On Choices
Monday, June 25, 2007 | Wayne Is this Spam?NOTE: This was originally submitted by "JimBoBob007" on our blog. Jim, feel free to re-post this under your own user name - great article!
Last Friday I turned 65 so I am now officially over the hill and eligible for medicare. When the people with whom I work ask me when I am going to retire I simply reply: "Why should I retire? Where else can I go and get paid for being grumpy?"
On the other hand I am actually getting close to the point where I feel that I am able to afford retirement. My present plan is to work until my wife retires because it wouldn't be much fun to be retired and alone. When I look back it is hard for me to understand how I got to this point and I admit to being a bit confounded. Up until I was 43 years old I was self employed and ended that phase of my life with no financial assets except our home. When I close our business I decided to seek employment in Accounting since I had a degree in that area. After being self employed it was quite an adjustment working in the corporate world. One advantage that I was not used to was having a retirement plan which would enable me to build a retirement portfolio during the twenty-something working years remaining.
It was obvious to me that I should have started planning for retirement long before I passed my 40th birthday but when I was younger it seemed like I had plenty of time so I was simply in no hurry. I have read that many people suddenly awake to the realities of the aging process after they turn 40; that was exactly how it worked for me. At first I was somewhat in shock and I wondered how I had aged so suddenly. I could have simply thrown up my hands, gone into a state of denial and accept the hand that I had been dealt by life.
It was at that point where I realized that I had choices that are available to all of us: either give in to our "financial fate" or take control of our financial future in order to build toward our future. The question that I faced was whether I would let the future control me or whether I would try to control my own financial future. I chose to take control. My first step was to maximize the contributions to my retirement program. There is a real advantage to pre-tax investments: You use some free money to make money. In effect the government is loaning a part of your tax money interest free until you retire. At that point you to start repay that loan but you are likely to be in a lower bracket so your taxes are less. Of course you have to make do with a little less money each week but you tend not to miss money that you don't see. This has to be the best savings plan available for most people.
Since I was eager to supplement our retirement nest egg I decided that I also needed to start trading stock on my own. Since I didn't have any cash at that point it was actually not possible at that time. I decided that I needed a plan. As I look back I realize that I really had no idea what an undertaking it was to make money in the stock market. Up until then I had traded just two stocks and I had made money on both so I was over confident. In retrospect I can see that making money on those first two stocks was nothing more than pure dumb luck; the market would soon educate me on how hard it would be to make money on my own. I paid the price for that education but it was well worth it. The main thing that I learned is that you never stop learning…one way or the other. I quickly learned that when you got too confident the market quickly brought you back down to earth.
In order to try my hand at investing on my own I needed to generate some cash. My first step was to do a simple assessment of our financial situation and it was not good. I quickly realized that it made no sense for me to start investing while I owed money so I made a concerted effort to pay off all our credit cards and bills while incurring no new debt. Once we were debt free I made a point of paying my bills as soon as I received them instead of holding them until they were due. The result was quite interesting: the balance in my checkbook started to go up. After I built up a cash reserve I started transferring cash into an investment account periodically so that I had cash with which I could invest. If we needed to make a major purchase I would transfer the surplus to our savings account until we had enough to fund that purchase. Another means of conserving cash was that we drove older cars that we bought used and carefully maintained to avoid both monthly payments and collision insurance. In that way we avoided getting back into debt. While my approach may seem austere we actually live a comfortable life. We enjoy saving to do things in our future rather than paying interest on the pleasures of our past.
Early on I lost money on a couple stocks because I didn't follow the rules of good investing. That got my attention and I became much more humble as I continued. I learned the importance of research and of buying companies with low debt-to-equity ratios after I lost money on companies that carried too much debt. I have also learned to try to look at the big picture instead of buying into the hype. At first I believed what my stock broker told me. It did not take me too long to realize that I needed to rely on my own skills and judgment if I wanted to succeed in building a retirement portfolio. When I started investing the resources that we currently enjoy on the internet simply did not exist so I started out by reading books on investing.
At the present time the only debt we have is a small mortgage on our home and I am planning to pay it off before we retire. Neither of us has ever had a high paying job and we are far from being rich but we are in much better shape than I expected to be at this point in our lives. In retrospect I know that I made some of correct choices. I feel good knowing that my wife will have some supplemental cash to fall back on after I am gone. That has always been my main investment goal. Of course I look forward to the time that we still have together. I am always looking for investment opportunities to fund our travel plans. While there are many aspects of our lives where we have no control it's important to make the right choices when it comes to our financial futures. While we have sacrificed some enjoyment in the present I believe that we have good progress in achieving our long term goals which will pay dividends in future years.
