Individual Cash Flow for the Young and Old

Planning for retirement involves amassing a nest egg from which to generate a stream of income to meet future expenses.  It may also involve generational wealth planning and charitable contributions, but for the majority of investors, a portfolio that generates a stream of income will be necessary after they stop working to supplement any social security or pension income they may have.  The fancy, technical word for this is the “distribution” phase of retirement planning.  From a corporate finance point of view, it is simply cash flow.  One way younger workers can begin to learn about managing cash flow is to start saving a little money from every paycheck.  Newer investors may even have experience saving for a new car or first home purchase.  With the mass-marketing of credit cards and car loans, fewer young Americans learn the basics of saving. 

Take heart!  You can start saving with as little as $25/month and grow from there.  If you have racked up some debt, again, take heart!  Implement a personal spending freeze except for absolute essentials (and redefine what really is essential).  Funnel as much money towards the highest interest rate loan, and work from there to pay everything off as quickly as possible.  If you have a setback and going on a frivolous spending spree, that is ok, pick yourself up, dust yourself off and start back at it.  By really working at it and learning how to use a monthly budget, you can begin to develop your skill of managing cash flow, which is a critical component to a successful retirement.  By starting early, you have the decades you spend in the workforce to hone your skill of managing cash-flow.  Retirement can be difficult, and life expectancies continue to rise along with the costs of healthcare.  Sharpen the skill as much as possible, because no matter how comfortable your early retirement may feel, you might need these skills in later years.  It is not as simple as taking 4%/year from your investments.  You really need to develop a feel for managing cash flow.  What I can do is provide you with some helpful tools, guidance, and lots of encouragement, because everyone can work hard, make small changes and improve their situation.

From the Investment Toolkit:

Personal P&L Budget Worksheet

As a gentle reminder, this is an area where you have complete control, unlike the cycling of the economy, volatility of the stock market, or actions of the government (such as setting tax code), where you have limited control.  So, this is a great place to direct your energy, unlike the aforementioned.

© 2012 Pawleys Investment Advisors, LLC.  All rights reserved.

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