Insurance isn't just the plan you buy to protect your “stuff;” certain behaviours can act as a type of insurance for you, securing your financial stability. Now, I remember listening to a talk recently about how easy it is to retire as a multi-millionaire, provided you exercise some self restraint each month and are devout about investing a set portion of your income regularly. Even a modest investment, at a return of 10%, when compounded with monthly contributions, would snowball into that multi-million retirement fund, and you could spend your elder years sipping martinis by a pool with an ipad for each hand. Wait, what? A return of 10%? Where on earth, in this day and age, does one find a guaranteed return of 10%? A rate like that might be achievable through investments in mutual funds, but mutual funds are in no way guaranteed. In fact, it's pretty common for people to lose money on them—significant amounts of money at that. And yet despite this well hidden “if only” that in actuality is nothing short of an impossibility, the talk was just eaten right up by listeners.
The appeal, of course, is the message: if you do your part, it will pay off. And this is an important message; in fact, having this as the underlying point made up for the glaring quandary of how to go about finding a guaranteed return of 10%. We are in a low-yield age now, certainly, but that doesn't mean our financial health is beyond our manageability. Attention to three areas of our financial habits will optimize our ability to keep ourselves financially sound:
Savings: because returns are currently lower than they used to be, we need be saving more. This is much easier said than done. It's hard to commit to a regular contribution to your savings that's higher than the one you're currently making because of the awareness of how it will affect your lifestyle. But before you assume that you're doing “well enough,” consider inflation, and whether what you are currently setting aside will be sufficient in light of that. If not, then the situation demands positive action on your part.
Investing: in all fairness, there was a time when that 10% return seemed perfectly reasonable, and so we could be a little more careless with where we put our money because chances were, wherever it was, it would make something, and that something would be more than enough. But now that this isn't the case anymore, we can look at investments as an area in which we can save as well. One way to do this is to look for investments that have the minimum amount of fees associated with them.
Spending: you might be quite adept at living within your means (and if not, then you have your work cut out for you right there), but that might not do: learn to do with less. You might not be able to afford all of the trinkets you want now to ensure that you're getting three meals a day when you retire.
Anything that smacks of austerity can be daunting at first, but the good news is that it is within your grasp to make sure that your money is working for you.