How to Start Saving for Retirement (or Any Financial Goal)

How to Start Saving for Retirement (or Any Financial Goal)

Slow and Steady Wins the Race Often when I meet with people who are learning good financial principles for the first time, they are anxious to get started and want to do everything perfectly right away. I am glad for their enthusiasm, but this approach may not be sustainable. I would not normally recommend that people immediately start saving 20% of their income if they are only accustomed to saving 5%. That would be like trying to run a full marathon if they had never run more than six miles at a time. Marathon trainers recommend starting with a much shorter distance than the full 26.2 miles, then adding no more than 10% to the training distance each week. Otherwise, trainees could injure themselves and lose months of progress. Likewise, too big of a sudden increase in savings could cause “financial injuries” such as increased credit card debt, marriage tension, or spending binges. We may even become so frustrated that we stop saving completely. Of course any level of savings requires some sacrifice, but starting with a realistic amount that does not hurt too much is more healthy and sustainable. Then we can gradually increase it over time. How to Get Started Saving Those who are not saving anything at all right now might even want to try starting with only 1-2% of income. Most people are surprised how little they feel the difference when they increase their savings by modest amounts. Then gradually building from there is easier. Just remember that whatever amount we decide to save now, in the future we are likely to wish we had saved...
Debt: Self-Imposed Slavery

Debt: Self-Imposed Slavery

Perhaps the most severe cost of going into debt is the resulting loss of freedom. It truly is a form of self-imposed slavery. Too few of us enjoy the level of freedom our founding fathe24rs intended for us. We may not be oppressed by political dictators, but we often voluntarily submit ourselves to dictatorial creditors. Many of us lock ourselves into huge long-term commitments without knowing whether our future circumstances will allow us to honor these obligations. We may barely be able to qualify for the payments on a large new home, but we want it so badly that we buy it anyway, in hopes that the payment will feel more affordable as our income goes up. Then the unthinkable happens: our income actually goes down, or stops completely, and we lose everything. Consider the following observation by J. Reuben Clark, Jr: “Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; …it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”[i] Maybe part of the reason so many people readily incur excessive amounts of debt is that the penalty today for failing to meet...
Would Winning the Lottery Solve Your Financial Problems?

Would Winning the Lottery Solve Your Financial Problems?

Some people dream of obtaining financial security all in one day by winning the lottery or through investing in penny stocks. The chances of success by either means are extremely low. The odds of winning the lottery are about 1 in 13,000,000 for single-state lotteries, and 1 in 175,000,000 for multiple-state lotteries. Yet many Americans still believe that their best chance of becoming financially secure is by winning the lottery. Hoping for overnight success is not an acceptable strategy. I want to be 100% certain that my family will always be financially secure, and I want my clients to enjoy the same level of certainty. This is attainable by implementing timeless principles of financial security. Even if we did win the lottery or make it big overnight investing in penny stocks, it is not likely to bring lasting financial security or happiness. Many people who win the lottery end up completely broke within a few years, divorced, friendless, and sometimes even commit suicide, because they cannot handle the publicity or permissiveness that such a large sum of money received so quickly has granted them. How the Lottery Ruined a Winner’s Life In 2002, Jack Whittaker won the Powerball multi-state lottery jackpot of $315,000,000. Pretty lucky guy, huh? Then why does he say that he regrets winning the lottery? Although he was very generous with his windfall for a while, he was continually bombarded with additional requests for money everywhere he went, and was sued by hundreds of people who were trying to get a piece of the pie. He lost many friends and started drinking heavily to console himself,...
What Is the Biggest Threat to Financial Security?

What Is the Biggest Threat to Financial Security?

One especially curious phenomenon deeply impacts the financial decisions we make. We are all affected by it. No one is immune to it, including myself. It is commonly known as “keeping up with the Joneses.” The Danger of Comparison We enter dangerous ground when we care more about what others think of us than we care about doing what is right for ourselves and our families. This is a slippery slope that can ruin us financially because we can never be completely satisfied that we are impressing everyone around us. We will always be able to find someone who has more and better things than we do. The sad news is that even if we spend every last penny to impress others, most of the people we are trying to impress may never even notice. Most people do not care about our image as much as we think they do. Think about it. How much time do you spend thinking about how idiotic someone is because they drive a junky old car or how awesome another person is because they live in a mansion? If you notice at all, I suspect you may give it a fleeting thought for a few seconds, and then you move on to focus on what you are trying to accomplish. No one is really paying much attention to our possessions. They are all too busy worrying about themselves. If we do have friends who make fun of us for not buying all the expensive toys they have, maybe we shouldn’t hang out with them so much. Many reckless spenders poke at frugal people...
Interdependent Financial Decisions

Interdependent Financial Decisions

Each category of our finances is interdependent, not independent of one another. This means that every decision we make in one category really does impact the other categories, whether or not we realize it. Examples of Financial Interdependence How? If I were at fault in a serious automobile accident and did not have adequate insurance, I may be required to liquidate a significant amount of my investments to satisfy a judgment. The court may also decide to garnish my wages for several years, which might require me to wait much longer to retire or prohibit me from ever retiring. It may also reduce my current standard of living or increase my debt. So what does car insurance, which on the surface appears to be only a protection decision, have to do with my assets, liabilities, and cash flow? Everything! Let’s say I’m the employee of a large corporation and I’m asking my HR director whether or not I should sign up for the company’s 401(k) retirement plan. The HR director probably would not even be allowed to ask about my mortgage payment, liquid savings, credit card debt, or taxes. However, would these questions be relevant to my decision whether to invest in a 401(k) and how much to contribute? Absolutely. What if I only have $1,000 in liquid savings and my monthly mortgage payment is 30% of my gross monthly income? I may be better off putting the money in a liquid savings account to cover unexpected emergencies or unemployment, because I may not be able access my 401(k) for these purposes without significant penalties. What if I have...
More Money, More Stuff? Don’t Count on More Happiness

More Money, More Stuff? Don’t Count on More Happiness

By Carl Richards What is the one thing that, if you could just get your hands on it, would make you much happier? Go ahead. Get out a piece of paper and write down the first thing that pops into your head. Got it? O.K., now fess up. Who wrote something about a new car? How about a promotion? A bigger house? A raise? A yacht? But if you wrote down almost anything at all (except a wish for deeper and more long-lasting relationships), you’re probably wrong. It turns out that happiness doesn’t come from more money, more stuff or even big life events like getting a raise or landing that dream job. A study from the 1970s by Philip Brickman, Dan Coates and Ronnie Janoff-Bulman for the Journal of Personality and Social Psychology even found that lottery winners took less satisfaction than nonlottery winners in everyday events, and in general, they were not any happier than those who didn’t win the lottery. If winning the lottery doesn’t bring happiness, how likely is it that a new boat will? Not long after my wife and I married, we were walking around in a Salt Lake City park, superexcited to be newlyweds and with big dreams about the future. We started talking about money. While I can’t recall the exact number, I do remember saying something like, “If I can just make X dollars, we’ll be so much happier.” It seems so shallow to think that some thing or number will make me happier. But then I realize how often I have heard others say it, too. Even more common...