Category Archives: Money Management

Making a Personal Finance Calendar

personal finance calendarAre you a planner? Do you thirst for having the right information that can help you?

I know I tend to be this way, as it just happens to be how I roll.  Not for everyone, but planning ahead and having the right data gives me a feeling (perception?) of control and also points me in the right direction.  Making plans specific, without being too rigid, can also be really helpful.

Many of us tend to this sort of thing with our daily lives.  As in, putting together to-do lists for a day or Januarybe a week.  These lists can take on many different forms, including prioritization and such, but the main idea is that we make an informed plan.  It works for me, how about you?

How about taking this concept and applying it to our finances, while taking a full-year perspective?  I think this allows us to think holistically, and take into account all the factors that go into helping us get to where we want to go.  There can be so many aspects to personal finance that we don’t think of at any one moment, that planning things out a bit can get us structured.  Also, this can help us avoid wasted time in self-created crises or in dealing with minutia later.

Here is one way it could be done:

Step 1 – Assess Your Current Financial Situation

Take a look at your personal balance sheet, in terms of assets and liabilities.  Document everything, and have a clear understanding of where you are with your finances at present.

Also, try to examine your income and expenses.  If you’re tracking your expenses, it won’t be tough to get an understanding of how and where you’re spending money.  Either way, it’s good to know what your major payments are, and which ones are recurring.

Step 2 – Look at your Long-Term Goals

Once you’ve completed step one, and taken a realistic look at your assets, liabilities, income, and expenses, you can look at goals.  Here is where we can understand the bigger picture goals on where we are aiming, longer-term.  This will help us shape intermediate decisions.

Step 3 – Look at your Short-Term Goals

If we know where we are now and where we want to be long-term, we can start to assemble short-term goals.  I look at short-term goals as starting with 1-year, and then breaking it down to quarterly and then monthly goals.  For example, in order to save $10,000 per year, a person might want to target $2,500 per quarter.  Then, this can be broken down to monthly goals.

Step 4 – Set up the Calendar

Building upon the first 3 steps, we can go month-by-month and map out what we plan to do.  This can include specific goals AND different action steps.

Here is one example (of many possible):

January

  • Document steps 1-3
  • Make appointment with tax professional
  • Target new job opportunities
  • Cut dining out by 50%, to establish improved habits

February

  • Make sure to collect all necessary tax documents
  • Review your 401(k) contribution percentages
  • Plan and book summer vacation in advance, to secure good prices
  • Get a copy of your credit report, check for errors and see where you stand

January

  • Complete and file your taxes
  • Start new side hustle
  • Actively network for new job

January

  • Do spring cleaning, purge unwanted items from your home (either sell or donate)
  • Secure new job

January

  • Rebalance your portfolio
  • Examine the 529 or other college savings accounts you might have for your kids, reevaluate and make any changes as necessary

January

  • Review your current insurance policies, to make sure they meet current needs; also shop for competitive rates
  • Continue to build your side hustle, taking it to the next level

January

  • Do a mid-year review of finances, revisiting steps 1-3 and making adjustments as necessary.
  • Plan and book any holiday or late year traveling to get good rates

January

  • Review 401k contribution percentages
  • Document all of your possessions, taking an inventory for the purpose of insurance or other needs
  • Secure an outstanding mid-year review at work

January

  • Review your estate plan, make sure that you have everything secured, and allocated as you currently wish
  • Get 2nd copy of credit report

January

  • Fall purge – get rid of unwanted clutter, donate or sell items
  • Plan and start your holiday shopping, to make sure you find the best deals and get everything done in time with little stress
  • Continue to build your professional network

January

  • Rebalance your portfolio
  • Examine the 529 or other college savings accounts you might have for your kids, reevaluate and make any changes as necessary

January

  • Make any end of year tax moves that can help you
  • Evaluate your past year, in terms of plan vs. actual results; try to understand what happened and why
  • Take time to be thankful for the good things you do have, spend time with family, and disengage from money thoughts for a while

This is of course simply an example of what a personal finance calendar could look like.  Some of the more general entries (such as “build your professional network”) could probably be made more specific or quantified.  But you get the idea.

