Retirement Planning – The First Three Steps

| April 24, 2009 | 0 Comments

I remember this event clearly… like it was yesterday.  A number of years ago, I was sitting in my apartment in San Francisco.  The fog had started rolling in, and the sunlight was slowly starting to fade… it was another San Francisco afternoon.

My apartment was one of four on a sleepy corner of Noe Valley.

The second floor walk up was painted white.  The living room was large and the kitchen had recently been renovated to a modern level.  So modern it clashed with the rest of the 70 year old house.

I sat in the living room and talked eagerly with my friend Melissa.

She’s a sweet girl.  Her main job is working with large donors to a well known charity organization.  I know she works tirelessly drumming up donations large and small.  Her drive was amazing.  Every dollar she brought in went to helping someone in need.

Her heart is big, always donating her time, energy, and money to helping others.  Now it was my turn to help her.  She’d come to me looking for answers.

Melissa was in her late 20s, and she wanted to start planning for retirement.  She also wanted to start saving for some of her long term objectives.  But, she didn’t know where to start.

As you know, I’m not a financial planner or CPA.  But what I do have is a good dose of common sense.  That, a great deal of experience, and knowledge when it comes to investing.  I gave Melissa three bits of advice to start her on the journey towards financial freedom.

First, I told her to live within her means.

This is the biggest part of long term planning most people struggle with. Many spend more than they make.  To survive they need to take on debt… which adds another layer of expense.  The cycle repeats itself over and over again… driving consumers deeper in debt.

The key to living within your means is knowing what your income is, and thinking about it a little differently.  Look at every purchase you want to make, and realize you are trading working hours for that item.  Is buying that new pair of shoes worth working another six hours?  Is the exotic vacation you’ve planned worth working for three weeks straight?

The second thing I told Melissa was pay off her debt and start saving.

Having a lot of personal or credit card debt is like trying to swim across Lake Michigan while holding a 50 pound rock.  It can be done, but it’s not very fun.

Most people never realize the amount of money they hand over to the banks and credit card companies.  Make your payments, and make them on time.  Every little bit helps.  If you have credit card debt, first stop using the card.  Then start paying as much as you can to get rid of the debt.  Every dollar counts.  Even if you’re only adding $5 or $10 dollars to your payment every month… do it.  In the long run, it will save you money.

Once your debts are paid off, you can start putting money into a savings account.  That leads to my third bit of advice.

Once you’ve saved a bit of money, start investing.

I’ll be the first to admit, figuring out how to invest your hard earned dollars can be a bit difficult.  The options can be daunting.  And if you’ve never done it before, it can be a bit frightening.  There is a bit of advice that I passed along.  I wish I can claim it as my own, but I actually heard it first from Peter Lynch.

The advice is as good as it is simple.  Invest in what you know… and stay away from what you don’t know.  (I paraphrased of course, but good advice nonetheless.)

Just the other day, I got an email from Melissa.

The subject line was titled (appropriately enough) “My first stock purchase”.  I am happy to report she is now on her way towards financial freedom.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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