“Live for today!”, “Yolo!”, “Carpe Diem!”, “Do it now!” We see these slogans posted everywhere from social media, TV ads, to self-help gurus. They remind us that life is short and we should live in the present. While these are great reminders of why we work, save and invest, these can also be odds with other slogans like “Save for Retirement!”, “Don’t Overspend!” and “Make Sure you Budget!”.
Wanting to enjoy life today while saving for tomorrow can be a juggling act, but it is possible to do both. The key is to keep your finances organized and goal based. Your goals will likely change over time, which is fine. Write them down and estimate how much money you will need to achieve them. If you are not sure, talk to a financial professional. Remember, however, to strike a balance between today and tomorrow. We recommend using this five-step process1.
1) Establish an Emergency Fund - Nothing can derail your financial goals faster than a large, unexpected expense. We recommend building up a plan to cover 3-6 months of your living expenses and then continue to add to it a small amount each month. That way when the washing machine breaks, or a car needs a repair you have funds to use, and you are constantly replenishing the account.
2) Assess Your Life Today - Take stock of the way you live today. Do this by looking beyond your bank account and asking yourself questions such as:
- Do I like my job?
- Am I happy with my current lifestyle?
- Are there activities I want to do, but have not become involved in?
- Do I like where I live?
- Am I teaching my kids to live within our means by example?
- Are there big-ticket items such as a vacation or new car that I want but do not have? How important are these items?
Next, review your finances and ask yourself:
- Am I paying my bills on time?
- Am I saving enough for retirement?
- Do I have extra money available at the end of the month?
If you answer "no" to a number of these questions, then you may need to revise some of your goals, adjust your lifestyle, or both. These revisions should focus on needs versus wants in your life. The key here is to be honest with yourself. For example, you may need to take an occasional break from work to recharge, but you WANT to go to Disney World.
To assess your financial situation today, evaluate your happiness relative to any financial stress you may have. If your current choices seem at odds, it may be time to adjust your current lifestyle. It is important to check your progress towards your goals several times a year so that your plans do not become derailed.
3) Revise or Change Your Goals - If your lifestyle goals and your retirement goals do not seem compatible, it very likely means some or most need to change. The key to success is to make sure your goals are realistic based on your resources. Again, these revisions should focus on needs versus wants in your life.
Lifestyle Goals - To help you achieve your lifestyle goals, make a written list of the things you want to do or experiences you want to have. Such a list might include hobbies you enjoy, places you'd like to visit, charities you want to support, experiences you want to share with your children, or the kind of car you want to drive.
Retirement Goals – Make a goal list for the lifestyle you hope to have during retirement. This should include both expectations and concerns as well as goals, wishes, and wants.
4) Devise a Plan – Now that your lifestyle and retirement goals are established, the next step is to determine whether they are compatible. Add dollar figures for each goal and incorporate the two sets of goals into your budget. This is one of the key areas where you will begin to make any necessary adjustments by segregating needs versus wants. If there are shortfalls, we suggest you look for opportunities to save in your current budget before eliminating a goal. For example, go through your credit card bill and look at all the subscriptions you are paying for. Perhaps cutting two or three services that are not adding a lot of happiness to your life will enable you to save more for something that does.
Make sure you are saving and investing enough today to meet your needs tomorrow. An important step in this process is to assess your appetite for market risk and align your investments with your goals, without compromising your risk tolerance. If you need help with this, seek out a qualified financial planner.
5) Monitor and Reassess - After you have put your plan into action, you must keep reviewing it to ensure you do not become derailed. We suggest looking at savings buckets at least every 3-6 months. If you fall too far behind, you may need to reassess your goals to make sure they are achievable given your financial resources. Monitoring and reassessing may need to occur more often if you have a hard time adhering to a budget. When reviewing your spending and savings habits, be honest with yourself about what went well, what didn't, and what you need to change. As you go through this process, you will find that your lifestyle and retirement goals may also change. Be willing to adjust, but hesitant to abandon important goals2. If you have put a goal into your financial plan, it should be worth pursuing.
Hopefully, if you stick to a budget and pursue your goals, over time you will see that lifestyle satisfaction increases and your financial stress decreases.
2 William Artzberger, CFA, Investopedia Writer