Overall, the concept basically involves making a customized plan that works for your individual situation.

Readers, what do you think? 

Do you ever map out your goals and action steps throughout the year?  Do you follow steps 1-4 in any form?

If you had to make a calendar, what are some highlights in terms of how it might look?

3 Questions to Ask When Aiming For Financial Success

Financial success can come in many ways.  It can come from a great career that skyrockets to the highest levels, from pinching pennies until the savings accumulate, or Januarybe even striking it rich with a great investment!

Okay, those are extremes.  Most people do not reach the CEO level of companies, it’s hard to get rich by saving pennies, and most investments don’t provide “get rich quick” returns.  Rather, most of us have to focus on success in moderation in of these areas.   We hope to make a good amount of money, we try to live responsibly and save, and we plan our investments to provide a solid rate of return.

All that being said, not everyone achieves big success with money, nor does everyone ultimately reach financial freedom.  Sometimes things can derail us, or at the least they can hold us back to some degree.

Here are the 3 areas that I suspect we can focus on in terms of improvements, as aligned with those examples above:

Are We Making Enough Money?

Perhaps we aren’t focusing on our career as much as we could? Or, we expect to live in a 2-person household and risk putting all the eggs in the basket of one person as the breadwinner?  Januarybe we don’t want to work 40+ hours and put up with the unpleasantness that sometimes occurs when working for others?  Well, no matter how we look at it, we need to make money in order to succeed financially.

Money doesn’t fall out of the sky.  We need to make it, and sustain cash inflow.  To the extent that we have more of it, even if it means trying to make side income, the better chance it gives us to save and invest.  After all, it takes making money to save money or invest it!

Are We Saving Enough Money?

Let’s say we are making a solid level of income, but we aren’t saving much.  Is it because we are spending money that we don’t need to be spending?  There is something to be said for understanding what we want, and differentiating from what we need.  Do we need that dream home, or can we live in a place that meets our needs.  Do we need that cool car, or could we drive a car that gets the job done and is reliable?  Do we have to take that exotic trip across the ocean, or could we take a much less expensive trip to a great domestic location?

You get the idea.  Saving money is a big deal, and it’s not just a matter of skipping that occasional coffee drink that will make the big difference.  It’s the bigger ticket purchases and expenses that can really have a disproportionate influence on our ability to save.

Are we structuring our life to be able to save? After all, if we don’t save money, there is nothing to invest!

Are We Investing Our Money Wisely?

Okay, so perhaps we have the first two areas covered well enough.  We make a decent income, and we’re able to save something.  Great!

However, some people can make money and control spending but just don’t know what to do after that.  Or, perhaps they are risk averse to the point of not wanting to invest in anything that might involve some risk for potential returns that could accrue.  They might let money sit in cash or low-interest accounts, being happy earning 1%.  Meanwhile, the inflation and the cost of living increases that regular occur can actually eat away at the savings to the point that they lower in purchasing power over time.

It’s important to be able to invest and earn a rate of return that allows you to build wealth.  Sure, there are risks, and decisions need to be carefully made.  But increasing the rate of return on investments can really supercharge efforts to increase net worth.  After all, if we don’t invest money that we have earned and saved, it’s like running with weights attached to our ankles.  Sure we can still move forward, but the progress will be slow!

Bottom line – let’s remember the process: make, save, invest.  Then, look at each step of the way and honestly assess how we are doing with our efforts.  They build off one another, and being strong with each can be great for our long-term financial success!

Readers, what are your thoughts on these 3 steps? Are you maximizing your success in each of the 3? Do you need additional improvement in one or more of these areas?

How to Make A Financial Comeback

In the world of sports, or even cinema, people or teams often make a comeback.  It’s a great story, when a team is down by many points, but then makes a dramatic comeback to win the game.  In movies, this can take all kinds of forms, such as the bad guys looking like they’re going to take over the city until the good guys miraculously find a way to save the day.

The comeback is a big part of entertainment.

