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One of the most important questions that many ask themselves right now is this: Will I have enough to retire?
While this is an important consideration, one of the questions you should really be asking yourself is whether or not you actually want to retire — at least in the conventional sense.
Does It Make Sense to Stop Earning Income?
When many of us think of a “traditional” retirement, we think about giving up on all work, and living off whatever nest egg has been accumulated. However, the idea of retirement is something that’s in transition. The notion of a retirement of doing nothing but spending the money you have accumulated is one that doesn’t make sense for a lot of consumers right now, for two main reasons:
Concerns about accumulating enough: The first concern is that it might not be possible to accumulate enough to stop working altogether — or at least not as early as 55 like so many would-be retirees prefer. As a result, many people recognize the necessity of working part-time, finding a consulting gig, or looking for some other way to keep the revenue coming in during the first years of retirement.
No desire to sit around all day: For many, though, the idea of really retiring from work-type activities isn’t appealing. More and more, it’s becoming clear that most of us thrive when we have activities to enjoy, and challenges that keep our minds sharp. Quitting work altogether might mean losses in terms of social support, and reasons to keep moving forward. As a result, it makes sense for some to plan on working longer — just as long as they choose something they enjoy.
Another consideration is longevity. Humans are living longer, and that means that you might need your nest egg to last 30 or 40 years, instead of 20 years. Rather than assume that you have to retire and quit working altogether, it makes sense to consider how you can earn a little extra income as you go along, especially during the early years of your retirement.
The real question, though, probably shouldn’t be one of whether or not you should retire away from the world to enjoy days on end of doing nothing, or engaging in a hobby. Instead, you should probably ask yourself if you are creating a situation in which you have more options open to you, and in which you have financial freedom.
Creating a retirement portfolio that includes income investments and a measure of growth is important when you are facing the possibility of a 40-year retirement. You need your portfolio to keep growing, even as you use the money. You also need to be able to do what you want, whether that’s working part-time at a job you love, volunteering, or traveling.
Consider what is likely to make your life meaningful, and help you feel fulfilled. Chances are those activities have little to do with sitting on your front porch all day. Think about whether or not you really want to retire in the more traditional sense. Chances are that you’ll find that you want to be busy — but that you want the financial freedom that allows you to be busy at the things you actually want to do.
If there’s one thing many people don’t understand it’s the value of water. We absolutely take it for granted. There are some areas in this world that walk for miles to get one bucket full of water and we simply turn the faucet on and watch liquid life flow freely for our unlimited us. It’s absolutely incredible when you think about it, and if you’ve ever witnessed a culture that struggled for a few drops of water, suddenly your whole outlook on life changes. Think about where we would all be at if we had water shortages more frequently. There are a lot of ways to conserve water which ultimately will save you money.
I enjoy a long shower from time to time, but is it really necessary? Back when water was a little harder to come by, people used to take baths and use the same water for the whole family. That might make you crinkle your nose in disgust, but it just goes to show how wasteful we are today. At the very least, reduce your shower time from 10 minutes down to 6 or 7 minutes. I have my shower down to about 5 minutes if not less. If your shower is where you wake up in the morning (which is why you’re in there so long), then perhaps you need to have a coffee first and then take a shower second.
Another way to save on that shower water is by installing a low flow shower head. The pressure on most low-flows is still quite good; they just shoot out more fine streams of water than a regular shower head. If you simply cannot bring your shower down from 10 minutes to 8 minutes, then a low-flow shower head is your ticket to saving water.
If you really want to save water though, you’ll turn off that continuous stream of water coming out of the shower head and you’ll take a bath instead. After a long day at work, sometimes a bath is quite relaxing actually. Try it and see how you like it. You’ll still get clean, you’ll save water, and you’ll save money too!
Just like the shower head, you could invest in a more efficient toilet. Sure, it’s not all that eloquent to talk about, but this is the reality of it: old toilets are inefficient and use up quite a lot of water. The newer models can do just as good of a job with half the water.
Some of us shave with a continuous flow of water from the faucet. This is an absolute waste of water. Why not just fill the sink with hot water and keep dipping your shaver in there when you need it cleaned off? It’s incredibly simple and will most definitely save on water.
Have Plants that Don’t Need Constant Watering
If you live in an open area and constantly get beat by the sun, do not grow plants that are more hardy in the shade. They will need constant watering just to stay alive. Instead, plant drought tolerant plants that can handle much more sun and will need far less watering.
