In a world of biweekly paychecks and monthly billing cycles, it’s easy to let your perspective shrink to 30 day increments.
- Mortgages are paid monthly
- Utilities bill every 30 days
- Credit cards come due 12 times a year
- The monthly bank statement tells you how you did that month.
But that view is incredibly short-sighted.
Your working life isn’t everything
Most of us don’t work for our entire lifetimes. Your financially productive years may be only half of your lifespan.
There’s growing up and getting an education; there’s a working life; then there’s old age.
And the money we manage in that middle slice of life usually determines how well we live at the end of our lives.
If you expect to inherit a fortune from short-lived relatives, you can stop reading here.
For the rest of us, let’s keep thinking.
We usually grow up and go to school on someone else’s nickel, though it may take student loans to get a post secondary education.
But unlike funding school, you can’t borrow to fund your old age.
No one lends a 70 year old money to live on.
- You’ve either saved for retirement, or
- You sorta get along on Social Security, or
- You are supported by your family.
Your house won’t support you
Lots of equity in a home, even if paid for, doesn’t put food on the table and prescriptions on the counter at the end of a working life.
Those things require cash.
Out of pocket medical costs for a couple in retirement reach $240,000
The house will need repairs. Property taxes come due. Appliances wear out.
It simply takes cash to maintain a comfortable life in retirement.
Sell the house, and you are paying rent or moving away from the community you live in.
It would be nifty if today’s housing payments could double as retirement savings, but that seldom really works.
Manage your money for the long haul
With life expectancy increasing, more and more people are finding that retirement is as long as their working lives.
Assuming you hope to enjoy a long life, change the measure of your financial thinking from months to decades.
What you save now funds those decades after the end of your working life.
The easiest way to do that is to pay yourself first from every new dollar in the door. Whether you draw a salary or live in the creative or gigster economy, some part of what you earn today has to support you in retirement.
I like to think of setting aside something this week for a nice night out when I’m 75.
If you don’t pay yourself first, and think you will save what’s left over at the end of the month, you set yourself up for failure. It’s too easy to have nothing left at the end of the month.
Save first, and your challenge is to make what’s left work to cover your expenses, the necessary and the indulgent.
When that gets tough, hum a few chords of “When I’m 64“, and imagine what you want your life to be at 64. At 74. At 84.
The rest of your life is a long time.