Of course, the moral of that story was ‘don’t get divorced’. We obviously didn’t take that option, so what are our choices at this point? Chances are that for most of us, we weren’t independently wealthy before the divorce. And it only got worse after it.
According to various reports by this or that expert, it appears that anywhere between 70%-85% of baby boomers will not have saved enough to retire by the ages designated for full government benefits. That seems like a fair number of people.
Now this article is not here to provide investment advice – this is my disclaimer. It is a discussion about how our thinking might evolve over time as we seek to address the gap between our dreams and the money we actually have to live them. It is on our minds quite a bit, I suspect. I know it has been on my mind.
Basically, it boils down to net cash flow – how much is coming in relative to how much is going out. Not too difficult to grasp. The challenge is how to get the inflows bigger and the outflows smaller, proportionally anyhow. If we don’t, we’ll indeed be working when we’re 70 – and not by our choice!
One cannot talk about this without making certain assumptions. One of these is that you have a job or business by which you make your living. I also must assume that you have some discretionary income beyond simply paying the bills. If not, that is the first task. Get more income!
Let’s chew on this a second or two:
1. Establish more inflow potential. That’s easier said than done. But it first starts with attitude. If we think the box we’re in is the sum total of our reality, then it is. End of story. If we think it is the door way to much bigger things, then it can be that as well. The expansion of our possibilities starts with our thinking so.
It could involve getting a small consulting gig, buying a small income property, getting a second job (heaven forbid), starting a website or blog, or creating a product or service (not as hard as it sounds). What does it take to re-structure your reality? How much will it take to create your desired reality?
Here are some things I’m trying.
- I had the opportunity to start a new project at work which involved $10,000 a year stipend.
- I started a website geared toward single midlife men.
- I invest in smaller income properties such as duplexes or four-plexes, and am looking to move up to larger projects.
- I’ve allocated a portion of my money to higher-risk equity/stock investments.
What’s the point of this extra activity? I’m trying to drive up the inflow potential of my activities and do so more quickly. Working my job and investing in the typical pension fund and such like are okay (and they’re part of my cash flow package), but they are too slow for me.
2. Establish less outflow potential. I think we grasp this more readily – you cut your cost of living. If we’ve been living high off the hog, so to speak, then there probably are some areas where we can reduce spending. But it is about more than that.
I’m talking about creating scenarios that allow for more cash to remain in the till for us to invest in growing our inflow potential. Such options do include looking at our living expense structure: memberships to the pricey gyms, six magazines we hardly have time to read, and too many websites subscriptions add up. Then there are the cable and phone bills which include all the bells and whistles. Payments for credit cards, autos, and that neat surround-sound system all add their part to the bleeding.
Sometimes you spend money to change the dynamics. Here are a few things I’ve been able to do:
- refinance home to reduce payment a few hundred dollars a month; paid down principal to 80% of appraisal to remove mortgage insurance requirement.
- converted my house into a duplex and tenant now covers over 75% of my house payment. Plus, over half of the property expenses are tax deductible leaving more cash for me.
- paid off car loan. Keep the money in savings at one-half percent or save myself 8% on debt service.
- buy as much as I can on credit card but pay it off each month as matter of policy. The credit card pays me for making purchases on my card.
- use 5% interest personal credit line to pay off 8% installment loan.
- borrowed against pension fund at 5% to invest in assets that return over 10%.
My point here is not to simply restate the obvious – make more money and spend less. I am sharing how I’ve been approaching the process that has involves changing your dynamics BOTH by expanding my inflow potential and decreasing my outflow structure. In some cases I’ve had to spend more money in order to give me more potential later.
It’s also about your risk preference or tolerance. They say you shouldn’t risk more than you’re willing to lose. For me, part of maturing has been my growth in tolerance for risk. Each man must drink his own poison, of course.
Each person’s scenario and risk propensity is different, as our individual goals. Some of us have more to work with, while others of us have little. But each of us has potential that exceeds our current production.
For my reality and my goals, I need to take on more risks in order to make something significant happen. If I should fail, I will still have the option to keep working the job. And that, to me, is the worst case scenario. All the rest is upside.
There is a handy and free online software from Mint.com that looks to help you manage your personal finances. If you need a system to keep track of income and expenses, then this might be just the tool for you.