Paydays till retirement

How many paydays do you have left until you reach retirement age? Have you ever calculated this?

Perhaps you plan to retire early which means you have even less paydays left, you better work out exactly how many.

Let’s assume you work in a standard job where you get paid monthly. That would mean 12 paydays each year. If you are 35 now and plan to retire at age 65, that would work out to 360 paydays.

So what exactly does this mean?

This is simply a number to help you with your retirement planning and goal setting. You cannot simply have a goal to “save as much as I can”, or “save enough” as these goals are hard to quantify. In fact, you will never know if you have reached your goals.

Your retirement plan needs to include specific amounts. You will most probably want a large pension fund, perhaps you aim to have other income such as rental, and maybe you have assets which you specifically plan to sell when you reach retirement age. These are all great, but they need to be realistic and you need to reassess them often.

Using your “paydays ’til retirement” number you can easily plan and track how you are doing wth regards your retirement plan. You have a set time period and set amount and can use various methods to plan, predict and assess your situation.

Let’s assume you have 360 paydays left, and your goal is to have 2 million in a retirement fund at retirement age. You can simply create a spreadsheet with 360 rows. Show your current fund balance, your current contributions, assumed growth (rather assume a lower growth and plan accordingly) and assumed salary (and contribution) increase (again, take a lower assumption).

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This will then show you whether you’re on track or not.

This kind of planning doesn’t take into account major life changes that could happen, and we cannot predict the country and global economy. In fact, don’t try to make things too complicated. Just do some basic calculations and see where you stand.

If you have a financial advisor they can of course assist you greatly with this as they have wonderful software and tools to take into account all sorts of scenarios. It’s definitely worth contacting someone if you feel you need help.

If you’re wondering how to decide what your goal amount should be, that is more complicated and we’ll cover that in some articles soon. In the meantime though, it’s best to read up as much as you can and to consult a financial planner who can assist.

Your number of paydays until retirement will slowly count down. Think of it as a ticking time-bomb… are you ready?

Grocery shopping like a pro

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Want to make your money stretch?

Want to be sure that you’re getting the most for your money?

Want to spend less time in the store?

Use these 6 tips to make the best of your time and money when grocery shopping:

1 – Know your budget

The first and most important point is to have a budget! If you don’t have one yet then you may want to start by taking the 30-challenge of tracking your everyday expenses. This will give you a good idea of where and how you’re currently spending your money. This is a great way to start your budget.

If you already have a budget; well-done!

2 – Make a list

Having a shopping list will not only clear your mind and take the “I’m forgetting something” feeling away, it can also speed up your shopping. You can keep a list on your fridge or on your phone and add to whenever you find you need something. Then, before your next shop, read it through and add any extra items you need. Be like Santa and check your list twice.

If you are doing a big shopping spree then categorize your groceries by the following (or something similar that works for you):

  • Fruit & Veg (fresh fruit, vegetables, herbs)
  • Frozen goods (anything in the freezers)
  • Dairy (any dairy goods)
  • Meat (if you eat it)
  • Dry goods / Other (tins, spices, bread, juices and anything that you would store in your cupboard at home)
  • Toiletries (not really groceries but needed)
  • Cleaning products

Generally stores keep similar type items together and if you have a list of what you need from each area it saves you from walking around the store several times. You can categorize your items in whatever way makes the most sense to you, but don’t make your system too complicated as you probably won’t keep it up then.

3 – Don’t shop when you are hungry

If you’re hungry you’ll probably pick things off the shelf that you want to eat now! You’ll also over-cater for your next meal as your poor starving brain cannot deal with the sight of all the food. Another concern is that if you are really hungry and feeling that your blood sugar is low, then you will most likely rush to get through your shopping as quickly as possible. Saving money and sticking to a budget will be your lowest priority. Hangry is a real word!

Keep yourself from temptation and rather delay your shopping trip if you’re hungry.

4 – Check prices per unit

Stores change their prices often and we’re conditioned to think that the larger quantity “bulk buying” is always cheaper. Well, it isn’t! Don’t assume something is cheaper just because it’s in a bigger box or because the packaging tells you to “buy in bulk and save”. Always check the price per unit. Not all stores display the “per unit” price but that’s when you need to take out a calculator and work out which size is best to buy.

5 – Use cash

If you only take cash to the store and no credit or debit cards then you really have no option to spend too much. The embarrassment of not having enough money will surely drive even the most out of control shopper to calculate exactly what they have in their trolley. It’s amazing how good you become at shopping when you only have a set amount of cash and no more.

6 – Join the store loyalty program

Most stores have a loyalty card (points card) of some variety. The savings vary but if you shop at the same store often then it is worth joining their program and using whatever savings are offered to you.

Be aware of the marketing though and remember that they will try to entice you to spend more. So remember your budget and shopping list and don’t be tempted to veer off.