What about our money? I’d say the stakes are a lot higher than in sports or movies, though I suppose one could make the case that life is a game sometimes!

There are times when people get themselves into a financial bind, often through decisions of their own, but sometimes through circumstance and bad luck.   It is what it is.  But it’s possible to make a comeback, as we can observe by reading and hearing stories about people who have paid off significant debt or bounced back from career or business failures.

Along those lines, I thought I’d put together a short list of steps one can take to make money comeback.  Here goes:

1) Be honest with yourself

Minimize excuses! Instead of automatically blaming external factors, look for any and all ways you contributed to the situation.  Diagnose the situation, and figure out exactly what happened.  It’s probably not overly complicated.  It’s a big deal to actually learn from mistakes and apply the learnings, to make sure we don’t get into a situation like that again!

2) Set goals

Let’s say the problem is having massive student loan balances, or perhaps credit card debt.  It might even be something different, such as not having enough savings later in life, or having a big setback financially due to a health issue.  Regardless, once we have figured out the problem, we can determine we would ultimately like to be.

3) Have a comeback plan

Once we know what truly happened, and what are new goals are, it’s time to put together a plan.  This plan should entail specific action steps on how to reach goals.  Along the way, it also helps to have milestones to track progress.

4) Take personal accountability

Reaching success, and making a comeback, will require us to own up to our responsibilities.  Hopefully, if one continues the spirit of being honest with ourselves as in step #1 above, this will carry over to the actual execution of the plan.  We are responsible for our own success, not anyone else or in most cases not external factors as well.

5) Be persistent and tenacious

Along the way, there might be ups and downs.  Just like when someone is trying to get in shape, but breaks down for a week and skips workouts and eats junk.  Well, that might interrupt the progress that have made during the month prior, but it doesn’t have to cause the person to give up hope. Rather, it helps to just learn how to tough it out, deal with the setbacks, and continue on your path to success.

I think the same concept can apply to our finances.  We have to make it habit to make the right choices, but also a habit to show the resolve to bounce back from a mistake or setback here and there.  After all, if we are trying to make a comeback in the first place, we should be able to deal with smaller setbacks along the way!

Readers, have you (or anyone you know) ever had to make a financial comeback? Any thoughts on these steps above? Any others to add?

 

Two Very Different Reasons People Use Credit Cards: Which Applies to You?

Summer is a time for vacations, and for getting away to enjoy the nice weather.  It’s not always possible for everyone though, of course.   Sometimes work can get in the way, kids activities could take priority, or in many cases financial considerations.

The latter was a topic of a conversation I overheard just recently.  First of all, I wasn’t being nosy, nor was I snooping.  These people were having a very loud conversation, and it was almost impossible to ignore them as they were near me during lunch!

So they were talking out summer vacations, and one guy brought up a trip to Europe with his family.  As in, his parents – though he was clearly a grown-up working on his own. Not that there is anything wrong with that at all, as I think it’s cool.  But they weren’t paying for it, and that’s what he was clarifying to the other guy who was teasing him about living off his parents.

Then the guy paying for his trip said that it will take him a few months to pay off his credit card after the trip, based on what he expected the trip to cost.  This was meant to reinforce to the other person that hey, he was paying for the trip on his own!

Now, what jumps out at me about something like this is not who is paying for a trip.  Rather, it’s the use of a credit card as a way to afford a trip.  In this case, it would mean paying in “installments” over a few months.  Really, this meant that the guy was using his credit card to buy something he couldn’t pay for up front.

I found that interesting, because I wonder how many other people look at credit cards that way?  I don’t view that as the purpose of a credit card.  Instead, I find the purpose of a credit card to be convenience!

Think about those two possible uses for a credit card.  They’re very different.

Purpose #1:  Delaying payment for something you want to buy now, so you can pay later when you have the money to do so.

Purpose #2:  Avoiding dealing with cash, simply because credit cards are convenient – and in no way to delay payment due to lack of funds.

Really, I have never used a credit card in order to buy something that I couldn’t afford today.  That’s like using a credit card as a quick loan vehicle.  Rather, I just use credit cards instead of cash because it’s simply more convenient.  No dealing with carrying coins, constantly going to an ATM, etc.  Simply swipe the card and forget about it! Not to mention that you can get rewards.

