by Hope
I recently started working with a new client. And at a month in, I have gotten a pretty good look at what my life could look like if I don’t get a better handle on my finances. Especially in regards to my savings and retirement!
My Clients Predicament
I’m not going to focus on the client to much but I’ve quickly become aware of a few things without being told them:
- They did not diversify their business very well. When one thing fell through, the whole thing came tumbling down. (I am certainly familiar with this issue as it is the one that knocked me completely out a few years ago.)
- They don’t seem to have any savings. (This is an assumption on my part, but based on the pressure and stress they are under to make a go of what we are working on together, I think it’s a pretty solid one.) This seems to be a common thing among serial entrepreneurs as I network with them. They invest in their business…and forget to invest in themselves. I am certainly guilty of this.
- They have let fear make them flounder. This is one I hear in every single conversation I have with them. It’s painful to hear. And even harder to determine how to both guide them through and be sensitive to the predicament they find themselves in.
What it boils down to is that they don’t reach a certain income level through their current business model in the next 100 days. They will have to start all over and figure out what they are going to do with the rest of their lives…and this is at 65+ years old. A very scary situation.
Like Whoa! Moment
And an eye opening one for me! While my savings has definitely increased as my income has. I am no where near where I should be towards my retirement savings. Like nowhere. Like embarrassing to even bring up my complete and utter failure here.
So I could be this client…20 something years from now, if I don’t get my act together. This will be me. And I DO NOT WANT THAT. I am at a crossroads and…
I must create a more balanced approach to my financial life. And it needs to be done as of yesterday! Seriously! Nothing could convince me more of this, then watching my client flounder and battle this fear.
BAD Community, guide me! What steps should I take TODAY to get started in making a significant contribution to my future self. ROTH IRA, stock market, steady savings (I’m already doing this one,) other ideas? Any resources you would recommend for getting started so late in the game?
My plan is to take your idea, research them and roll them around in my head and choose a path that focuses on…regular savings (continuing to build toward a 6 month EF fund,) retirement savings AND debt payoff. My income is strong right now and steady. I want to take advantage of that as quickly as I can but also be very smart about it.
Hope is a creative, solutions-focused business manager helping clients grow their business and work more efficiently by leveraging expertise in project management, digital marketing, & tech solutions. She’s recently become an empty nester as her 5 foster/adoptive kids have spread their wings. She lives with her 3 dogs in a small town in NE Georgia and prefers the mountains to the beaches any day. She struggles with the travel bug and is doing her best to help each of her kids as their finish schooling and become independent (but it’s hard!) She has run her own consulting company for almost twenty years! Hope began sharing her journey with the BAD community in the Spring of 2015 and feels like she has finally in a place to really focus on making wise financial decisions.
I’m glad you’re thinking about retirement but, as many of us have already told you, the shortest path to wealth and financial security is to pay off your debt (and stop adding to it). Once your debt is paid off, build up your emergency fund. Once your emergency fund is fully funded, invest 15% of your income into retirement. I’m a Dave Ramsey follower for a reason—it works! You will see success where you focus your time and attention—focusing on too many things at once will not bring you the desired results.
I guess I am questioning…the gazelle run at my student loans which would technically die with me if anything we to happen to me vs starting to save for retirement.
Hope, any interest you earn in investments is offset by the interest you pay on the student loans thereby making your net savings rate grow more slowly. If you earn $2,000 in interest on an investment but pay $1700 on student loan interest, then your net gain is only $300. Also, you can invest larger amount of money once your student loans are paid off. What is a realistic amount that you can afford to invest right now vs what you can invest after the student loans are paid off? Also, being committed to debt payments decreases your flexibility during low income months or emergencies. You are right. Your situation is dire. Us readers have been telling you that For years yet you continue to make poor choices (New car on debt). You could have bought a cheaper car and be paying down debt quicker or investing the money.
I have been saying in the comments for months that you should be focusing on retirement rather than that low student loan. As a 1099 contractor you can set up a solo 401k and a Roth (or traditional) IRA as your tax advantaged accounts. It’s really dependent on what tax bracket you’re in now as to what is best for you.
The student loan can wait. If you become disabled or die it goes away. If your income is low the payments get restructured. It’s the most flexible debt you can have. Investments average 7% returns while your student loan is only ~4%.
The real problem is that car payment you signed up for. That could have been 10-15k in your retirement savings right there if you had bought a cheaper car.
Look up “The Shockingly Simple Math Behind Early Retirement”.
There’s a pretty simple chart in there about how much you should be saving of your income to retire in xxx amount of years. The numbers are valid even if you aren’t on the path of early retirement. Similarly Networthify.com is an easy online calculator that can adjust based on current savings.
Yes, the logic behind justifying a $700 a month car payment is a huge problem…
So I did some math. You actually would probably end up about the same either way (paying off debt then investing vs doing both at the same time). The most important point is that every extra dollar you can squeeze out should go to paying down debt or investing. The more you can squeeze out, the better off you will be during retirement. Every financial decision you make from now on should be viewed as “How does this affect my retirement savings rate”. Use the retirement calculators (or make some spreadsheets) and compare different investment amounts (300 per month vs 800 per month). Maybe that will motivate you to make hard choices.
