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Long Term Planning

August 2, 2018

Planning for eternity, that is definitely long term planning. I like to plan for long term, but that is REALLY long term. I want to talk about more like 20 year. For most people that is about the longest long term planning that anyone does.

Most people these days plan for their “Birthday Weekend” more than they are planning for their future. Which I peronally think is crazy.

So many people these days are only looking to their next pay check. They finish the month and if they have $100 left, they are doing good. Or so THEY think. When you finish the month, Yes, if you have some money left it is better than not having anything left. You could have so much more though.

As Robert Kiyosaki says in “Rich Dad, Poor Dad”, “You have to pay yourself first.” When you get your work check, there should be some things in place. First you should have your insurance taken out automatically. Next you should have some sort of retirement taken out. If your company matches, even better.

You should be able to pay yourself at least 5% for your 401k. If you are a frugal person you should max out it out at 15%. Everyone says that they can’t do 15%, but they can do 5% or 6%. I guarantee that you can start at 5%, change it to 6% next month, then to 7% the next. In the 10 months that it takes you to get to 15%, you will not even notice it. And you will be banking all kinds of money for the future.

When you go 1% at a time, you will not even notice it. Even if you do, you will get used to it.  Its kinda like when you are used to living with the thermastat at 74 degress all year long. When you change it to 76 degrees, WOW what a change. If you leave it at 76, I bet within a few days you will get used to it.

One thing that I have done recently was slow down on the highway. I would love to drive 75 or 80 whenever it was safe to do so. And sometimes when it wasn’t. I also realized that my gas mileage was always in the mid to upper 20s per gallon. Just by staying out of the fast lane, I now stay at 60 or 65 on the highway.

My average for the whole tank is always over 30mpg. So big deal I drive a little slower now. 5 miles per gallon x 13 gallons per tank ends up being about 65 miles extra every week. 4 weeks ends up 260 extra miles per month. And at 30 miles per gallon that means about 8 1/2 extra gallons per month. At $2.50 per gallon that means I now save over $20 per month just by driving a little slower.

Maybe you can sell the big truck that gets 15 miles per gallon and get a smaller car  that gets 25 or even 35 miles to the gallon. You should be able to save on the big truck payment as well as gas savings. You should be able to save over $300 per month or maybe more.

Going out to eat is another one of those big money spenders. If you could eat at home or meal prep a couple of times per week you could save another $100 per month easily. When you really take it seriously you could save over $500.

If you read these posts and do just a small percentage of what you read, you will be spending so much less that 15% of your income going to your 401k will not even be noticed because you are going to be saving so much anyway. To get even more tips on saving and living a frugal lifestyle, you can read Mr. Money Mustache. I read all the blog posts and am a big fan.

So what does all of this have to do with long term planning?

If you are making 48k per year, save nothing, and spend all 48k every year you will have nothing at the end of 40 years of working.

If you can be just a little frugal by driving slower or drive a smaller car or whatever you will be more likely and more able to save 15% per year or $7,200. In 25 or 26 years you will have over $500,000 if your investments run at about 7%. They say that the stock market runs close to 10% but we want to take out about 3% for inflation. I am sure that you will make more money over time so that 500k will more likely be closer to $1mil with raises over the years.

I know this is just a quick and simple example, but I really want you to start thinking about the future in terms of 20 years down the road. For the 20 somethings, you have over 40 years to compound that money in the stock market. Maybe even buy a rental property that will double in value or maybe 3x in value by the time you get to your 60s.

The point is that you can save for your retirement by doing just a few little things that may make you a little uncomfortable for a little while. In the end they will allow you to invest and have a great retirement while not depriving you right now. They should even allow you to save enough for some rental properties.

If you have multiple properties paid for by the time you retire you can start selling them off when you get into your 40s or 50s. You may even be able to start your retirement in your 40s. Wouldn’t that be nice. It does take a little suffering like moving that thermastat a couple of degrees or buying a car 3 or 4 years old instead of brand new. And then do something crazy like drive it for 7 or 8 years or until you reach 150k miles.

I jokingly say suffering because some people think that they should be in the lap of luxury and drive the newest, inefficient cars and trucks. If not, they are suffering and the world is not meant for them to be suffering. They want to live it up every minute and with every item that they come into contact with.

Now you are thinking that you have to be cheap to be able to retire. NO, not cheap, frugal. You just have to be mindful of the things that you do. Think long and hard about the decisions that you make. According to the World Bank, chances are that you will live until you are about 79 year old. That says to me, you better start doing some long term planning!!

Stay Frugal my friends.