Obviously, I pay the bills right away and never carry a balance.  As in, pay in full and incur zero interest.

In this case, simply use the cards for purpose #2 – convenience.  For that, credit cards are great, and so much better than dealing with cash!

I’m curious about what you think of when you use credit cards.

Readers, what do you see as being the main purpose of credit cards for you?  Delaying payment until later, or convenience?

Making Your Money Your Employee

Each of us wears different hats through our life, including each day.  We January be a spouse, parent, kid, sibling, friend, neighbor, customer, and other roles as well.

I’ve been giving some thought to the notion that most of us also play the role of employee.  Now, reaching financial freedom sounds great, in that we might not be reliant on others paying us wages in order for us to financial survive.  Until that day arrives, many of us act as employees that work for other people.

Just as our employers get value out of us, having a full-time employee to help out with making our lives profitable could be really helpful!  Especially when that employee can be trusted, and won’t talk back to us, and will always be loyal.  Don’t worry, there is no undue pressure on the employee; after all, it’s not even a person.

It’s our money!

Yes, you can get your money to work for you.  Most of us probably do already, in one way or another.  If we have a 401(k), or other investments, our money is at work.

Money makes more money for us.   To the extent that we have more of it, we can use it to make even more for us.  The earlier in life we start to make money, the bigger the impact compounding can have on increasing our wealth.  Ultimately, it means that our money works for us.

I think there are 2 broad tracks that we can take:

Track 1: We work for our money for many years

  • Get a job, and make money
  • Make enough money to pay our bills and hopefully set something aside
  • Work as long as our mind and body allow, or as long as we’re employable, in order to pay our bills and get by
  • When we can’t work any more, we live on whatever modest savings we have and then get help from others

Track 2: We work for our money and also let our money work for us

  • Get a job, and make money (same as Track 1)
  • Make more money than we spend, deliberately making saving as much as possible a priority as early in life as possible
  • Keep working and saving, concurrently investing the savings to earn a rate of return that exceeds inflation as we let our money work for us
  • Stop working when we and our money have worked hard enough to build enough wealth for us to comfortably live on
  • Enjoy the rest of our lives with financial freedom and time to focus on what we enjoy

Januarybe it’s a matter of viewing money as a teammate, rather than an employee :)

Anyway, the bottom line is that the sooner we start saving and investing money, and the greater the amount we do this with, the less we have to work. When thinking about types of income, it means that we can focus on investment and passive income instead of employment income.

Readers, do you ever think about how to make your money work for you instead of having you work for it?

Self-Discipline and Financial Success

Credit cards aren’t some evil tools of wealth destruction.  They don’t automatically get people deep into debt.

Of course, if there is no discipline by the cardholder, debt January be incurred.  I’d blame that on the cardholder, not the credit card itself.  It’s not like the credit card walks into a store on two legs and starts charging purchases!

By the same token, if somebody brings in a decent amount of income, some of it should be saved.  It’s not like most people are required to deplete their paycheck to pay for everything they want.  Perhaps much of it goes towards things that are needed, but not necessarily for things that are simply wanted.  For example, it’s not like a person is possessed by some force of nature for the purpose of buying a luxury car.  Or, it’s not like one is cuffed and dragged to a store to buy a new pair of expensive shoes.

The reality is that we have the ability to make the right choices.  In terms of spending choice, most of us know what to do.  It isn’t that complicated.  Spend less than we make, resulting in some savings, which we then invest.   If we’re fortunate, Januarybe someday we can reach financial freedom.  Even if that doesn’t happen so easily, at least we can live a life that’s responsible.

I’m beginning to think that the key to all this is self-discipline.  If we simply learn how to control ourselves and make good choices, it can happen!

The key is probably making the right choices every day, so that over time we build up strong financial habits and an equally solid income stream and portfolio of savings and investments.  The right choices, every day.

