Let’s talk retirement…. do you know how much money you need to have saved? More to the point, how much should you have saved by NOW?
Most people don’t like to ask the questions, because they’re afraid of the answers. But this particular issue is not going to go away. And the truth of it is, the sooner you know the answers, the sooner you can find a path to a solution.
Researchers have found that “one of the highest determinants of success is HOPE!” And so, despite how far behind you might feel, it’s important to know that there is a way. And you WILL find it!
[00.26] The three big questions people ask A LOT when it comes to money.
[01.36] Your perception of ‘normal’… and how easy it is to kid yourself.
[04.10] How much you need for retirement.
[05.14] A formula to work out how to know if you’re on track now.
[08.14] Now you know what you need, now what? TOP TIP: One of the highest determinants of success is HOPE! And there are two key things that need to be in place…
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Quotes from this episode
“One of the highest determinants of success is HOPE.” – Lisa Linfield
“You need to totally own your retirement situation”. – Lisa Linfield
“There are SO many opportunities out there – including the fact that you may choose to work longer.” – Lisa Linfield
“You own it… and you’re a highly talented human, and you CAN find a pathway.” – Lisa Linfield
Welcome to Working Women’s Wealth, where we discuss what it takes to build real wealth in a way normal humans can understand. Here’s your host, Lisa Linfield.
Hello everybody and welcome to today’s episode of Working Women’s Wealth. There are three big questions I get asked a lot when it comes to money. The first one is, how much do I need in order to have financial freedom? The second is, how much should I have by now? And that usually leads people into asking the last question, which is, well, then how much would I need to save each month in order to get there now?
So often these questions are really hiding a different story. People know that there haven’t been saving enough so they are hoping that the answer won’t be so bad, but many people don’t even get to asking the third question, what they need to save, because they don’t want to know that answer. Somehow we believe that if we kid ourselves that if we don’t know the answer, we won’t need to do the work to save that money, and it will somehow go away.
I need to tell you friends, that problem is not going away. But just the other day I was having a chat to a friend about our perception of normal and how easy it is that we can actually kid ourselves. I was saying that health and wealth are so closely related in mindset and concepts for success, but for me, I had a big shock in January when I did my annual measurements with my personal trainer. It wasn’t a shock because of the scale, it was a shock because of the trend. You see Carl measures me every year and because I’ve been going for so long, I happened this time to look at his computer as he typed the measurements. I was patting myself on the back that I was done from January last year, so I was thinking I was a rockstar, when I happen to see my weight from three years ago, which was literally five kilograms or around 11 pounds lighter.
Now for me, so long as I fit in my CO’s, I don’t have a big heart attack about weight, but what struck me was about how numb I had got to this heavier level of weight. There was thinking I had done so well patting myself on the back, but had completely missed the point that there was only because I’d actually just got used to being so much bigger. Now, money is the same for us. We all have our comfort zone of spending, our comfort zone of the level of debt we can tolerate, or our comfort zone of what the right level of regular investments is for us. The problem comes when we creep out of those comfort zones, and then creep out so far that getting back to it becomes a real struggle and commitment of discipline, rather than just a mild correction of behavior. And as much as I’d like to focus this year on reclaiming my health and put in a discipline action for that, I’ve also now had to focus on pulling back my expenses so I can invest more, in my case into my business.
I’m wanting to launch my book in June, which has made me ask, well, how much do I need to launch a book, and where am I going to find that money? Which has then led me to make some very tough spending decisions and make those calls to start saving more money for the launch, but I guess have a clear vision for my book. So it makes the short term pain worth it. So coming back to our three questions, how much do you need? Well, as I say many times, that depends on whether you want to live in a flat in New York or a beach cottage on a remote stretch of coastline. Once you have a clear vision, you can work that out. But the rule of thumb to give you a general indication, not your personal number, but a ballpark, is that you need three million rand for every 10,000 of monthly pretax expenses, or $300,000 or pounds for every $1,000 or pounds of pretax expenses.
So for easy math, if you’re spending 50,000 rand a month, that’s five lots of 10,000, which at three million per 10,000 means that you need 15 million rand in today’s money. Bearing in mind that each year as your expenses rise with inflation, that number will rise with inflation too. And if it’s $5,000 or pounds per month, you need one and a half million dollars or pounds. It’s based on what’s called the 4% rule. So that if your money you’ll need in retirement increases with inflation, how do you know if you’re on track? And that’s the second question I get asked. To answer that question, I turn to my favorite book on personal finances, the Millionaire Next Door by Thomas J. Stanley.
