Thursday, January 7, 2016

Doing What You Don't Want Today So You Can Do What You Do Want Tomorrow

My brother (Robert) went in for his annual skin check today - something he hates doing. Unlike me, he's always been prone to sunburns and, now that he's getting a little older, skin cancer (or pre-cancer, at least). The reason he hates going in for his annual check is because he almost always has to have pre-cancerous spots either frozen or cut off. He comes back to the office with a few bandages and a few red spots and then, for the next few weeks, he has to deal with people asking him about the red spots on his face while he's healing.

But as much as he dislikes getting poked, prodded, frozen and cut, he does it anyway because he knows it will help him do something he does want to do in the future - live a long, cancer free life! He knows he needs to be vigilant with his annual checks and consistent about removing spots that could turn into something worse if not dealt with early.

It would be easier for him to ignore the warning signs, skip the doctor and avoid getting poked and prodded, but he knows that if he only thinks about what he wants today, a time will come where it will be too late to take care of his tomorrows. He knows that putting things off may be easier and feel a little better today but it will only make things harder to fix in the future (or maybe impossible).

The same rules apply to retirement plans and preparing for the future. While it is far easier to put off saving and thinking about retirement in order to buy an extra latte or go out a few more times a month, the longer you put it off, the harder it is to catch up on your savings in the future. However, the sooner you start doing what you don't want to do (skipping a latte in order to fund an IRA, for example), the easier it is to do what you want later in life (like retiring with a bunch of money).

Saving for retirement is one of those things that is easy to put off because retirement seems so far away. But when it comes to the amount of money you have waiting for you in retirement, the amount of time you have can either be your best friend or your worst enemy. One of the keys to having boatloads of money in retirement is giving your money plenty of time to grow. Here's an example from Business Insider magazine that shows the difference of starting earlier vs. starting 10 years later:

"Consider two hypothetical savers, Emily and Dave. Emily puts $200 per month into a retirement account with an estimated 6% rate of return starting at 25. Dave starts saving $200 per month at 35, just 10 years after Emily. Both continue to add $200 each month until they retire at 65.

By the time they are 65, Emily has contributed $96,000, while Dave has contributed $72,000.
Here's the trajectory of both of those accounts:

Emily started saving just 10 years earlier and put in only about 33% more money into her account than Dave put in his. But by the time they are both ready to retire, Emily has almost twice as much as Dave — Emily has $402,492, and Dave has $203,118. That extra 10 years of compounding returns has made Emily's situation far better than Dave's when they are 65."

The moral of the story and the example from Business Insider is simple, the earlier you start, the better off you are. If you think it's too late for you because you didn't start early enough, you'll still be better off in retirement if you start saving today than if you beat yourself up about it for the next year or two before finally starting!

If you don't know where to start or what to do, call the office and make an appointment to come in for a visit. We've got a Chartered Financial Consultant in the office that can help answer questions and lay things out for you in a way that's simple and easy to understand. And if you come in within the next few weeks, pay no attention to the red spots on his forehead!

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