An example of making the right choices each day is a friend of mine, who was once out of shape.  A few decades ago, he was most definitely overweight – and had a less than stellar diet.  He would have been an example of some who, at the time, did not make the right choices every day.

Then, he decided to get fit.  He first went to the gym religiously, and then added nutrition as a passion of his a few years later.  He made the right choices almost every day, working out 6 days per week and truly watching what he ate.  He studies nutrition to the point of it being practically a hobby of his, and actually applies this knowledge by making smart choices.  Every. Single. Day.

The result? Years later, the guy is in absolutely phenomenal shape.  He made the right choices by being disciplined, and is now enjoying a very active and very healthy life.  While others have shown some decline over the years, he’s now clearly at a high level of fitness, well differentiated vs. others.

I really think his example can be applied to finances.  If one takes that approach by being disciplined with spending and other personal finance choices, perhaps the same success could be achieved.

Readers, do you think that discipline is a big part of personal finance success? If a person has discipline in one area of life, shouldn’t it be possible to carry this over to personal finance decisions?

 

10 Things to Do to Help Get to Financial Freedom

First off, let’s get this out of the way: I’m not financially independent at this point, it is a work in progress for now.

However, I do have a long-term goal of financial freedom, so I’ve been working toward this end recently.  It will be something I’m likely working toward for a while, but starting from ground zero I’ve invested enough time thus far to see what has been working and what hasn’t.  Beyond that, I’m very much into the idea of learning from the experience of other people to see what has led them to where they are.

Here’s a list of 10 things we can do to help us grow our wealth and progress toward financial independence:

Develop and Maintain Marketable Skills

These days, having an advanced degree alone isn’t enough to guarantee anything.  With the rate of change in technology, work processes, and how businesses and education is done, it’s important to keep skills current and strong.  We can have all the motivation and desire we want to reach goals, but we have to have something to offer an employer.  Nobody will charitably give work, or at least very rarely will that happen.  Getting money means giving something of value back to the person paying.

Stay Connected

When younger, I have to admit that I couldn’t stand networking.  However, I’ve come to learn that it’s important.  We need others, and we need to build a network before the time of need comes up.  Also, your “networking family” needs some nurturing.  We can’t call on people only when we need them.  Best to actively stay in touch with people, and more importantly, offer help to others.  There’s something to be said about the boomerang effect of giving.

Genuinely Work Hard

Now, I don’t think that there’s any need to overwork and burn ourselves out.  Life needs balance, and being obsessive with time and thoughts with work will likely take away from something else.  However, I’ve found with myself that when I’ve truly worked hard for something, and was really persistent in pushing myself, it’s when I’ve achieved the most.  Work hard and working smart is what I’m striving for.

Realize We Can’t Work Forever

I know some folks say they will work forever, but that’s simply not realistic.  As we get older, we simply January not be able to work.  Who knows how our health will be at that point.  Best to not bury our heads in the sand, and make retirement planning a priority.

Keep Healthy

I see this as important in 2 ways.  First, we can’t actively earn money if we’re not healthy.  Or at the very least it makes it more difficult.  Second, being unhealthy can be very expensive.  Health care isn’t cheap.  Besides, life is short so let’s be healthy enough to enjoy it.

Live Within Your Means

Tried and true personal finance discussion, no doubt!  I think it’s so true though, we can’t live beyond our means.  Sometimes life does hand us tough circumstances, and I realize this isn’t always possible for all people.  That said, we should do our best to spend less than we make.  The more we can save, the better off we will be.

Invest for Good Rates of Return

If we live within our means, and simply keep our money safe, we are missing out on a tremendous opportunity to increase our nest egg.  Rate of return matters, and the math behind it can make that very clear!

Set Ambitious Goals

I like the approach of reaching for the stars – if you land at the top of a mountain instead, that’s pretty good! In other words, if you aim low, you won’t reach heights.  Aim high, and you just might!

Avoid the Big Mistakes

The classic example here is the math behind losing money.  If someone starts with $100 but loses 20%, she will be left with $80.  To get back to $100, she needs to gain 25%.  In other words, losses aren’t always easy to bounce back from.

