According to a November 2023 survey by Bankrate, 49 percent of credit card holders carried debt from month to month, and in 2022, 23 percent of Americans had no emergency savings. (iStockphoto via Getty Images)
When thinking about retirement, should I be selfish with my money?
If you are saving monthly, have cash in the bank, no or minimal debt, and plan accordingly for your retirement, then this article may not interest you.
But, if you spend money freely, have high credit balances, and never place much thought on your future. It may be time to change your behavior, learning that it is okay to say “no” to spending money and placing your interests first.
According to a November 2023 survey by Bankrate, 49 percent of credit card holders carried debt from month to month, and in 2022, 23 percent of Americans had no emergency savings.
Unfortunately, we live in a world of consumerism. If you do not live in a lovely home, drive a nice car, or dine at first class restaurants, you may feel like a failure. But often, there is not a direct correlation between wealth and the image we present to our friends and family. Just because someone is perceived as successful, it does not mean they have acquired wealth or are prepared for retirement.
Are you:
—Always stressed about money
—Struggling to pay your bills
—Relying on credit to carry you through the month
—Wondering why you do not have any money
—Giving money away to adult children, family members, or friends
—Shopping in secret and hiding your purchases
—Dining at expensive restaurants that you cannot afford
If you do not understand how and where you are spending your money, it may be time for you to evaluate your finances and begin to plan for your future.
Are you saving for your retirement?
People can live 10, 20, or even 30 years in retirement. If you have a pension, it may not be much of a concern because you will have an income stream. But most people do not have a pension and need to rely on their savings and social security benefits for income.
Understand how much you will need to save before you retire so you can transition into retirement without reducing your standard of living. If you do not know where to start, a Certified Financial Planner
can help you by running projections to estimate how much you will need to have saved prior to retirement to align with your current living standards.
Conventional wisdom dictates that you should plan to withdraw 4% (adjusted annually for inflation) for about 30 years from a portfolio that is invested 60% in stocks and 40 percent in fixed income. This is a basic rule, and the distribution amount is often much lower than people anticipate.
For an individual who has $1,000,000 saved, under this rule, $40,000 year one is a safe withdrawal rate. The amount you should withdraw will depend on many factors, such as age, net worth, portfolio allocation, and the current economic circumstances. Depending on your situation, the annual withdrawal rate could be lower than 4 percent.
Are you budgeting?
A budget is a personal plan to manage your money. It provides the opportunity to identify and monitor your spending. Simple as it may be, it is the foundation for sound money management.
Budgeting begins with monitoring a specific period, such as a month. It requires that your income and all of your spending is tracked during this period. It records fixed expenses, as well as the simple purchases we often forget, such as a quick bite to eat.
At the end of a period, your budget provides a transparent snapshot of your income and where you spend your money.
The key to budgeting is to understand if you have a monthly shortfall or surplus to determine what changes you can make to improve your financial outlook now that will positively impact your retirement.
Do you have credit card debt?
If you are using credit because you are living beyond your means, this is a red flag with the potential of having a detrimental outcome in your future. Evaluate what you can do now to make paying off your debt a priority. Find a payment strategy that works for you, such as the snowball or avalanche method.
This also means that you will need to change your behavior and spending habits. Find areas in your lifestyle where you can easily eliminate the expense by changing your actions, such as eating out less, not shopping online when you are bored, or finding inexpensive activities to engage in when spending time with family and friends.
Review your credit statements monthly to know what the interest rate and balance is on the outstanding debt. And if you do not think you will have the willpower to stop using your credit cards, take them out of your wallet and place them in a safe place. Then delete the credit cards from on-line sources you may be tempted to use. So, in a weak moment, they are not readily available.
When you apply for a credit card, a loan, or insurance, a file is created on you. This file is managed by credit reporting companies, and the information is called your credit report.
Your payment history and the amount of credit that you have are tracked over your lifetime. Credit history is important; without a credit score above 720, it is difficult to finance the purchase of a home. Credit card reporting agencies know that when a consumer carries high credit card balances, their default risk increases, and the agency will penalize the consumer by lowering their credit score.
What are you short and long-term goals?
Identifying your short-, mid-, and long-term goals and objectives, as well as the impact obtaining them will have on your finances is key to a successful future, and eventually retirement.
Short-term goals could include budgeting, reducing debt, and establishing an emergency fund.
Mid-term goals may be to buy a new car or save for a down payment for a new home, while long-term may be planning for your retirement. When you do not plan for your goals, you may find yourself in a financial position that is not ideal.
Planning prepares you for the future and eliminates the stress and additional expense from poor impulsive financial decisions.
If you are not currently preparing for your retirement, then it may be time to learn to say “no” to yourself, children, family, and friends when it comes to spending money that is not in your best interest. You do not need to elaborate as to why and can easily defer to your budget. The simple answer could be, “It is not in my budget this month.” Then take a deep breath and exhale because you have taken the first step to financial freedom.
Teri Parker CFP® is a vice president for the Riverside office of CAPTRUST Financial Advisors and has practiced in the field of financial planning and investment management since 2000. Contact her at Teri.parker@captrust.com.
Originally published at Teri Parker