By Brenda W Hargroves
The Road to Retirement three-part series discusses developing a financial plan that allows you to enjoy your life through retirement. Part I suggests a simple financial planning model designed to help you live your rich life. Part II looks at financial tools to make it happen. Part III weighs in on maximizing your retirement years.
Let’s start with this thought. Savvy financial planning means figuring out how to use the funds you have to live your best life. Forget about living a life based on someone else’s situation or wishful thinking. What do you value? What goals do you wish to commit to? For example, do you value financial security, living a debt-free life and having fun along the way? Do your goals include travelling, buying a house, not being a burden to family during retirement? All of these factors are key to smart financial planning.
A three-tier budgeting approach can help you cover all your priorities. Many examples use images of savings jars or envelopes. Not the case here. Your goal is to consistently feed three buckets, a task that will require commitment for the rest of your life. But the reward of financial independence can be oh so sweet! So now, for the hard work.
Needs And Wants – The first bucket covers funding for ongoing pre-retirement expenses throughout your younger/working years. That includes items such as rent, mortgage, car payment, utilities, raising children, education, vacation and most important, savings – all your needs and wants.
Retirement – The second bucket works to fund your retirement. How much will you need and what vehicles will you choose to fund this period of your life? Does your job offer a pension, 401(k) or any other employer-administered retirement plan? In my case, I had neither option, which left me with the challenge to create my own retirement plan (a story for another post).
I digress. Anyway, determining how much you will need can be tricky. What will your tax liability look like in retirement? How will inflation affect your retirement funds’ value? How will you handle long-term care consideration? What other options do you have for additional income if retirement funds are not enough?
I know you’re thinking, “Filling needs, wants and retirement goals will take a lot of time and effort.” And you’re saying, “There’s another bucket?” Cheer up. The last bucket is fun!
I Can Dream – That’s right! This bucket is reserved to fulfill your heart’s desires. Is it owning a boat? The college degree you’ve always wanted? A cruise around the world? A new car? A house? Nothing but dreams go into this bucket.
The items in this bucket can be moved around. Remember those wants we discussed earlier? The fun part is when you are able to fulfill a dream during the years before you retire. Ideally, you will get around to the rest of them during retirement.
The fun part is when a dream moves from this bucket to the Needs and Wants bucket.
Fulfilling a dream during the years before you retire is both exciting and encouraging. Ideally, you will get around to the rest of them during retirement.
Financial planning is more than a notion. It requires careful thought and follow-through. But, it truly enhances your life when you do it right. So now tell me, what’s in your dream bucket?
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