Building your nest egg by visualising the Future You

Visualise and embrace the future you

If you had a magic wand, what would you wish for your 72-year old self? Healthy, free of money troubles, ability to provide for the people you love. So how do you get to that version of yourself?

Think of it this way. Plenty of people isn’t fortunate enough to make it to that age. Remember, there are rarely straight line journeys in life, and it’s not like you have to have options A, B and C all figured out for yourself. It’s more about getting yourself to a place where you can take opportunities as they arise and take the bumps which will inevitably come.

Think of a savings cushion if you lose your job or go back to school to change your career direction, or move to a city with more opportunities for work. It means you have the resources available to zig if the world zags, and all that comes down to sound financial practices. If you have high-interest debt, think about paying that off first. Think of every dollar you’re paying in interest payments as one less dollar you have to spend in the future.

The same goes for how you approach spending. Sure, you need to live your life and enjoy yourself, but are you robbing the future to keep the current you happy? We have been hardwired to consider spending on things that we maybe cannot rationally justify with you deserve it and treat ourselves. It’s not a failure to be in debt. It’s by design.

This is where budgeting and planning that are looking to optimise your income and grow your assets. To get to that future, sit down once a year and look at how you’ve done over the previous year and make a plan for the next year, and the best time to do that is at tax time. You will have all of your numbers in front of you. It’s a great time to look back over the year and compare it to previous years. Check to see if your income grew and if your savings grew, and if they did, keep doing what you’re doing. If not, try to think about how you can bump your income, reduce spending and increase your savings.

Start building your nest egg

Although retirement may seem like something far away and only for older people, the reality is that everyone if they’re lucky, will get old one day. How you take care of yourself and your loved ones when you are older is dependent on the plans you make when you are much younger. The old school way of retirement planning is to pick an age when you want to retire and build up a big old nest egg to live off after that age.

But times have changed.

People are living longer and healthier lives. Life doesn’t stop at 65, so why should your income? Writers, artists, musicians, politicians, and intellectuals don’t have a socially enforced retirement age, so why not you? Think of all the things that you love to do that will pay you beyond the age of 65 and that you can build on now before you retire.

Secondly, think of government assistance plans and annuities such as CPF LIFE. These can be immensely helpful in retirement. Government plans will not pay all of your bills, but they can certainly help. You may take a pay hit to your earning potential when you are younger, but the lifelong pension income could be a godsend.

But in the end, saving up for retirement is really up to you. Start putting money aside as early as you can, and if you’re like most people who funnel every dollar into their home, spend those dollars with an investment mindset. You are spending to maximise your nest egg. Stay on top of the value of your long-term savings.

Do a check-in at least once a year on both the number and your assumptions of how much money you think you’ll need when you’re older. Some plans allow you to choose between set investment options, but you’re often on your own to choose those investments. If you do, make sure they’re not too risky and are low cost. If you use a professional advisor to buy your investments, make sure the advisor justifies their costs and the cost of the investments that they’re buying.

So how much money do you need to retire?

It’s a great question. My answer is usually as humanly possible because it’s incredibly hard to save now for fluctuating future targets. But if you want a rule of thumb, here are two you can use.

1. One is to aim to save 10X your annual highest income.

2. The other is to use the 4% rule, which allows you to withdraw and spend 4% of your retirement savings every year.

So if you want $40,000 per year in spending, that 4% calculates to $1 million in savings. In the end, a happy and functional third phase of your life is not something that will happen. It will take some planning, but you’ll need to bring your plan to life while working so you’ll have time to reach your goals comfortably.

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