07/17/2020
Reasons why people don't retire comfortably:
1) The inability to delay gratification. – Even though you haven’t given your best and can’t afford the best, there’s a strong tendency to go into debt in order to fulfill your immediate desires. If you ask anybody who has consumer debt after their fifth beer, they’ll admit they bought things they could not afford and did not need. Delaying gratification until you can afford something is absolutely one of the keys to building wealth. Piling on credit card debt at a 15%+ interest rate is a sure way to financial failure. Not even Warren Buffet has returned greater than a 15% annual compound return in his illustrious career. For those in debt, well done beating the greatest investor ever.
2) Spending way too much on a car. A car is the #1 personal finance killer given it is an unnecessary luxury that rapidly depreciates over time. I suggest spending no more than 1/10th of your gross income on the purchase price of a car. If you make $50,000 a year, then buy a nice second-hand Honda Civic for $5,000. If you make $500,000 a year, that new 4 series BMW coupe is quite alright. And if you only make $20,000 a year, then consider taking public transportation or biking. The last thing the median earning household should do with their $51,000 income is buy the median priced $30,000 car after taxes.
3) The unwillingness to go the extra 10 miles.When you first begin your career, you know nothing. You’re a cost center who is easily expendable by management. As a result, it’s imperative to do everything possible to show your worth by coming in early, leaving late, frequently asking colleagues if they need help, and being proactive with new responsibilities. Even as a veteran employee, it’s important to never take your work for granted. Your career is likely your #1 income earner. Nurture it as much as possible.
4) Saving as if Social Security or a pension will still take care of you. Back in the 70's, worker bees would not really save because they had pensions and Social Security to depend on. Nowadays, people still seem to be saving as if Social Security and pensions will be a 100% guarantee with a national savings rate of under 5%. The government has already highlighted that Social Security can only provide roughly 70% of its benefits in the next couple of decades in its current state. Meanwhile, pensions are disappearing faster than time. If you’re not maxing out your 401k or saving at least 20% of your after tax income every year, you will likely be very dependent on the government or loved ones to get through your remaining years.
5) Not building enough income streams. Consider figuring out ways to build multiple income streams immediately, while you still have all the enthusiasm and energy in the world. You may love your job or business now, but interests fade and bad things happen all the time. Income streams can be in the form of dividend yielding stocks, REITs, rental properties, tutoring, starting a side business, earning royalties, and building a CD ladder, to name a few. The idea is to build enough passive income streams so that by the time you are absolutely sick of work, you are able to break free and rejuvenate while having a series of income streams keeping you alive and happy. Savings is the foundation for wealth. It’s up to you to start investing your savings wisely.
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