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Financial Literacy Month blog

We hope you enjoy reading some of our thoughts as we join you on the path to financial wellness and we encourage you to yours. If you would like to follow our path on a more micro-level, we will be using twitter to chronicle our days.

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Exactly How Much Are We Talking About?

Posted by Kim McGrigg on 4/15/2008

A reporter once asked me: “How much should I save for retirement?” I answered: “How the heck should I know?” Thankfully, he didn’t quote me. While it could have been said better, the answer was a good one. I’ll explain.

While reading an old magazine, I came across a “simple guide to retirement savings.” But instead of taking the time to figure out the not-so-simple-looking guide, I starting looking for flaws instead. This turned out to be much easier than actually planning for my future. First of all, it assumed that I want to be living the same exact life I’m living now, only 30 years in the future. Second of all, it didn’t ask me if I had a passion for diamonds or not. I have no intention on living this same life tomorrow let alone 30 years from now. And furthermore, I do kind of like expensive things (though more along the lines of a Dyson than a diamond).

Planning for the future is absolutely imperative, but relying on some set formula to determine how much you’ll need to save is nuts. What you need to do is figure out the kind of life you want to live 30 years from now and put the steps in place to make it happen (same goes for non-financial goals as well). It’s possible that you and your spouse may have different ideas about how to spend your golden years. Save enough for both. My husband’s idea of retirement bliss is living in a cabin on a small lake; he plans to fish all day. I want to travel Europe and spend the summers in Napa Valley. We better save enough money for him to fly out and visit me sometime.

Regardless of where you want to go in the future, the message is to plan to get there. You may never win the lottery, but hopefully, you have the next best thing: time. If you haven’t heard, the eighth wonder of the world is compound interest. Here’s the formula: Future Value = Present Value (1 + interest rate in period).
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