The answer is a little formula that I’ll walk through slowly and you may want to grab a pen if you’re not listening to this while you’re driving. You need your average age multiplied by your pretax household income divided by 10. So let’s walk through an example. You know I need easy numbers. So let’s say the average of you and your husband’s age is 45 years old, and you earn together one million rand, or $100,000, 45, your average age times one million, your pretax household income is 45 million divided by 10 is that you should have four and a half million rand by now, or if we’re doing it in dollars, 45 times $100,000 or pounds is 4.5 million divided by 10 means that you should have saved $450,000 zero pounds by now.
I had a couple of young 28 year old lawyers visit me, who nearly had a heart attack when I told them the answer to that calculation. They were very far short, “But we’ve just started work,” they said, “And that’s the problem.” I answered. You see, the retirement age of 60 was made in the early 1900s, not only did only 10% of the population ever make it to 70 at that stage. People also didn’t take gap years, get three year degrees, then two year master degrees, and then have to do internships to qualify. They finished school at 17, got a job immediately and did a degree part time, and started contributing at that age to their retirement.
Now some of you have heard about the surprising discovery I made recently. I track our investments regularly and we have spreadsheets dating right back from when we got married 15 years ago, but I’m a person who thinks in pictures and for some reason I decided to convert our assets in the spreadsheet into a pie graph so I could send a nice pretty picture. For the first time it struck me that 65% of all of the money that we currently have comes from investments we made before the age of 30, these are our UK investments, which we left there when we moved to South Africa when I was just 30.
So all our money stayed there and the income from that rental flat was reinvested to buy shares. It forced an almost ring fencing of that money that unlike most people we didn’t use the money we made in our 20s to fund our life in our 30s as we started a family. We started our 30s totally from scratch again, buying everything we needed and starting from zero. So now you know what you need, and you know whether you’re on track or not. Now what? In my book that’s coming out in June, I write about a surprising discovery I made, that one of the highest determinants of success is hope. And one of the key researchers, Rick Snyder, determined that there were two key things that one needed to be in place for hope; agency or the belief that I personally own the goal, and second, ability to find successful pathways. And that’s all about the fact that come what may, I’ll find a way to make a plan and I believe that I can find a way to make a plan.
So if through this episode you and I are left thinking, it’s hopeless, I’ll never be able to do this. I urge you to think about the key to success. Hope. Firstly, you need to totally own your retirement situation. It’s not your partner’s problem, it’s not your children’s problem. It needs to be your problem, even if your partner is the primary breadwinner, you will never truly feel that you personally own the goal whilst you’re still thinking that it’s his problem to solve, you need to see it as yours, and it is yours because life is unpredictable and we don’t know what’s around the corner. Secondly, you need to believe that you are totally able to find a successful pathway to closing the gap between what you have and what you need. There are so many opportunities out there, including the fact that you may choose to work longer.
You may be forced retired at 60, but if you know now that you need to work until 70 which trust me in this day and age is not old. I have 60 year olds all the time being upset to have to stop work at 60. Then, if you know you’re going to need to do that, you can start planning for a successful post 60 work-life. You own it and you’re a highly talented human and you can find a pathway. If you wanted to kickstart your financial freedom, I’ve got a six day free video series called the Six Day Money Sprint available, and if you go to workingwomenswealth.com, you are absolutely able to start that program right now and I promise you it’ll change the way you think about it. It’s a lovely set of videos and nice set of things to think about and it gives you a holistic and overall picture about getting to financial freedom.
Alternatively, if you wanting to really kick start earning more money to close that gap, the doors are currently open for my course, Business School for Startups, or the 16 Week Side Hustle. And if you head to workingwomenswealth.com, you can read more about that, but you’ll need to hurry because the doors close tomorrow, Thursday the 12th of March, but that is a great way to continue that earning, especially if you’re kicked out of work at 60 because you’re forced retired by a company. Start now to develop that business that’s going to be the side hustle, the thing you love doing with all your passion so that you can work until you’re 70 and close that gap. Have a great week everybody, take care. I’m Lisa Linfield and this is Working Women’s Wealth.