Wednesday, April 15, 2009
In all the personal finance articles and books I read, the question "how much do you need to retire" always comes up. The answer is never simple and I tend to err on slightly outrageous overestimation side, but I came across an article the other day on MyMoneyBlog that has some very simple and good advice. I have been busy the last few days and haven't had a chance to run the numbers as accurately as I would like, but hopefully by immortalizing the concept within the vortex that is BadskiBlog I will be more apt to run the numbers correctly.
Here is the full post on a quick down and dirty plan to reach financial freedom. This plan is obviously overly simplified as it only contains two parts: accumulate 30 times annual expenses and pay off your mortgage. But the concepts are good and it's somewhere to start, especially for those with little financial knowledge.
I really like the numerical illustration of the damage done by lifestyle inflation. I think the psychology of investing and accumulating wealth is so often overlooked but it is some of the best advice a person can heed. No matter how much technical expertise you gain about investing and money, it is all for naught if you just increase you standard of living at a pace greater than or equal to your increased income? See my why athletes go broke post here if you don't believe me!
I would add to this article a few key tips that acknowledge the importance of psychology within investing. First and foremost keep more than you spend. Even it it's only 1%, just get started. Learn to live comfortably at that level and start ratcheting up your saving/investing percentage either through increased income or decreased spending/costs or some combination of both. I would also argue that you need to continue investing in your personal finance education. As your wealth increases your knowledge and ability to manage that wealth should be increasing as well. Maintain a lifelong commitment to learning.
All in all this is a great quick start article for those who feel lost about how much they need for retirement.