I enjoy travelling and each year I find myself trying to squeeze more money out of our family budget to fund our travel plans.While planning this year’s budget, it occurred to me that most people are generally good at planning and saving towards their vacation while most people struggle to plan and save for their retirement. It puzzled me because for the most part planning a vacation shares a lot of similarities to retirement planning.
I can understand why people would be better at planning for something that’s more immediate and fun like going on a vacation. But retirement planning can be a lot of fun because it’s the ultimate vacation planning and hopefully if it’s done right it will come sooner than later. To help those of you who struggle with retirement planning or saving towards any major expenses, I wanted to remind you of the two basics things every financial plan or goal needs to have and answer. After I tell you what they are it will seem obvious, but the key is to incorporate what I tell you into practice to help you reach your goals. Any financial plan or goal requires the following two things:
- An end date or target date for your goal
- An associated dollar amount or the total dollar you require
Most people fail to answer these two critical questions when it comes to planning for their retirement. Some people will say I want to retire in 25 years but have no clue how much they need, while some will want to have a million dollars by the time they retire but have no clue how many years it will actually take for them accumulate a million dollar based on their current saving rate. You can’t reach a goal if you don’t know what your target is in the first place.
You certainly couldn’t plan a vacation without those two questions being answered. Most people are successful at planning their vacation because they seek knowledge and are willing to seek out information even if they know little to nothing about where they are going. But with retirement planning most people simply give up at the first sign of a challenge. They usually come up with a figure they know is not possible to reach in order to avoid even having to think about it. Yet, most of us never end our vacation planning after we discover we’re flat broke and can’t take that trip to Brazil after all. No, we simply adjust and look at options to eventually take that trip to Brazil one day and continue to work at it each day.
When you’re planning a vacation you first determine where you would like to go. After you’ve decided where you want to go, you figure out the cost to get to where you want. Once you’ve figured out the cost, you then see where you stand at the moment. Assuming you don’t have enough money to go on the vacation, you might adjust the time frame or perhaps look at other similar but less expensive places. My point again is when we plan our vacations we don’t stop just because it seems impossible or we don’t have the funds at the moment. Rather we adjust and explore other options that will allow us to go on the vacation.
Retirement planning shares a lot of the same elements as vacation planning, although retirement planning has far more variables that need to be adjusted and accounted for. But at a basic level, you also need to know how much money you need and when do you need to have it by when it comes to retirement planning. And yes, much like vacation planning sometimes you realize you don’t have enough at the moment. But if you, at least, know how much you need and when you need it by, you can then start putting in place a plan to help you reach your goal. If after answering those questions and you determine your way behind on your retirement goal, that’s okay. Much like the vacation planning, you will look at options to close the gap. You might consider increasing your investment risk profile in an effort to generate more growth or perhaps plan to working part-time while retired (who really wants to just sit at home all day) as possible options.
My ultimate point is if you’ve ever planned a vacation you’ve got the basic elements to also plan your retirement, so don’t be so scared off by the “retirement” word. I know when I plan a vacation I go to great lengths and do a lot of research for my trip. You’ve got to take the same energy and determination with your retirement planning. You don’t need to know everything before you start planning for your retirement. Just start planning by simply asking yourself; how much money would I like to have in retirement and when would I like to retire by.