Some big mistakes can be more costly than others.  Best to be very cognizant of such risks in terms of decisions we make, our behavior, and speculation we take.  We can always recalibrate our goals and live a good life otherwise, but it’s best to avoid problems in the first place.  In other words, manage risks wisely.

Don’t Live For Money

Sounds counter-intuitive to say that, but it’s common sense that there’s more to life than money.  Sometimes I think that if we focus too much on one thing, we might actually be less likely to get what we want.  Rather, it’s good to enjoy every single day, and realize that each one is a gift.  Living our best life NOW can be a great approach!

Readers, what are your thoughts on this list? Do you follow any of these already? Do you have any others to add?

Different Approaches to Personal Budgeting

When it comes to budgeting, there are many different ways people go about allocating money to different expense categories.  We all have different things that we value, or in many cases have very different needs.  Thus, it’s very unlikely that any two budgets will look exactly alike.

While that’s the case, there are probably a lot of similarities to how people actually put together their budgets.  Here are two ways that I’ve actually tried to prepare them:

Based on Actual Expenses

One way that people often prepare a budget is to look at past history, and base a budget on how they have spent money in the past.  I’ve done this before, and have utilized my past records of expenses in order to do this.  If you track expenses regularly, this can be feasible.

Doing it this way, you can make a budget based on your actual, past expense patterns.  That’s a good thing in the sense of realism being a part of it.  We are creatures of habit, so it’s unlikely that we will abruptly change our spending habits all of a sudden with a new budget.  Also, many expenses are due to liabilities we take on, so some of these won’t change.

Zero-Based Budgeting

With this approach, everything starts from scratch.  You make a budget based on – well, nothing as a starting point!

Beginning at zero, we then build a budget based on what we think we need to spend.  No expense is assumed as being predetermined in this scenario.  Rather, we think through each and every possible expense and justify it.  In this case, we try not to get anchored in what we spent in the past, as that really doesn’t matter.

Other approaches:  a hybrid of the two above, and no budgeting.  Yes, I know there are plenty of people who do very well for themselves in terms of saving for the future, yet don’t do a ton of budgeting.

What do I do?  I think that theoretically, zero-based budgeting is a great idea – and probably the best.  Realistically though, I tend to base my plans on past expenses.  I know myself, and yes – I can be a creature of habit just like most of us.  Setting a budget that is sustainable just might mean that we need to realistically look at our life and how we like to live.  Sure, hard adjustments sometimes have to be made.  But not all the time!

Readers, how do you budget? Do you budget?

Live Your Best Life Now

There is a saying that I’ve heard a few times before that I really liked, but don’t think about or act upon enough.  It’s simply this: “Life is Not a Dress Rehearsal“.

While we hear sayings all the time that go over our heads, or simply don’t resonate for whatever reason, this one does with me.  The reality is that life isn’t infinite, and it’s not really all that long when we think about it.  If you’ve seen a loved one get old quickly, it really hits you how short and precious quality years of life can be.

How does this relate to money?  Well, I think it applies to it in a couple of different ways, from different perspectives.  Here are the two that I see:

Get Your Financial House in Order Quickly

It’s easy to procrastinate, and push off a problem to the future.  The thing is, many problems don’t tend to work themselves out naturally.  In the case of money, problems often get worse.

We all need to have money for retirement.  It’s important practice smart, thoughtful retirement planning – especially since nobody will care more about you in your old age than – you guessed it – YOU!

The thing is, unless one is assured of a guaranteed pension, you must ensure that you’ll have cash flow when older.  No matter what anyone thinks, it is insane to plan to work until old age.  You don’t know how healthy you’ll be (or not), and it doesn’t matter if you can state examples of people you know who did work until older.  The bottom line is if you do so by choice it’s fine, but if you have to do so out of necessity, it’s financially risky.

What I’m getting at is that there is no better time to start getting things on track than now.  Not in a few years, not later this year, not next month. Not even next week. How about now?

Don’t Get Overly Consumed by Finances

Okay, this might seem like a weird thing to say after what I just said above.  Not to mention this is a personal finance blog!  However, I think that we need to also keep in mind that money is but one aspect of life.  More important are the people we care most about, and our health.

