Saving money and thinking about retirement can be overwhelming – I spent years shying away from the topic because A) it’s a hundred years from now so why bother caring? and B) there seem to be so many different elements, ignoring it seems like a pro-active choice. But then I realized that I didn’t have to think about it like that.
Remember grade-school where you learned what a story arc was supposed to look like? It seemed pretty easy to understand back then, right? Five basic points, and together they created the narrative of a story:
- Rising Action
- Falling Action
Though, of course, most books are probably infinitely more complicated than that. (Game of Thrones, Harry Potter, Pillars of the Earth spring to mind.)
The basic principles of arranging your finances for retirement mimic a story arc:
- Earning Money
- Building Net-Worth
- Retirement Withdrawals
Of course, your financial journey is going to be infinitely more complex than that, with pesky little variables like student loans, credit cards, inheritances, car financing, job security and promotions, medical emergencies, floods, fires – the list goes on. And most of that list sits pretty heavily in the ‘opposing forces’ territory. And there’ll be different routes you’ll be able to take: it might be my mentality of raggedly rich, or you might want to live on a homestead in the woods like the lovely folks of Frugalwoods (which is one of my favourite blogs). Whatever the case, you’re going to have to persevere and find your way through all the crap to reach your end, just like every good protagonist.
And because I’m not expecting anyone to see those bullet points and immediately agree with me (though if you do, feel free to keep reading!), here’s a breakdown of how it works. And first we begin with:
The crux of it all: why, what, how, when, and where. Why do you need it? What does it do for you? How will you be making it? When do you need to start making it? Where will you be getting it?
For me, my education with money started at the wee age of five, when my brother and I were desperate for a GameBoy Pocket. My Mum financed our first loan, and we paid her back weekly in $5 increments until we’d paid off our debt (interest-free!).
People start at all different places, but the important thing is to start.
The first time I thought about my net-worth, I was sitting in a chair across from a banker who was plugging numbers into a computer so that he could assess it. Net-worth is calculated from the things you have: cash and investments, minus what you owe: debts and loans. Cash and investments are assets, debts and loans are liabilities. It’s easy to say that things you have are good, and the things you owe are bad, but there are things like good debt (mortgages) and bad assets (cars depreciate faster than I can drop a plate) which make everything more complicated.
The general idea is that like rising action, you want to create an steady incline with your net-worth which will leave you in a good place for:
Ah, the golden years. Or what should be the start of them. I don’t think I’m ever going to fully retire, but the idea of having my finances in place so I don’t have to worry about my income is really appealing. Retirement is the climax of your financial life to me – the realization of financial diligence and the pinnacle where your life shifts from working for money, to enjoying the fruits of that money.
Again, retirement is a great deal more complex than that. The emotional, cultural, financial, familial, and physical connotations all play a factor in retirement, and no retirement is going to be the identical.
If you have a proper financial story arc, retirement is the climax of it. If you have a poorly designed financial story arc, retirement may be the climax of it, but it’s going to fall flat on its face and leave a messy, plot-hole filled story behind. Because once you’ve reached retirement, you start on the next stage of your financial story arc:
When you retire, you still need money to live. So the goal during the ‘building your net-worth’ stage should be reaching a point in your financial life where you can live comfortably off your savings. The options for retirement savings are plentiful. For example: Registered Retirement Saving Plans, Tax-Free Savings Accounts, stocks / dividends, bonds, real estate, royalties – investments, in general, and cold-hard (more like invisible, computer-screen’d) cash.
There will be future posts about retirement saving goals and strategies, but this is a post about theory. And simple theory at that. The concept is that as you withdraw money from your various savings, you enter the stage where your financial story arc starts its decline. It’s the falling action, where you tuck away all the stray threads and wrap up all the loose bits of plot into a nice, neat pile.
This is your retirement, where you sit back, kick up your feet, and wait for the final resolution:
(that is, until we figure out a way to thwart death, which very well may one day happen)
Saving money and thinking about retirement doesn’t have to be hard or overwhelming – just figure out what your financial story arc is, and stick to it.
The foundation of your finances is the same as the foundation of a good narrative. Strip down your finances to the basics, and look at them with an eye for the story. See what’s there, and what’s not there. See what you like, and what you don’t like. Figure out what you want, and how to get there. If it seems impossible, get creative and think outside the box.