Balance Your Life
By Larry A Ferstenou
Copyright © 2005. All Rights Reserved.
Reprinted here by permission.

Millions of Americans are spending beyond their means. They're racking up thousands of dollars in credit card debt to live a lifestyle they otherwise cannot afford. While that may bring happiness today, it's a strategy most are going to regret later.

With employer-paid pensions declining and Social Security facing insolvency, retirement in the future is going to require a much higher net worth than was necessary in the past. Those who fail to plan ahead and save enough to support themselves will have no other option but to continue working -- regardless of how much they would like to quit physically or emotionally. Contrary to what millions of American are doing today, accumulating that net worth will take years of living below one's means, not above.

If you like the idea of retiring some day rather than working forever, then you need to achieve a balance in your life -- a balance that allows you to live comfortably today and save for the future too. Don't think you earn enough to save more than you currently are? The savings you don't have today will come from the lifestyle trade-offs you are willing to initiate tomorrow. Here are a few practical suggestions to get you started.

Lifestyle Trade-Offs: Each example below assumes that the savings are invested in a tax-deductible, tax-deferred retirement account earning eight percent annually and illustrates how that money could grow over the next 20 and 30 years.

• Cell Phones -- Convenient, but essential to your life? Can you switch to a less expensive plan? Saving $45 per month here could grow to $26,000 after 20 years and $67,000 after 30 years.

• Cable or Satellite TV -- Entertaining at times, but indispensable? Do you need extended service or could you live with basic cable? Those living in metro areas should get several stations with an antenna. Assuming $50 per month savings, you could have $35,000 after 20 years and $90,000 after 30 years.

• Junk Food -- This includes sodas, donuts, lattes, snacks, and all other non-nutritional food consumed throughout the day, especially if purchased from vending machines. Saving $3 a day may not seem like much, but it can add up to $120 a month for two people. After 20 years you could have $70,000; after 30 years nearly $180,000.

• Lunch -- Eating out is expensive. Two people brown-bagging it can save $200 per month and have nearly $120,000 in 20 years or almost $300,000 in 30 years. Eating fewer dinners out after work could double or triple those amounts.

• Smoking -- Give up the pack-a-day habit to save $120 per month and improve your health too. Savings for a couple who quit smoking can total $140,000 after 20 years and nearly $360,000 after 30 years.

Although it's unlikely that most people would make all of the above lifestyle trade-offs, for purposes of illustration, a couple choosing to save in all of those areas could potentially have close to $400,000 after 20 years and just short of a mind-boggling $1,000,000 in 30 years! What a wonderful financial cushion a million dollars would be when the day comes you no longer want to work.

Calculate Your Savings: To find out where you could generate more savings, thoroughly analyze your expenses. Do all of the things you're buying make life so much better that you are willing to work the rest of your life to pay for them? If not and you would rather have the option of being able to quit when you're burned out on working for a living, you need to plan ahead and save for that day. You can calculate potential savings accumulation from the trade-offs you make (as I did above) by going to the website of the American Savings Education Council at http://www.asec.org and then clicking on Savings Tools, Financial Planning Calculators, and "How much will my savings be worth?" under the Savings Calculators (or try this link http://partners.financenter.com/choosetosave/calculate/us-eng/savings02.fcs).

You may be thinking life wouldn't be fun without the cell phones, cable or satellite TV, junk food, eating out, smoking, plasma TV, home theater, hundreds of DVDs, new vehicles, new house, etc. But the reality is, if you can't afford all of that while still being able to save for the future, then lifestyle trade-offs become necessary. Don't assume you have to give up all of your favorites; for some you may be able to scale back or choose less expensive alternatives. In all cases, however, prioritize your wants/needs and weigh your options, then use that as your guide.

Planning Ahead: So where do you start? Ask yourself this question: Do I want to work the rest of my life? If the answer is yes, you can skip the rest of this article. If the answer is no, then it's time to formulate a plan and implement appropriate strategies for the future. Are you currently saving enough to support yourself in retirement? If not, then analyze your current spending. Are all the purchases you make really necessary? Is it possible that you could cut expenses and still enjoy life? What trade-offs can you make to have the things that mean the most to you now while also setting aside enough to fund your future retirement?

One of the most important long-term strategies you can implement is to simplify your life. The less material possessions you need the less expensive life becomes. Not only do you save on initial purchase costs, but you also save on the maintenance to keep up all the things you've acquired. That is especially true when it comes to a house or vehicle. Bigger isn't necessarily better, but it can definitely cost more. A second strategy is to define a specific savings goal each year (like saving $2,000) so you have a target to shoot for. Then develop a spending/savings plan that will realistically allow you to reach that goal.

Simplify your life, analyze expenses, establish priorities, set realistic goals, and live below your means. Then invest your newfound savings wisely and watch it grow. Balance your life today and you will reap the benefits for as long as you live.

About The Author

Larry Ferstenou retired eleven years ago at age 42 and is the author of You CAN Retire Young: How To Retire in Your 40s or 50s Without Being Rich (American Book Business Press, 2002). For more information visit the You Can Retire Young web site.

Web Site: www.youcanretireyoung.com