What A Cold Shower Teaches Us About Financial Planning


There’s no hot water…..

So, I’m in a shower at the gym and the hot water goes out. The shower is getting colder by the second. Do I switch showers, or just grit my teeth and finish where I am? Tough call (I stayed in the same shower).

This same scenario and be applied to your financial planning- and how that planning can change dramatically over your lifetime. It was struck by this quote from Next Avenue:

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“Using conservative investment and wage assumptions, if you start working at age 20, retire at 62 and live 38 more years until you turn 100, you would have to save 31% of your earnings every year over the course of your career to maintain your pre-retirement income until you hit a triple-digit age.”


A long and winding road

At first glance, this quote seemed depressing. 31% of my earnings-really? Now, I’m not overly concerned about living to age 100- but it is possible. Keep in mind, however, that the quote refers to pre-retirement income. Most people live on less in retirement. Also, you may earn much more than your wage assumption. So, while 31% sounds darn-near impossible, I’d shoot for 15%. Still pretty aggressive, but reachable. Alot can change over a lifetime that can give your retirement account a boost.

Where are you now?

Start by finding out exactly where you are now. Forbes recently wrote a great article on this topic- a “spring financial detox”. On a basic level, make sure that you know how to access investments statements for your 401(k) plan through work and any other brokerage accounts you have.

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Once you’ve gathered all of your records, calculate how much you save and invest each month, as a percentage of you total income. If you’re annoyed that you’re not saving enough, it may feel like standing in that cold shower. So- do something about it! If you’re only saving 3% and you’d like to save 10%, you need to take a hard look at your monthly spending.

Your variable spending

We can’t do too much about our fixed expenses, such as car payments and our mortgage. However, we can make changes to those variable expenses each month, such as dining out and entertainment. If you decide to cut those expenses, remind yourself why you’re making the sacrifice- it’s to save an invest more. If you do that, these lifestyle changes won’t seem to negative.

This blog post explains how people can cut their debt at any age. It’s never too late to start- and cutting your debt can make a huge long-term difference in your finances.

Change over time

Finally, accept the fact that changes in your life will impact your saving and investment goals. For example, The Simple Dollar explains how investment goals can change after 10 years of marriage.

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It may seem overwhelming, but just like that cold shower, you don’t have to stay in an uncomfortable situation. Give financial planning serious consideration- it can really pay off! As always, these posts are for informational purposes only. Consult a financial or tax advisor as needed.

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) http://www.accountingaccidentally.com/

(you tube channel) kenboydstl


Image: Shower, Jason Puddepahtt

(CC BY SA-2.0)

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