Where in the past most folks paid a flat fee for water, many jurisdictions are now charging for water consumption not unlike the pay for use electric bills people have received for years. One easy to adopt option is to conserve natural resources to save money for your future – financially and for the habitat we share.
When my husband and I first married, we were poor and in debt. It was a difficult place to be, and, even as we made inroads and improved our finances, we still felt pinched. As a result, we decided that we couldn’t “afford” to set aside money for the future.
Finally, after a few years, we finally opened a Roth IRA and started setting aside some money. As I began writing about personal finance, I realized what a mistake we made. During those early years, we could have perhaps set aside $25 per month. But we thought the amount was too small. If we couldn’t “afford” to set aside at least $100 a month, we didn’t think it was worth it.
If I could go back in time, I would shake my younger self (and her younger husband), and tell them what I have since learned: The earlier you start saving, the better off you’ll be — no matter how little you set aside at first.
The Power of Compound Interest
One of the reasons that it makes sense for you to start saving as early as you can is due to the power of compound interest. This is a concept that puts your money to work for you. With compound interest, the money you earn through interest and other returns earns money. This means that more than just your original capital is working on your behalf.
As you earn interest, and that interest earns interest, your earnings are compounded — increased over time. The earlier you start saving, the longer compound interest has to work on your behalf. Just starting five years earlier can mean a difference of thousands of dollars over the course of your lifetime.
Even though we didn’t have a whole lot to set aside early on, we did have some money available. Even that small amount, compounded over time, could have made a bit of a difference. But we missed out on the extra money we could have been earning. In fact, that $25 a month, compounded monthly at 5% a year, for 35 years comes out to $28,520.65. But if we had started five years earlier, and that $25 had 40 years to grow instead? The result would have $38,309.46. That’s almost $10,000 more — just for starting five years earlier like we should have.
A Habit of Saving
Even more important than the amount that you set aside early on is the habit of saving you develop. I’m determined to teach my son this lesson. He knows that one of the first things he does with any money that he receives is to set aside some of it for savings, whether it’s money he’s earned, allowance money, or cash gifts for his birthday.
If he earns more money, he sets aside more money for savings. This habit is one that, hopefully, will follow him his whole life. A good habit of saving starts early. Even if it’s only $10 a week, the habit can stay with you. Start saving now, and then set a goal to increase the amount that you set aside. Figure out ways to boost your savings amount when you can. You’ll develop a good habit and, meanwhile, the power of compound interest is working on your behalf.
If you’re like the typical person, you go through the holiday season buying, buying, buying. Whether out of a sense of obligation or of the gift giving spirit, if you’re not prepared, the holiday season can set you back a pretty penny.
Even though the holidays come around every December, many people don’t prepare for the expense. Whether it be gifts or Christmas trees people spend. One reason could be that they take the first several months of the new year to dig out of the financial mess they created when buying without a plan for the previous holiday season.
This holiday season, vow to do it differently.
Use Credit Cards for Your Purchases
I know, using credit cards for your holiday purchases seems to go against the advice that financial experts give. Those experts say to always pay with cash so you can’t spend more than you have. While that is good advice from a financial standpoint, it’s shortsighted in another way.
One of the best reasons to use credit cards instead is something called Section 75. This is especially important if you’re buying the majority of your purchases online.
What is Section 75? If you use your credit card for purchases, the credit card company protects you in case anything goes wrong. If you order a cashmere sweater for your mother and it never reaches its destination, you’ll get the money back thanks to your credit card. If you purchase a glass vase and it arrives broken and the company won’t help you, your credit card company can step in.
In addition to this beneficial feature, you should also use your credit cards to maximize your rewards points. If you’re spending $1,000 to $3,000 on holiday purchases, for instance, and you strategically use your cards with the best rewards, you may be able to rack up serious points. Maybe you could even get a free flight to use later in the year.
How to Stay Within Budget When Using Your Credit Card
If you’re using a credit card, spending carelessly is a bit easier than when you’re paying with cash. There are a few ways to combat this tendency.
First, use a budgeting program that helps you keep track of your spending. If you have a smart phone, you’ll know at one touch how much money you have left because all you have to do is consult the budget system app. This is an easy way to keep tabs of your money while reaping all the benefits of using a credit card.
Most importantly, before you even begin shopping, make a list of everyone you want to buy presents for. Then, determine how much you want to spend for each person. This can help you curb impulse buys.
There may be no way to avoid the expense of holiday spending, but there are ways to protect yourself and your purchases as well as stay within budget. Happy shopping!
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