Fixing Your Financial Future

How many times have you heard the phrase, "Rich people earn interest and poor people pay interest"? Or how many times have you heard that social security will not be around when you retire? And, even if it were could you really live on what they pay you? I once knew a couple who worked hard all of their lives, retired, and ended up receiving a mere $510 per month from Social Security. Is that really how we envision retirement?How about those debt management techniques that tell you "to stop using your credit cards, place them in a tub of water and freeze them” or “bury your credit cards in your backyard under some rose bushes" so that you will be forced to stop using them? Let’s get realistic here. All you have to do is place the tub in the microwave and melt down the water and you can always dig up those rose bushes to get to your credit cards.Let’s say you do get out of debt. Life always seems to throw you a curveball, doesn’t it? You're right back in debt again. First its a dental bill. Next it's a car repair. You think to yourself, “There’s already $600 on the card, what’s another $20 going to hurt?” And soon you've reached your credit limit again only to say to yourself, "What’s the use?" I know I have said that several times myself. I have been debt-free more times that I can count and, yet it never fails…something unexpected or unplanned always happens and the balance on those cards start climbing again.

The only way to break this vicious cycle is to start putting money away—right now, right at this very moment, even if you feel like you can’t squeeze another dime out of your budget. Start small. Start with $5 a paycheck, then increase it to $10 a paycheck, and continue to do so until you have found your limit. And when you use that stash of cash instead of your credit cards for that unexpected or unplanned emergency, give yourself a pat on the back. Then start building that stash all over again. Don’t consider it a defeat because it served its purpose and you just saved yourself a higher credit card bill and saved on interest.

As for that elusive retirement account…Do you realize that the longer you wait to save each month, the harder it is going to be to retire with your dreams and goals intact? And the longer you wait to save, the more money you will need to save to make up the difference.Let me give you a quick example:

1.    A 4 year old girl starts saving $25 a month for the rest of her life. When compounded at 12% rate of return, in mutual funds (with the normal market highs and lows) that child can retire with anywhere from 1 to 7 million dollars.

2.    Now lets look at a 25 year-old just starting out. They will have to put away at least $184 per month (increasing that amount by 4% each year) to even approach 1 million dollars.

3.    Let’s take it one step further -- a 35 year-old just starting out. They will have to put away $440 per month (increasing that amount by 4% each year) to reach that same 1 million dollars.

So what can you do?

The first step in any financial decision making strategy is to find out where you are now and where you would like to be. You basically take a "time out" from life to "plan" for life.

Here are some suggestions to help you get started:

1.       Sit down and figure out where you are spending your hard earned money—down to the nitty gritty. How much is being spent on eating out? How much is being spent on conveniences you could do yourself? How much is being spent without your even realizing it?

2.       Determine how much debt you actually have—all the way down to how much you owe your parents for that private loan last year. How much of your money goes out every month for credit card bills and financial loans? How much of that money goes towards interest rates and how much of it actually goes towards paying down your debt? Can you consolidate some of your credit cards onto one credit card with a much lower interest? Can you refinance your house and place all your debt on that second mortgage and if you do that will it lessen your financial burden or increase it?

3.       Figure out what you want to do with the rest of your life. You cannot change the past. You cannot go back in time and change the way you spent your money but you can change the way you spend it today. So ask yourself what you really want out of life and how you want to spend your retirement years and then figure out what you can do to get there.

So do you fix your financial future?

First, optimize your company 401K plan because it reduces your tax-burden at the end of the year, helps you plan for those years when you can no longer work and still need the money, and it gives you a sense of financial security. Second, do whatever it takes to pay off your debt—including coming up with extra cash by holding garage sales, posting ads in your local paper for unused household items, canceling memberships you no longer use, and even picking up a few odd jobs here and there. Third, start saving for rainy days so you won’t have to rely on credit cards to get you out of a financial pickle. And finally, cut back on your spending.

Remember, you cannot afford to put off for tomorrow what needs to be done today—even if it means taking baby steps. We all have to start somewhere.