 

Set an intention

I’ve been struggling with my early morning yoga routine recently and I messaged my yoga instructor saying “Help – I can’t get myself out of bed in the morning! Need motivation”. Her response was probably something she was taught in yoga-school (some mystic place in India no doubt) because it’s so simple and yet profound.

Her answer was simply “When your alarm clock goes off, place both feet firmly on the ground and think ‘Don’t listen to your mind, do it for your body and soul’.”

Further explanation led her to say “Simply set an intention and when the time comes, follow through with it.” It’s really as simple as that.

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So even though that advice is meant to help me wake up at 5am, it’s equally true for anything; especially things that require willpower such as sticking to a budget. Simply set an intention, and then do it! No need to think about it and argue with yourself. If you were in a conscious and focussed space when you made your intention (goal, plan, decision) then there is no reason to not follow through with it. Just don’t give yourself that option.

Not much more I can say other than “Set an intention; and just do it!”

 

 

Keep Motivated

It’s easy to lose focus on your goals and to get stuck in the relentless routine of working to survive and surviving to work. The day-to-day rush of life can be exhausting and leave you with little time to sit back and think. There are however a few easy things that you can implement to help you stay focused on your financial goals.

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Remind yourself everyday

A great way to stay focused on your goal is to remind yourself of it every day! Try one of these ideas:

  • Create an image to save as your background on computer or other device.
  • Get creative and make a hand-drawn poster stating your goal. Stick it up somewhere.
  • Type it up in a word processor and print it out nice and large to display.
  • Create a business-card cut-out that you can keep in your wallet.
  • Display your goal on a small sticker on the inside of your windscreen so that you see it as you start driving.
  • Use post-it notes around the office or house.

Track it

Visually track your progress. Either with a spreadsheet or a hand-written poster. I like to track my goals by months (years or days) left until the “due” date as well as a percentage of achievement. Financial goals are generally easy to calculate progress – if you have an amount and a number of months you can quickly work out a percentage of progress. This doesn’t work for all goals, but you definitely need to be able to track your goal else you’ll never know if you achieved it!

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Here are my pay days until retirement (sticky notes stuck to my monitor) – more on this soon…

Discuss it

It’s vitally important to discuss your goals and progress with someone you trust. If you’re married this really should be your spouse as financial goals affect you both as a unit. If you are not yet married you could discuss these with a close friend or your financial advisor.

Talking about your goals make them “more real” and helps you to stay focussed as you are now accountable to someone.

Community

Find a like-minded community of people who can encourage you and keep you motivated. Real-life relationships are best, but an online community such as Twitter or Facebook can be very useful too.

 

Have an Emergency fund

It’s always a good idea to have an Emegency Fund available where you can quickly access money. You never know when something is going to happen. Think of how you would cope with a car service which costs 3-times what you expected, or if you needed to be admitted to hospital but your medical insurance requires you to pay upfront. Perhaps your washing machine suddenly stops working, or a power failure causes everything in your freezer to go bad. You could even have your credit card blocked and be in a difficult spot for a few days.

It’s just useful knowing that you have something saved for that rainy day. And, it is a great stress relief knowing that you are sorted for emergencies.

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How much do you need?

Circumstances are different for everyone so you need to make this decision yourself. Think about things that may have happened in the past where you suddenly needed extra money. Also think about things that could happen.

This is certainly not an exact science, rather just a ball-park figure which would make you feel comfortable and less stressed. Having something is better than nothing, so if you really can’t figure out how much to aim for, just set a low limit and see how it goes.

Type of account?

The three important factors about the account you use for this Emergency Fund are:

The purpose of an Emergency Fund is that you can access the money immediately. Anytime, day-or-night. Imagine needing to draw cash at at ATM at 2am – would you be able do so? Even if it involved using your online banking to transfer money between accounts; as long as it can be done quickly.

If you have a home loan from a bank, it could be very helpful to stash this extra cash in that account. Provided of course that the home loan account allows for withdrawals or transfers. Doing this would allow you to save interest on your debt, and this is often high. If you’re not sure contact your financial institution.

Have you considered keeping all your savings in one account and simply tracking the various goals in a spreadsheet? Have a look at how to use Savings Pockets to simplify your life.

How to start?

The best way to start anything is just to start! You don’t need to have enough money or know exactly what you’re doing before you start; just make the conscious decision. A few guidelines though would be:-

  1. Decide on your number. How much would you like to have saved in this fund?
  2. Decide which bank account to save it in – investigate the options but remember to keep your life (and admin) as simple as possible.
  3. Create a budget if you haven’t already.
  4. Set yourself a goal to save the necessary funds.

Once you have started you will see that circumstances may change, or you may need to use your fund sooner than expected. That is all fine, just relook at this often and be sure to be working towards this.

