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Most people are interested in financial comfort particularly at the time of retirement. This is achievable but it depends on a combination of one’s circumstances and approach to managing finances. Undoubtedly, some life circumstances may be beyond one’s control, but how you manage your finances is not. Managing one’s finances to build wealth for retirement requires planning, commitment and conscious attention to a lifestyle in line with the strategies below:
Have a plan
If you don’t plan for yourself, you will be part of someone else’s. Many individuals make the mistake of not having a written plan to build financial security. A written plan with goals provides a road map and is a necessary first step. It provides the necessary context to focus each and every decision in your life with purpose. Time spent writing goals and building a step-by-step plan to achieve those goals is an investment in your future. It reduces wasted effort, increases efficiency, produces amazing results, and best of all, costs you nothing. Your plan should be based on the following three separate financial stages:
•Aggressive accumulation during the career.
•Continued growth of assets during semi-retirement.
•Spending down accumulated assets during final retirement when all earned income ceases.
How you manage your income and assets will vary with each financial stage of life, thus requiring a different plan. The overall objective of your plan is to utilise your career and semi-retired years to build residual income in business, real estate, and investment securities so that your passive income exceeds your living expenses. Once you have decided on your plan, stick to it.
Spend less than you earn
To really build wealth, you need to live below your means. Wealth cannot be created by spending money. You must control your spending so that your lifestyle is below your income. This will create available capital for your investment activities.
Start investing early
One key variable in wealth accumulation is the amount of time your money compounds and grows. The power of compounding is an invaluable wealth-building tool because money grows geometrically instead of arithmetically — but only when you give it time to work. Similarly, investing is often a learned behaviour, thus making it important that you start early to invest. Procrastination kills time, and as a result, it kills more plans for retirement security than all other culprits combined. Every day you delay is another day where opportunity is thrown away. Start now!
Get help from a financial planner
A financial planner can help you to understand the different products available and the risks associated with each one. Higher return generally means that there is more risk involved. When you are in your twenties, you can choose products with a higher rate of return because you have the opportunity to wait for the market to recover. As you grow closer to retirement, you may want to switch to more conservative investments to protect your money. Your financial planner can help you better understand your options at any time. Essentially, financial planning for retirement may be simple to understand but hard to live. It all comes down to prudent, routine management of your investments and personal finances.
Source: Meristem
