Growing up as kids, we get conditioned to think about retirement as a reward for all the hard work we put in during our prime years as young to mid-age adults. We tell our children that when they grow up and work hard that, just like mommy and daddy, they too will be able to enjoy the fruits of their labor – one day.
I used to think the same. I associated retirement with “older” age and as a reward for the hard work, I put (will put) in towards helping a business grow, contributing to society through taxes and what not and then after decades of grinding, having the opportunity to relax, put up my feet and enjoy doing whatever I want to do. This type of thinking has become very outdated on a personal level.
Why enjoy the fruits of our labor at a period when we can no longer (necessarily) execute physically things that we can do now, so actively? Let’s be realistic. We all need to work to earn a living. We all need to contribute positively to our society for it to function on various levels. Likewise, we all need to plan and think about the future while living in the moment.
Ultimately, it really boils down to how do we go about budgeting to help fund our retirement? Whatever retirement may mean for you. You might want to work through 65/67/70 and then say I achieved it. Or maybe you want to retire in your 40’s but still live the remainder of your life without having to worry about finances and everything that comes along with it.
There are countless ways that you can go about saving more money, and that is something I frequently talk about here on the site. I want to spur your thoughts about what you can do or should do in order to achieve certain goals, especially financially. The strategies from experts are endless. However, when you really boil it down in regard to achieving that retirement goal, the only real thing you need to learn is budgeting. And within that are two vital points.
Commit to regular savings
And by that, I don’t just mean that you take a certain percentage or a specific number out of your paycheck each month and put that aside, but that you learn to balance your budget vs. portfolio so that those regular savings grow to the point that you know, on the dot when you reach what. Yes, there are many factors like the markets (talking of investing), however markets, over time, go up, and they go down, their performance will also increase and decrease, however the cyclical cycle of this only needs you carefully looking at your budget and then rebalancing your portfolio for the long run. Meaning, you plan, you are comfortable with that plan, and you rebalance accordingly.
So when it comes to hitting that retirement goal, there are two things you need to take into account that I mentioned at the beginning of this post. These three key points are the difference between people who hit their goals and those that don’t.
1. Regular savings
You need to commit. Commit. Commit.
You need to budget and regardless of what curveballs life throws at you, you make the commitment and adjust accordingly. Not only that, but you can either take the route of saying I put aside 5% or 10%, or ideally 15% or more, or you look at your personal balance sheet and say X amount of Euros. (Yeah, you can then calculate what percentage that is and also adjust accordingly). Once you have done that, make the commitment to ensure that your lifestyle does not exceed the leftover amount each month that you need to cut back that % in any certain month. Commit to putting that number aside each time you get paid.
2. Asset allocation
In laymen’s terms, this means nothing more than having a diversified portfolio. Sometimes in life you may think putting all your eggs in one basket is good, and it might be, but when it comes to the economy and growing your portfolio (your net worth), diversification of where your money is becomes key. The reason for this is that as “things” shift in markets, various asset classes will shift along with what’s happening, hence being diversified allows your money in various assets to offset each other over time. Therefore, being spread across the board and having your money in things like stocks, bonds, in cash, crypto, etc., allows your money to continuously grow as that earlier mentioned shifting occurs. Being diversified hence protects you from larger risks depending on the weight of your portfolio.
Quick example: You put all your hard-earned money in Enron. It grows exponentially and then suddenly one day it crashes. Tough luck. However, if you put some in Enron, some in Amazon, some in bonds (government, corporate, etc.), some in cash, and a bit in real estate. If one of those begins tanking, typically money is shifting elsewhere, meaning another asset will (hopefully) cover the losses in the mid to long run.
This allocation of your money is different for everyone. That is why when I talk with people I rarely give out “do this and that” statements, because I understand that each of us has different appetites for risk, different lifestyles, and many other factors (paycheck, family, debt, hobbies, etc.) that affect the asset allocation decision.
Ultimately, understand where to put your money. Don’t just let it sit in a savings account with near to nothing interest, and don’t put it all under your mattress. Knowing how to utilize those regular savings to compound and grow your assets is what will be key to hitting your retirement goal.
Do not save what is left after spending, but spend what is left after saving.
Now, I could go in-depth and also say you need to look into the types of accounts you have. Savings account, checking account, insurance, for Americans it would also include IRAs and 401(k), but that is not what I want to convey here.
The key points are
- to understand your budget.
- Allocate your committed amount of savings.
- Invest those savings in diverse assets.
Do that, based on what you want to reach by when, and you will be good to go.