Trying to stay on top of your financial goals is often a balancing act, and tradeoffs are sometimes necessary for success. As a financial planner, one topic that comes up a lot during my meetings with clients is whether you can live the kind of life you want now without jeopardizing your retirement future. After all, the money you spend today is money that won’t be invested for future goals.
Some people may choose to forego certain things in the near term so that they can have the dream retirement they want. I’ve worked with individuals who stick to a bare-bones budget with very few current indulgences in order to retire early. On the other side are individuals who choose to spend however they like without giving much thought to saving for the future.
Both of these choices have their own perks and risks. By focusing solely on your retirement future, you may run the risk of missing out on enjoying life in the present. On the other hand, with living only for now, there is the risk you may come up short for retirement, which may mean you have to stay in the workforce longer than you want.
Is it possible to find a balance between living richly now and planning for the future? I believe the answer is yes. Ahead, I’ll share a few basic tips to help you get started.
Decide what it means to live richly
A key to finding a good balance is understanding what you want your life to look like – both now and in the future. Having an honest conversation with yourself or your partner – one where you uncover your values and what is most important in your life – is paramount.
I always like to start with the question, “What does it mean to live ‘richly’?” The answer will be different for everyone because we all have different motivations, priorities and goals. Based on some of the conversations I’ve had with my clients, living richly in the present could mean being able to:
- Take more (or more expensive) vacations with your family to spend time together and make some great memories you can look back on.
- Put money into renovating your house so that you can enjoy it more (especially if you’re working from home more than the office these days).
- Take a day or a week off to do volunteer work.
In general, living “richly” now means you’re able to go after the life experiences or lifestyle you want for yourself. And once you have an idea of the life you want to live, it’s time to make a financial plan.
Making a financial plan
As your goals and resources grow, you may want to think about bringing in a financial advisor to help you put together a plan, charting out ways to reach those goals.
Even if the plan changes a hundred times in the next several years, just the act of putting a plan together is a powerful first step. Seeing and understanding what it takes to reach a certain savings goal or income level is empowering and can provide tremendous clarity and focus.
Understanding your spending and cash flow
If there’s a particular lifestyle you want to have – maybe it’s about being able to take two or three vacations every year – it helps to have a comprehensive understanding of your cash flow and spending. This helps you see what’s possible now. For instance, if you have a particular “big” purchase in mind, could you take money from your investment portfolio or have you saved enough in a cash account?
And if something is not possible right away, a financial advisor can work with you to put together a tailored savings or investment plan for it.
Generally, I like to remind my clients to do the basics like pay yourself first. In other words, when you get your paycheck, get into the habit of automatically saving a portion of it. For example, try to maximize monthly contributions toward your portfolio whenever you can.
Another good practice is to take a careful look at how you’re spending money on a regular basis. Sitting down with a financial advisor to go over your cash flow and spending can help you see where there might be additional opportunities to save and put that money toward your goals instead. Lifestyle changes like becoming an empty-nester or paying off a major loan provide tremendous opportunity to supercharge your monthly savings.
Model your possibilities
With the generous returns earned in the stock market over the past few years, many people may find that they’re further ahead in their financial goals than they thought. Maybe there’s an opportunity to take some investment gains to go on that luxury vacation or make a big purchase you’ve been pining for.
This is why it’s a good idea to check in with a financial advisor who can help you understand the impact of your current and projected savings and spending.
Whatever goals you may have, whether they be near term or longer term, your financial advisor can work with you to chart a spending plan so that you don’t run the risk of missing out on the life experiences you want to have – helping you to live “richly” now and plan for the future.