How to calculate the interest you can earn

calculateHere’s a quick explanation on how to calculate the interest that you can earn on your savings (or pay on your debt).

Let’s use an example of R1,500 (don’t worry about the currency – the maths is the same) and you deposit it in your bank account that earns 3.5% interest.

First thing to note is that the interest rate is always given as the annual rate (unless very specifically detailed otherwise). If you use a calculator (or a spreadsheet such as Excel) and do the following : 1500 x 3.5% the answer you get is 52.50.

Thus R1,500 invested for 1 year at 3.5% interest will earn R52.50. That’s easy!

To calculate what the monthly interest is, simply divide 52.50 by 12 and you will get R4.38 (rounded up) interest for 1 month. You could be more accurate and divide 52.5 by 365.4 (number of days in the year) and then multiply by the exact number of days in the month (e.g. 30).

E.g.  52.5 divided 365.4 multiplied by 30 = R4.31 (a very slight difference to the first answer we received)

So, if you invest R1,500 for 1 year at an interest rate of 3.5%, the interest at the end of the year would be R52.50. However, banks and all financial institutions calculate interest on a daily basis and pay it out monthly. If you withdrew each months interest (and leave the original amount of money in the account) then you would effectively earn “simple” interest – just as we calculated above and you would have R52.50 (assuming no fees or charges)

However, if you leave the interest that you earn each month in your account, then the bank would calculate the next months interest on your original amount plus whatever extra interest is already in your account. So each month you would earn slightly more. This is what is called “compound” interest.

In this case the difference is not great, but the larger the starting amount is, and the longer time you keep reinvesting the interest, the larger the difference is! In fact, after a few years, compound interest can be really large. Remember of course that we are assuming that no fees or charges apply.

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This example may seem simple, but there is no need to complicate things!

Is it better to Save or to Pay Off Debt?

Screen Shot 2017-06-17 at 1.51.16 PMIt’s easy to feel pressured to have a savings account or some type of investment. Is it better though to be saving or to be paying off debt?

Let’s have a look at some ways to calculate the answer…

Interest Rate

Generally speaking (and almost always) the interest that you earn on savings is far less than what you would pay on debt. Let’s look at an example…

You bank account may give you 4 – 6% (as an example) and fixed-term savings accounts may give you a bit more. Unit Trusts or other investments will probably be even more although they vary each month but you can get a general idea of the growth by looking at an investment summary sheet.

Debt – whether on store accounts or credit card is often charged a much higher interest rate. Add to that “fees” and penalties and all sorts of made up costs. Store accounts are designed to trick you because they often offer 3 or 6 months interest free debt, but remember that they charge you other fees each month (club fees or Special Member fees). And, if your debt is not paid within the interest-free period, they hit you with very high rates.

Thus; find out the interest that you would earn if you save your money and find the interest that you are charged (look for your account where you are charged the highest interest). That should give you your answer. Most of the time it is better to pay off debt!

Tip: If you have a home loan that you can access (pay extra into and withdraw when you need it) then you can save money by paying off your loan. If you pay extra into your loan account you will earn interest at the rate of your loan (currently in South Africa home loans are offered at around 12% interest). This is a good way to save for emergencies but at the same time you are paying off debt.

The Cost of Debt

Let’s look at a simple example of how much debt can cost you. If you have 1000 and you put in in a savings account for 1 month with an interest rate of 4.5% you would earn 3.75 interest. If you owe 1000 on a loan and the monthly interest rate is 20% you would pay 16.66 in interest.

Thus, if you “save” your 1000 for the month it is actually costing you money! You will have to pay 16.66 interest on your loan and yet you only earn 3.75 on your savings. You have to pay 12.92.

In this example, if you choose to save the extra money, it is actually costing you money and not saving at al!

Risk

Did you know that is most cases (if not all) the creditor (person or company you owe money to) can call up your debt at any time and insist that you pay it immediately. This is especially true for banks who can call up your home loan. This would put you in a terrible situation and could be disastrous to you and your family.

Debt always comes with a risk and therefore it is better to pay your debt as quickly as possible! Being in charge of your money means that you minimize risk by knowing and understanding the consequences of what you do.

Peace of Mind

Having debt causes stress. It’s not nice knowing that you owe someone money and especially if you are struggling to pay it. The consequence of not paying your debt can be dire and this all adds to your stress levels.

If you have the choice of saving 500 in your bank or paying debt off you should consider the peace of mind that you could “buy” yourself. Having no debt would be a wonderful feeling so if you can get to that state by slowly planning, budgeting and working towards being debt-free this would bring great relief to life.

Summary

It is probably a good idea to have a small amount of savings that can be used for emergencies; but generally speaking it is far better to pay off debt rather than save. If you have any spare money at the end of the month work towards paying off your debt!

Have a look at this article on paying off your store cards and apply that principle to any forms of debt that you may have.