What’s Your Future Plan?

Imagine you’ve retired. There. You’re done working. Now you have all the time in the world to do all the things you’ve always wanted to do. You can sleep in late. You can have lunch on the deck, take a stroll to the park, volunteer at your local school or hospital. There’s time to knit, time to garden, time to putter around in the workshop or craft-room.

It’s nice to paint pictures of what life will be like when we get to the stage where we can do what we want when we want. No more boss. No more 9 to 5. No more paycheque.

Yah, that’s a fly in the ointment isn’t it? It will be if you haven’t given any thought to how you’ll pay for life when the paycheques stop showing up.

One of the biggest challenges for the young-and-just-getting-started is balancing setting money aside for the future with all the other stuff competing for attention. The student loan has to be paid off, there’s a wedding to plan, and the downpayment for a home is a priority. Besides, retirement is decades away.

You do have time. Unfortunately, the longer you take to start saving, the more you’ll have to sock away. Start in your 20s and you can save as little as 6% of your income. Wait until you’re in your 30s and you’ll have to jack it up to 10%. Delay until you’re in your 40s and you’ll need to squeeze 18% out of cash flow to have enough to retire.

Saving takes discipline and planning. It’s so easy to pick up the phone or run through the drive-thru at the end of a killer day. But eating out costs about 10 times as much as cooking at home. So this weekend, do some meal planning and cook a couple of big-pot meals like chili, stew, soup, or spaghetti sauce. Freeze a few servings for those busy nights when you’re exhausted and just don’t want to cook. Now you won’t be tempted to say, “I have nothing for dinner, where’s the take-out menu?” That’ll leave you with money so you can eat in the future.

Finding ways to cut costs so you have the mone y to save is as easy as increasing your insurance deductibles. Would you really make a claim on your car insurance for under $2,000? Do you know what that would do to your premiums? Same goes for similar claims on home insurance. If you want to save on insurance, combine your home and auto insurance and save up to 15%. Next, raise your car insurance deductible to $2,000 and watch your premium drop. Stick the difference between your newly reduced premium and what you were paying into your emergency fund until you’ve saved your deductible. Once that’s done, roll the difference into your retirement savings. Yes, it takes a little work, but it could save you hundreds and hundreds every year, particularly if you never have to use your deductible.

Small changes can mean huge savings over the long term. Switch to an accelerated weekly or bi-weekly payments on your mortgage. You’ll make the equivalent of one extra monthly payment every year, which could save you four years’ worth of interest. And since that extra payment is spread over the whole year, your cash flow never feels pinched.

If you have kids, don’t ignore the free money. When you put money into a Registered Education Savings Plan, the government gives you money to help with your child’s education. If you put $2,500 in the plan for Little Susie, the Feds will add $500. That’s an immediate 20% return. Hey, the less you have to fund Susie’s education from your own pocket, the more you can sock away for your own future.

Use your RSP tax savings smartly. Pay down your mortgage; the objective should be to get to retirement debt free. Boost your next RRSP contribution so you save even more on taxes. Or use your savings to max out your Tax Free Savings Account.

Finding ten bucks here and twenty there to sock away each month. Think about extending the time between when you do routine things: get your hair coloured/cut/relaxed every six weeks instead of every four, cut back on your lawn maintenance/home cleaning service from once a week to once every two. And then there are the frivolities you’ll want to eliminate completely: borrow your books and magazines at the library instead of buying them, and borrow DVDs from friends and family, learn to shop in the thrift stores.

The closer you get to boarding the retirement train, the more prepared you need to be to deal with the changes. Perhaps the best way to save for the future is to practice living as if you’re already retired. What better way to see how the retirement shoe fits than to try it on? Figure out how much income you will have and use that to calculate what you’ll spend for expenses like food, entertainment, utilities, clothes, gifts, cable/cell, and travel. Use the money you’re no longer spending as a last big push to boost your savings for the future.