saving,” Landes says. “This austere attitude comes from a fear of the future and not having enough. Either framework misses the point: that we should strive to live enriched lives all along and throughout retirement.”
“The importance of understanding and respecting your financial future early in life cannot and must not be understated,” Solimano says.
Create buckets of money. This concept can help you live within your means while you save for retirement. The buckets can include current expenses, large purchases, savings and investments and retirement savings.
“Determine the amounts needed to fund each bucket with the help of your planner , and stick to the plan. It will be rewarding to see that with discipline, each bucket will be there when called upon as needed,” Solimano says.
Decide how much you really want to leave your kids. You may have already helped them out quite a bit.
“I have worked with a few clients that have paid for their children’s education, weddings, funded 529s help them buy their first homes and purchased them vehicles,” says Wayne Bland, financial advisor and retirement plan consultant at Metro Retirement Plan Advisors based in Charlotte, North Carolina. “They are now living their ideal retirement lifestyle. They are now spending down with no further interest in leaving anything for their kids once they die.”
If you have debt, pay it off quickly. Think of your money decisions in terms of past, present and future expenses.
Past expenses are debts, Landes says.
“We’ve already made that spending decision, we just haven’t paid for it yet. Present expenses are our lifestyle and the way we direct our spending. Future expenses refer to our savings, which can be for tomorrow, next year or retirement,” he says. “If a significant portion of your income is going to your past money decisions, there’s less to spread around to your present and future.”
Diversify your tax exposure. Many people save for retirement in a 401(k) plan. This is a great place to start, but it can leave you with a high tax bill later in life.
For example, withdrawals from pretax retirement accounts — 401(k)s, 403bs, IRAs — are taxed at ordinary income tax rates. Diversify your tax exposure by also contributing to Roth IRA or Roth 401(k) accounts.
“You won’t get a tax deduction today, but the earnings will be distributed tax-free in retirement,” Landes says. “Having diversified tax exposure in retirement can help you to stretch your savings.”
Plan to work longer. “Unless you happen to be one of the fortunate few with a lifetime pension benefit, today’s challenging investment environment will require you to accumulate more,” Ciucci says.
Get comfortable with more equity risk. You will probably need to consider having a higher allocation to stocks , and you may need to continue that higher allocation longer.
“Target-date and age-based portfolios with bond allocations that increase as you get older cannot work in the 1-2 percent interest rate environment we will have for the foreseeable future,” Ciucci says.