Have you ever been asked, “Where do you see yourself in five years?” Chances are it caught you off guard. Maybe you were able to cobble together an answer, but certainly, one lacking the preparation needed to answer that question completely. The tricky thing about that question is that it is long-term, future-focused. We live in the present, so planning for a future with so many variables is difficult. Many people give up trying and instead choose to go with the flow. However, when it comes to taking control of your finances, going with the flow won’t cut it. Therefore, planning for the future, especially retirement, requires you to lean into what is hard. During that time, your current finances will improve as well.
Step One: Visualize Your Goal
What is the first step toward planning for a great retirement? Visualizing your goal, of course! Do you see yourself on a beach in the Bahamas or working part-time as a volunteer? Before you can get anywhere, you need to know where you are going.
Step Two: Determine The Steps Toward Your Goal
The second step toward reaching your retirement destination is to pave the road to get you there. This is done by determining the age at which you want to retire, the amount you will need to retire, and how much you will have to save between now and then to accomplish that goal. Writing down the steps toward your goal will help keep you resolved and accountable to that goal.
Step Three: Prioritize You Goal Above All Else
The third step includes prioritizing your future over your present. Saving and investing are actions you can take toward the future that requires saying no to other things now. Some people begin by saving 15% off the top of their paycheck. This is also called “paying yourself first.” In practice, it looks like taking a $1,000 paycheck and immediately putting $150 into savings. Then you live off the remaining $850 until your next paycheck. The great thing about this method is it forces you to make lifestyle changes. After a few paychecks, you won’t even miss that 15%. Additionally, individuals will invest in a 401(k) and Roth IRA. These are savings accounts that you can’t tap into until retirement. Some employers will even match your contribution up to a certain percentage which gives you essentially “free money.”
Make Your Money An Asset, Not A Liability
Managing money is the same as managing priorities. Every spending decision should be weighed against your goals. If you want a paid-off car within a year, then you might be more willing to sacrifice eating out so often. Spending your retirement on a beach will only happen if you are ready to say no to other money wasters now. The same principle applies to your goals now. If it is your goal to get out of debt, you have to say no to buying a larger television. If your goal is to buy a house, then get ready to drive that fuel-efficient beater car for a few more years. Start thinking of your money as an asset rather than making it a liability by overspending. Money can help you reach your goals, or you can waste it on frivolous purchases that will never help you achieve anything.
How does saving for retirement help you improve your finances now? It teaches you to set goals, figure out how to reach those goals, and prioritize reaching those goals above all else. By following these three steps, you can get your finances in shape and have the retirement you envision.
