Have you ever really stopped to work out if you are actually on track to retire? It’s a fascinating exercise and one that can lead to much soul searching.
Here is a fun exercise – try out a retirement calculator – and see what kind of results you get.
For full disclosure, I plugged my numbers into that calculator and realised that I came out at roughly 38% of my retirement goal. It is not a perfect sum, because it doesn’t include my property assets but it does get me thinking about whether I can do more to put myself on track to retire.
Why do I share the fact that I am so far off my retirement goal?
I believe that one of the biggest problems we face is that we are emotional about money and don’t force ourselves to have hard discussions about the topic. Many people only really start discussing money-related topics when they are on the verge of retrenchment, are facing an insurmountable amount of debt or money has lead to problems in a relationship.
If you can talk about money and financial goals, you can put yourself on track to achieve these goals.
Understand that there are only two levers to pull
You can play with that calculator as much as you like, there are only two levers that can impact your retirement:
– How much you save and for how long
– What your expenses are
This is absolutely critical. We can fool ourselves into talking about investment return but if our expenses exceed our income, we are constantly going backwards. You must get your expenses under control, it is critical.
What if it is too late?
The scary aspect of a retirement calculator is that it almost definitely shows that you’re never going to be able to retire… on your current expense base.
I asked some of the top financial planners and personal finance speakers in the industry for a few hacks to get your expense base down and this is what they suggested:
- ‘Choose your friends’ – It sounds mercenary but one of the biggest traps we find ourselves caught in is that we need to access credit so that we can simply afford to hang out with our friends. It is not just the rand cost now but the impact of negative compound interest. If you need money to impress your friends, you might have the wrong friends.
- ‘Exercise and not because it’s good for you’ – There is an inextricable link between your health and your wealth. If you get sick, you can eat into your savings and set yourself back quite dramatically… but if you find your expenses are too high because you’re spending too much time socialising, take up an activity like running. The exercise is good for you and you are not spending money trying to support social activities.
- ‘Learn to cook!’ – One has only to look at the financial results from the various fast food restaurants to understand that South Africans want their food on the run. Have you ever added up how much that fast food is costing you? Cooking can bring it down quite dramatically.
- ‘Your job is your greatest asset, make sure you are building a side hustle’ – Very few South Africans can survive without the guarantee of a monthly salary. Your salary defines the house you can afford, the ability to save and the amount you can spend every month. If you lose that salary tomorrow, what part of the income lever can you pull? If you have a sideline hustle, you can generate additional income to give you a buffer during the lean months.
- ‘Just start’ – One of the best investment stories in South Africa is that if you had put R1 000 into a share like PSG back in 1998, it would now be worth over R1 million if you had consistently reinvested your dividends. PSG is a good story but it’s not unique and we have fabulous stories of wealth creation through the likes of Naspers, Coronation, Famous Brands and the listed financial services. The only way you can realise these gains is by starting.
To leave you with a thought, go and Google the phrase “Warren Buffett Wealth Chart” – you will realise that one of the world’s richest men saw the majority of his wealth kick in as he neared 60. This is the miracle of compounding – every rand you take out of the expense column and move into the savings column, will ultimately start to compound – but you need the rands in place and the expenses low.
Become passionate about beating the retirement calculator and you will begin a life-long journey toward financial independence.
Brought to you by Liberty.