If you are thinking they may die with you before you reach retirement age then why are you worried about saving for retirement vs. paying them off? If you are thinking they will die with you after you hit retirement age do you really want to still be paying them when you are 65+?
I would have to agree with Laura. I would not want to still have a student loan payment when I am in my 60s or even 70s because “they would die with me”. The folks who are retiring are facing the fact that they still have a lot of debt, minimal savings, and have to find part time jobs in order to continue making ends meet. I wouldn’t want to continue to have to pay on a student loan in this situation. I am sure that folks have “parent plus loans” that they are struggling to pay for.
I would suggest that you start or continue to pay on your student loans and attack the balance due. I would like to also suggest that you put some of your income at least 10 percent into your retirement fund for the future.
1. Stop adding debt.
2. Pay off existing debt as aggressively as possible.
3. See step 1.
You are never going to get anywhere as long as you continue giving into urges and ‘can afford’ the payments.
I‘m glad you’re thinking about retirement savings. Although you most definitely have to steadily pay down your debt and avoid adding new debt, I disagree with the poster above about waiting to save for retirement. I think you should start now, setting up a solo 401k or an IRA and contributing to it what you can. You’re starting late and you need as much time as possible. Vanguard and Fidelity have low fees. Good luck!
That’s what I was thinking. Even if it’s just a little…to start.
Something like having my money work for me. That would be a nice change for me.
Do you have enough savings to at least pay your rent and utilities for a few months if you lose a major client? That should be your first priority.
Yes. I have a decent EF now. But am still working to get to the 6 month threshold. I believe I will be there by the end of the year.
Open up a little retirement account as suggested above, and just contribute as best as you can. And I agree with not adding to the debt, just because you can afford it now. Afford yourself the comfort of a comfortable retirement if that makes sense 🙂 good luck!
1. Stop getting into more debt. Just stop. For reals.
2. I agree that you’re probably better off starting a small retirement fund than paying off your student loans at this point.
3. Check out some online retirement calculators. I could be a real eye opener, and maybe a little scary, but it could give you sense of how much you need to catch up to get to a place where you can maintain a home, transportation, and living expenses.
You are starting so late I actually don’t think you need the loans completely paid off before you start saving for retirement. But, both of these things need to be a huge priority. Don’t think of special occasions as a reason to splurge. Stick to a budget. STOP taking on new debt. Even if you can afford the payment. Even if you don’t have to start making payments until next year. Just stop.
At your age, you really need to put yourself first. As has been said, you cannot get a loan for your retirement.
Close your eyes and picture this… you are 85 or 87 years old. Are you still working full-time? Are you trying to cobble together money from various sources? Can you make the rent? If any of that sounds far-fetched, open your eyes, and welcome to what your life and world might look like if you don’t make some changes. Positive change requires some really tough decisions. You have to have your grown-up hat on, and look straight into the mirror.
Others can speak to logistics, but I’ll concur with using the Vanguard and Fidelity very low fee index funds. A good place to start, and then stay consistent, contributing month after month after month, and you *will* see positive changes. Not sure if you read other personal finance bloggers, but two of my favs are Budgets Are Sexy, and Get Rich Slowly. Both detail journeys that had ups and downs and hardships, but are thriving now. Lastly, there are some really nicely done YouTube videos of folks (mostly women, often single with kids) doing the zero-based budgeting system. Watch some of those, and see if that couldn’t work for you as well. Also, you don’t need a fancy planner with stickers. Pen and paper will get you there just fine.
Good Luck!
Its great you are thinking about this now. As far as retirement versus debt payoff, I think there is room for both. However, don’t get complacent about the student loans. What is the interest rate? Yes, the student loans will die with you, but if you are going to live another 30-40 years do you still want to have those then??? You can put money into a solo 401K and get a reduction on your income for tax purposes. But, look at your income tax rate. Do you pay federal income tax? This might not be such a big incentive. I think you are very right to be looking longer term. You need to quickly get through your debt payoff so that you can invest. You don’t want to be a burden to your kids in 20 years. And that may seem like a long time from now, but its really not, and you can’t wait and start 5 or 10 years from now and get there.
I would have a plan to be debt free in say 1-2 years, then absolutely contribute at least 15% towards retirement for the next 20 years, no matter what.
The government can, and will, garnish social security to recoup unpaid student loans. Might rethink that ‘die with them’ plan, especially since social security might make up a larger percentage of your income than it does for most and you may not be able to get by without it.
As to the rest, I see this post as another in the cycle of feast/famine you have with debt and, perhaps subconsciously, disingenuous. You unwisely spend large sums on what you cannot afford then spend months counting pennies and doing monthly challenges to try to make up for previous choices. In a while I expect another post about some unnecessary expense and/or luxury you make payments on. That $21k car, not including interest, could have been $21k out against the student loan or into a retirement account. So, no one here can really help you. You have to fix you yourself. Maybe fear will do it because you are running out of time.
THIS. ^^^^^ ALLLL OF THIS
I think you have to look at your income and occupation. Would working in an office for someone else earn you more income? That might be your option for the next 10 yrs with real benefits and retirement matching. Your kids don’t need you at home
I have to agree with this.