How to Afford the Life You Want

If you are worried about your finances & your future – you are not alone.

Many people are worried about their finances.

I receive daily notices from the “Free 30-Minute Consultation” form pouring out their life, what they are worried about & what they want.

• I’m worried about my finances.
• I’m just getting serious about my finances. I don’t know what to do.
• Here’s my situation. What am I doing right & wrong?
• How can I retire comfortably?
• I want to do the Smith Manoeuvre, but don’t know how.
• We are about to retire. How can we set up our retirement income?

National Post family finances – I was interviewed for 6 recent articles about:

• Their situation and will they be ok when they retire?
• However, none actually has a retirement goal.

Inflation. Life is more expensive.

How can you afford the life you want?

How to Afford the Life You Want:

1/ Start with why. What’s important about money to you?

Most common answers: Freedom, security, self-confidence, independence. What is it for you?

2/ Clearly define your goal. – What do you want & when?

Home – What home do you want, what down payment do you need, what income do you need to qualify.

Retirement – Detail your desired retirement lifestyle. Home costs (mortgage paid off?), basic living costs you are used to + lifestyle you want – entertainment, car(s), travel, spending money, etc.

Be unconventional. Know yourself. Will you be happy if you can always live like today? Are you happier living on less or working more today for a better future?

Financial Plans used to be retire at 65 or 60 or earliest in mid-50s. Today with FIRE Community, retiring in 50s is more common and even 40s, with the odd 30s.

3/ You don’t need a budget – You need a Plan.

How do you spend your money now? Work out in detail with estimates.

How much do you save for future goals?

How much do you have to save & invest to afford the life you want?

You don’t need a budget – You need a Plan & “pay yourself first”. Once you save the amount you need for your life goals, you can spend the rest without guilt.

4/ What do you do if your Plan does not work?

Interactive Financial Plan – Work through options to figure out a Plan that gets you reasonably to your goal & is reasonably doable.

You have 4 options:

• Work longer?
• Save more?
• Retire on less?
• Do a more aggressive or creative strategy?

Be extreme to prioritize what is important to you.

Save more

Standard 10% or 20% of your income. RRSP room is 18%. Some in the FIRE Community save 80%.

Spend less now. Be radically frugal.

Read FIRE Community sites: https://eatsleepbreathefi.com/canadian-fire-directory/

Earn more money.

Get a raise. Be more valuable to your employer. Go where you are appreciated. Businesses are finding it hard to find good, hard-working, smart employees. Be ambitious.

Side hustle. Read sites for many ideas. Part-time job may be more reliable.

Best side hustles I’ve seen – AirBNB (including your home), Amazon business, roommate, Uber (on your way to work), deliver food, rent your car, dog walk or pet sit, odd jobs (Fiverr, HomeStars, TaskRabbit, etc.), freelance work, virtual assistant, take online surveys or join focus groups, mow lawns or shovel snow, etc.

Start a scalable side company offering these services.

Retire on less.

Reduce discretionary spending, such as entertainment, cars or travel.

Live outside the city or in a different country. Condo instead of house, so you can travel. Used cars you own for years – it’s easy to save 50%+ on cars.

Do a more aggressive or creative strategy.

Smith Manoeuvre

Convert your mortgage to tax-deductible over time.

Invest for your retirement, without using your cash flow.

Lifecycle Investing

#1 strategy if you are in your 20s or 30s.

Rempel Maximum

Maximum growth strategy without using more cash flow.

5/ Make your Plan realistic.

Inflation – if your goal is more than a few years away, you need to include inflation. Need 3%, not 2%.

Investment returns – How many 8%s, 5%s & 2%s do you want in your investments? De-worsification – mix of good & bad investments.

Life expectancy – Retire with confidence. Have confidence you will always have enough money for both you and your spouse, even if you live longer than expected. Learn to be comfortable with 100% equities.

Pensions – Government work pension + CPP = 50% of your income just before you retire. CPP will be there, but OAS might not.

6/ How to get help with your Plan?

Do you need professional help? 😊

Be honest with yourself. Hubris – “We have met the enemy & it’s us.”

Many people think they are smarter than everyone else.

Fee-for-service financial planner. Pay for a Plan to get unbiased advice & a real Plan.

Avoid investment salespeople. If the answer is an investment method, you are asking the wrong question.

Create your Plan in detail before talking about investments.

Less than 1% of “financial planners” have written even one financial plan in their career that is good enough quality to pass the CFP exam.

7/ Learn to have a higher risk tolerance.

Nobody can retire comfortably with a 5% long-term return. Only 2%/year above inflation.

You need the 7-8%/year of equities.

Stock markets are great companies and are reliable long-term.

8/ Act. Implement your Plan.

You miss 100% of shots you don’t take.

“Perfect is the enemy of good.”

Start early. The “Magic of Compounding” can get you there.

9/ Is it worth the effort?

Living the life you want is amazing!

Financial independence. Self-confidence. Security. Freedom.

Ed