Saturday, 4 May 2013

Reader Question - My Financial Road

I got an interesting question this week.  

"How did you get started on your financial road? I am 51 and wanting to get things in order. "

It's interesting because it's complex.  How much of my success do I chalk up to my personality, to my child hood or my planning as a young adult.  There are many, many reasons why I am in such as comfortable financial position so I've decided to whittle it down to what are (likely) the three most important factors.  

1. I was able to earn and manage money at a young age.  I learned it's value by working for it and then using it to buy what I wanted.  I also learned the importance of saving and giving it away.  You can check out detailed posts on how talking to kids about money is important, learning to handle money as a kid, and making money mistakes early on.  

2. I always lived on less than I earned.  When I started earning money as a young child 40% went to savings and 10% went to charity.  I only spent half of it.  When I earned money lifeguarding as a teenager every penny was saved.  Working for minimum wage over my university years I lived on 50% or less of what I took home and invested the rest.  Currently I live on 48% of my income and the rest either gets tucked into my RRSP or goes to building equity in my house by paying down my mortgage faster.  This may be a difficult idea for somebody who is use to living off 90% of their income, but try deflating your lifestyle a bit.  I am willing to bet that you lived on a lot less than you do now 10 - 20 years ago.  I am also willing to bet that you were just as happy 10 - 20 years ago as you are now.  So start moving back to your old spending habits.  

3. I know what I want and I plan for it.  Even though I'm not sure what my life will look like when I retire I know how much I'll need to maintain my current lifestyle and I'm working towards it.  I planed and researched my investment strategy in detail over a couple of years.  I also planned for the purchase of my house and saved for it for four years.  At all these points I knew what I wanted, where I was, and I made a detailed plan to cover the distance.  

Have a question?  I'd love to hear it!

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