Six Steps to Commit: "Red Handbag" to Retirement
By Linda Katz
I've spent years searching for the perfect handbag. You know, the bag that will hold a ton, sit comfortably on my shoulder, and look beautiful with everything I wear. Yes, I am the eternal optimist. When I recently uncovered the pictured red handbag, bundled away since last winter, I shouldn't have been totally surprised. I was not thrilled. I felt exhausted by one more 'not quite right' thing cluttering my closet - and my life.
But I live by the motto: Spend/Learn/Coach. A recent communication coaching session with my client 'C', aged 42 uncovered her financial conflict with saving for retirement. She looked like she was going to whack me with her beautiful blue and green wedge sandals: "I don't have $1,000 to open a Roth IRA. I can barely afford what I need to live now. It's too overwhelming to think about how to save for retirement."
Magically transforming from coach to financial therapist, I reminded her that like managing any conflict, getting from our financial 'here' to 'there' retirement plan is understanding the 'red handbags'. It is uncluttering to focus on what we really need and want.
I'm working with 'C' to create her dream future using 5 steps which I'll talk about next month:
1. Create a long-term dream.
2. Identify which values will be met by your long-term dream.
3. Determine the dollar amount you'll need to live your dream.
4. Find the money to get 'there' starting with YOUR red handbag
5. Open an account
This month let's talk about the real savings killer: emotion. I've heard from 'C' and many others:
"I can't save for the future while living for today."
I get it! Things are tight for many of us, so where do we skimp? The future is uncertain. Who knows what will happen or what life will be like 20, 30, or 40 years from now.
Because of this reality, it’s even more important to prepare our finances.
Saving is a mindset. Finding the perfect saving strategy is like finding the perfect handbag - and even more important. To begin, you have to commit to saving. Right now, you have to acknowledge it's important to learn to save. The following 6 steps will help to focus your mindset:
1. Clear the information clutter: We're bombarded with facts and statistics about retirement savings, especially for women: How over 60% of us have less than $50,000 saved. Women, who live longer than men and will need more, have less saved and are less knowledgeable about how much they will need. Women are hesitant to jump into the stock market and handle accounts. Worst of all, the shouted message we'll need a million dollars saved for a comfortable future. 'C' said she'll never make that cool mil, so for her it's a 'why bother.'
Saving is worth the bother.
2. Compounded interest: Save early save often: Every little bit you save helps, whether you're 42 or 22. Though honestly starting at 22 is best. It's all about compounded interest, which is like using sunscreen or anti-aging products: the younger you start the greater the benefit. An over-simplified example: if you invested $500 a year for 30 years - compounded interest would turn that $15,000 into $61,172.00. Imagine the dreams come true if you invested $2000 every year!
There is so much information out there, how does 'C' know where to begin?
3. Start small. When a problem seems too overwhelming to tackle, focus on baby steps. Although 'C' has a small 401K from a former employer, I recommended she open a Roth IRA. (see Learnvest.com for more) Roth IRA's are recommended. The taxes are already paid on the money, so you aren't taxed when you pull money out for retirement to buy a house or for an emergency. You only need $1,000 to begin.
4. Identify your 'red handbag': It's August and 'C' has until April 15th to open her Roth IRA. That's nine months to save 1,000 to secure her future. That's about $110 per month or one 'red handbag', or whatever your 'it' is. It's that simple. Saving for the future will realign your current spending on your values. *Start by looking through your closet for your 'red handbag'. Identify what's eating up your space, and money and not enriching your life. Pull the 'it'(s) out and lay them on your bed. Commit to security and satisfaction. My pictured 'red handbag' (above) is my screen saver and painful reminder when I want to shop.
Do you have a Roth IRA? If you don't, plan now to open one by April. If you do, plan to add money by April.
5. Understand your investment phobia: Emotionally, 'C' moaned about the 2008 market crash, and, how she doesn't want to lose her money. Yes, most people lost half of their portfolio's value back then. It was terrifying. Today, people have recovered their money and more thanks to compounded interest. Will the market crash again? Probably. Will it still be beneficial to invest your money? Absolutely. Adopt an investing mindset with the stock app on your smartphone. Start checking out the 2 year changes in stocks and the market. You'll notice they (and your money) like a roller coaster, fluctuate, though you'll end up on top.
6. Talk 'investments' with others: I recommended 'C' begin talking about retirement saving with friends, family, and co-workers. Talking will increase her comfort level and ease her into action. The big “BUT”, according to ‘C’ was that she couldn't decide on which bank or brokerage company to use. She has nine months to decide. Even better: she can't make a mistake - accounts can easily be moved at no penalty.
Now is the time to think and commit. Until next month.
Tell us about your 'red handbag'!
What will it take to make that commitment to save $110/month for 9 months to open your IRA?
How would your finances benefit from a financial therapist? Share your concerns and find out!