I recently received the following e-mail recently from “R”:
I will be 55 yrs old in another month (ugh!) and have made very poor financial choices in my life. Because of that, I have very little retirement savings (about $8, 000), nothing in my savings account, have a job where I live paycheck-to-paycheck.
I do have great computer skills, but no college degree. I have tried to figure out how to make some more money with my computer skills.
Right now, I am trying to figure out how to change my financial life.
I have a history of health and longevity on both sides of my family, so I am expecting I will live well into my 90s.
First off, I really appreciate the e-mail. There is a great deal going on here this and I want to break it down. As I see it, “R” has a number options – all is not lost! As always, I like to look at things in a linear fashion:
1. Stop beating yourself up
I’m not sure if I am reading too much into the e-mail, but I just want to make sure that “R” remains focused on the good things rather than on her mistakes. She has great computer skills, and it sounds like she isn’t in debt. That’s not a bad starting point if you ask me.
She has also realized that it’s time to make a change, and that’s really important. Lots of people come to see me when they are heavy in debt – and much older. “R” is being proactive here, and that’s great. I love it.
I know this sounds corny but the first thing I’d ask “R” to do would be to create a gratitude list, and write down all the wonderful things she loves about herself. This is going to instill a very positive attitude, which will translate into greater financial opportunities.
(Don’t worry… I’m not going “OPRAH” on you… I also have some very practical ideas to start putting some cash in her pockets.)
2. Break it down
If “R” focuses on the need to accumulate a massive retirement fund, she might get discouraged. A bad attitude is the kiss of death for financial success, so it’s dangerous to think about that right now.
For starters, “R” should consider launching a side business or getting a weekend job with her computer skills. Even though she doesn’t have a degree, she should be able to leverage her skills.
For the time being, I just want “R” to take action and get some side income flowing. With computer skills, it shouldn’t be hard to do. Once that money starts streaming into her hands, it’ll be time to consider if the job she has is appropriate, or if she can upgrade. I don’t know enough about her situation to say anything in detail here, but she needs to be sure that the job she has is the best value proposition.
Once “R” starts working that side business, she should set up a retirement plan. She’s going to have to be willing to compromise. Given her currently small retirement savings, she’ll have to work more years, and possibly live more modestly – but for now she needs to formulate a plan and work towards it.
Of course, any financial plan has at it’s core a spending plan. My experience tells me that your spending is the foundation of your financial future. I know plenty of people who earn more than a $1M/year but can’t afford to retire because they spend all of it – and then some!
On the other hand, there are plenty of people who have built a wonderful financial future on a relatively limited income. The difference? These people track their spending and understand just how important that is.
“R” should create a financial plan for herself, but she shouldn’t dwell on how far she has to go. Her plan is going to change and look better as she bumps up her income and starts tracking her spending. Her plan needs to be dynamic so she can refer back to it and update it often.
In summary, “R” needs to approach her situation one issue at a time. If she tries to process it all at once, she’ll be immobilized by fear and panic.
In summary, here’s what “R” should do:
- Build a rock-solid positive attitude by writing all the lovely, wonderful, and talented things she loves about herself.
- Get a side business/job.
- Implement a tracking system for her budget and spending.
- Create a mini-financial plan and update it as things improve.
Obviously, there are no magic bullets here. But without a firm plan, she’ll go nowhere fast. What other tips would you give to “R”?