Should I invest in shares? Should I buy an investment property? Both are right and wrong. Wealth accumulation is not so much about where you put your money but more about your attitude to and emotional relationship with money.
As people approach their 50’s and 60’s and retirement looms, they often realize that they don’t have the money they thought they would have. The years fly by and suddenly the lack of finances shocks. Today, with bank deposit rates very low, retirees need a much larger amount of capital than in years past when interest rates were five percent or more.
If you are in your 40’s or 50’s, there is still time to make up for lost ground because of the effects of compounding interest on your investments. After age 65, this becomes more difficult with many retirees staying in the work force not because they want to, but because they have to. While financial crisis occurs every few decades, there are some decisions made that cause the sabotaging of financial accumulation.
Let’s look at some common mistakes, and perhaps you can explore some of these in your life:
1. Not Appreciating Money
Did you grow up feeling almost apologetic or guilty about earning money? Did you associate being rich with thievery or unethical behavior? It is surprising how many people have these values instilled in them from an early age. The upshot of this is a lack of appreciation for money.
If something appreciates, it grows. If you buy a house, over time the value increases; the house has appreciated. If you buy clothes––while important––their value doesn’t grow. Try selling your underwear to someone; get the picture?
If we render a service or product, and we value what it is we are offering, then we usually get paid more; there is a fair exchange. If we don’t value that money, we find a way of depreciating or losing it. That costs us in the long term.
Appreciating money means that you look at money as a transference of energy. You give out energy––your products and services––and in return you receive energy back in the form of money. Today that money is, in fact, electronic. We often don’t see the paper money. Money is transferred into your account online, and you spend it likewise or by using a credit card in a machine. The principle is the same.
2. Not Having a Plan
Most people do not have a plan for wealth accumulation. They think it will just happen. Their employer is paying contributions to their retirement and perhaps they are contributing as well. What they don’t do is lay out goals of how their “nest egg” will accumulate over one year, five years, ten years and beyond.
What we often don’t calculate into the equation is what will the cost of living be in the future? Assuming an average rate of five percent inflation, the cost of living doubles every 14 years. In conjunction with this, what sort of lifestyle will you want to live in your retirement years? How much will that cost you, taking into account the rising cost of living and the amount of capital you will need to fund that lifestyle?
These are questions we all need to answer for ourselves and ultimately, planning is critical.
3. Embracing Instant Gratification
Several decades ago an experiment was conducted at Stanford University with five-year-olds. The researcher offered a marshmallow, to each child. They were told that if they waited until the researcher came back in the room that he would give them two marshmallows. The research continued over 40 years and those who had delayed immediate gratification were the most successful in many areas of life.
The high level of debt today in western countries is an indication that many people put their financial future at risk by seeking instant gratification borrowing money. Do you need that extra large house? Can you do with a bit less? What about running out and buying the latest and greatest in technology as opposed to waiting a couple of extra years? If you add up the interest costs over the years of this strategy, you realize how much this has cost you.
If this is your habit, perhaps you need to prioritize how you spend your money and exert some discipline over spending. Wait until you have the cash, and you will save yourself a fortune in some cases.
4. Investing With Family And Acquaintances
If you are going to invest your money, do so with third party independent firms. It is easier for family and friends to entice you into an investment opportunity especially if they have some knowledge of your financial position. When you have committed your funds in a joint investment, it is much harder to extricate yourself from them because you have an emotional connection.
It happens more often than people think and because we don’t want to “hurt” our family or friends, we are more accepting and likely to make ill-informed decisions. We have seen too many instances of this resulting in devastating results.
5. Giving Control Of Your Money To Others
Not being in control of one’s money has been the ruin of many. There are investment vehicles that bundle your money with that of other individuals and sometimes getting your money out can be a nightmare. It can happen with unit and property trusts––especially the private ones. Sometimes your money will disappear if the investment goes bad or you may not be able to get all of your capital back if you need to.
In some schemes, people invest their money with a supposedly, prominent investor, only to find out that they are running a Ponzi scheme using investors money to fund a lavish lifestyle. Remember that if someone is offering high returns; run! They are almost always a con. The older you become the less you can risk.
When it comes to your money, be a control freak; empower yourself.
If you are in a sound financial position, consider forwarding this article to your children. It may save them years of anguish.
Note: This article does not endorse any particular investment. For your individual situation consult your financial advisor or accountant.
Editor’s Note: Dr Adele Thomas, semi-retired medical doctor, and Dr Ely Lazar, retired chiropractor, are on a new mission as the Passionate Retirees. They are dedicated to inspiring the over 50s to live fulfilling and adventurous lives, so that “the twilight years will be the highlight years”. Their book, “Travel Secrets For Seniors” was released in early 2014. With more than 80 years combined of professional experience, their articles, books and workshops cover a range of topics from travel, health, relationships, sexuality and finances for seniors.