Is the start early; save as much as you can; get a good return on
your money working for you? Savings rates are at an all time low
and personal debt levels are staggering. What's the solution?
Work longer? Reduce your lifestyle expectations? The answer is
really quite simple, yet seems to be somewhat of a mystery!! Let
me tell you, it's not a se*cret!! The answer is in looking at
the situation for an income perspective, not the traditional
asset accumulation model we have all adopted.
If you have expectations to receive a household income equivalent
to say, $60,000 per year for 30 years, at retirement that would
require you to have savings of $922,347. In order to accumulate
this sum you would need savings of almost $14,000 per year for 30
years. These figures are based on conservative estimates of 5%
earnings on your money, because whether inflation is low or not
and whether the money is saved inside a tax sheltered investment
or not, taxes and inflation is a factor that will affect your
total return. You can use larger returns to make your estimate
if you like, it's your choice – but so is everything about how
you live your life and plan your finances.
You can also decide to accept any income figure you like. If you
seriously consider the $60,000 household income – does is it
really give you the money you want to do the things you like to
do? That's for you to decide. On an after tax basis $60,000 is
approximately $3,000 per month. Consider this when you make your
projections: What are the costs of your activities? How much
is clothes, food, entertainment, gifts, insurance, household
maintenance? Everyone lives their lives completely different.
How are you to know what income you want when you leave the
workforce unless you do some research for yourself and find out
just how much it's going to cost. This means starting today to
keep track of your current expenses.
This is the se*cret to being able to retire: you absolutely
must know how much INCOME you want coming in to support your
lifestyle. If you don't know what you want to do, then I suggest
you do some research to find out what you might like to do. And,
while you're doing your research, still keep track of what you're
spending today regardless of whether it's what you think you'll
be doing when you leave work – it's a necessary starting point in
preparing a full financial plan.
If we decided that the $3,000 per month net income was
sufficient, then we have two choices: 1) save enough money to
fund it. This savings might be entirely on your own, or perhaps
will include company and government pension money as well, or;
2) develop income streams today that will provide you with the
$3,000.
Ask yourself this question: which is an easier number to grasp?
$3,000 or $922,347? If the answer is $3,000, then start to plan
your financial activities so you are creating income. There are
many different ways: business income, real estate, network
marketing, royalties, licensing, and income investments, are just
some key areas.
Consider, for example, if you purchase a home with a suite in it
today that produces $600 per month income. You could use the
income when you needed it, use the space when you needed it, then
convert it back to income again when you needed it at retirement.
Here's another example to help you switch your focus from growth
to income: If you were to make a $10,000 investment and expected
to receive 5% on that money, we normally look at the amount that
investment will grow to. In this case, if the investment was
left for ten years at that return it would grow to $16,289.
Great – but that growth money can now produce income of $2,109
or $173 per month for ten years. You can easily structure your
investments with an advisor to plan for income rather than simply
long-term growth.
Everyone has income generating ideas, they just get so focused on
earning a living for today they forget about the future. There
are many terrific resources to help you take your ideas and turn
them into income. You simply have to first recognize that you
are looking for income ideas – not get rich quick schemes - but
solid, income generating ideas that you can work into your
financial plan. Then when you find them, you can implement them
whenever and however you like – so retiring (or more
appropriately, being financially independent) can be yours
whenever you want and at whatever level of income you want –
your choice!!
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