So, why worry incessantly about finances at the expense of enjoying every day? Don’t get me wrong, I obviously think it’s critical to focus on making smart financial decisions every day.  Being a personal finance blogger, I’m obviously passionate about the topic! However, we need to live every day and make the most of things.  All the time.  Much like anything else in life, we can’t put life on hold to get one aspect perfected.

Bottom line – live your best life now! Let’s make the most of every day, both in terms of our finances and other aspects of life.  Value and enjoy each day, while doing the little things to ensure that future days will be enjoyed too.

Readers, do you truly try to make the most of every day? Are you focused on the need to take care of financial realities, while also not waiting for such goals to be reached before maximizing each day?

5 Things to Watch Out For in Retirement Planning

Retirement PlanningIn popular lore, the idea of retirement has often conjured up images of no work, time with grandchildren, and frequent travel.  A time when we reward ourselves for working all those years.  Perhaps a lot of this would have been funded by a generous pension.

Well, that isn’t the reality for most people today, at least here in the U.S.  Yet, I suspect that there are a lot of people who are taking the ostrich approach, and burying their head in the sand when it comes to retirement realities.  They’re just assuming that somebody will take care of them, or that someday their ship will sail in.  The reality is that we are responsible for ourselves, and there is no ship that will sail in to rescue us.

But that doesn’t mean that we are all in trouble.  The goal of financial freedom is a nice one to have, and one that people can work toward if they start early enough in life.  Let’s just make sure that we take that journey while being aware of potential money landmines along the way.

Here are 5 things to watch out for when planning for retirement:

Underestimating Medical Expenses

I suspect that there are a lot of people, when younger, that don’t understand just how much health care can cost.  When I was in my early 20′s, I didn’t really have much exposure to health care costs.  If I got sick, it might have been the flu or an occasional sinus infection.  Get some antibiotics, and you’re done with it.

Well, as we get older, we start to realize that we aren’t what we were.  It happens to all of us. I’m still not old, but when I look at my parents who are now older, I see myriad health issues popping up.  Otherwise healthy people get things you couldn’t have really predicted.  There are costs associated with this, and these costs can add up.

It’s a good idea to really disregard whatever you might be spending on health care when currently much younger, and think of old age as a time where there will likely be big expenses.  Dismissing this reality by thinking that you never get sick, or that you’ll be certain to take great care of yourself, are both mistakes in my opinion.

Expecting to Work Into Old Age

Much like health, I think this is one area where there is a ton of overestimating of self-control over the situation.  If someone expects to work until old age, I ask the following question: “Why do you think you will even be given the opportunity to work in old age?”

Many people are employees.  How many older employees are out there? How many older employees can actually find jobs and convince employers to hire them? Ageism can be brutally unfair, but many things in life are unfortunately unfair.  To count on being employed or employable in old age is a dicey proposition at best.

Additionally, people might physically be unable to do a lot of work when older.  The choice might be removed, based on one’s health.  What it all adds up to is the reality that people January want to plan for a realistic retirement age, and then take a few years off that just to be safe.

Underestimating Lifespan

Living longer than we might expect to live sounds great, frankly.  I really hope to live a long life, personally.  Who wouldn’t?  In the event this positive development does happen, we want to be sure that we have the money to cover our expenses.

Procrastination

The power of compounding is incredible.  The friend of compounding is time, which really fuels the great impact it can have.  The earlier we start, the better off we are.  Every year we put off saving and investing is a lost opportunity.  Life is short, and our window of opportunity to truly earn and save isn’t as indefinite.  Nobody wants to live a spartan existence when older, much less a miserable one.

Withdrawal Rates

How much of your savings do you plan to withdraw each year? It’s good to understand cash flow and the impact of withdrawals on your nest egg.  This goes hand in hand with being conservative about longevity.  Better to realistically assess this well ahead of time, and take into account what your needs will be in the future and how much you will actually be able to withdraw.

Readers, have you spent time on retirement planning to date? Have you given thought to any of these 5 factors I mentioned?