There are four major reasons why people fail to adequately prepare for retirement. The short series of articles will discuss the reasons why people avoid thinking about and planning for the future, especially our financial projections.
The first stumbling block to preventing us from taking a serious attempt at our financial projections is simply our difficulty in getting started.
We always put off difficult things until tomorrow. Even by taking into account the importance of the matter our tendency is to ignore a task that is too complicated or too sensitive. More so if there is no self-imposed deadline.
In fact, in situations we believe to be difficult, our tendency is to procrastinate — and that seems to be even stronger when we are looking at our personal finances.
“Retirement is years away. I’ll get to it later.”
Unfortunately, delaying seems to be the norm. Especially when we ask our friends if they have prepared a retirement plan and they react similarly — they haven’t prepared a plan either — so we feel vindicated.
It may also be the case that some people are very uncomfortable with predicting their own futures. They don’t want to “tempt fate” so they look at forecasting their financial situation as being an exercise filled with trepidation or fear. Predicting what their future life will look like is a daunting exercise for many people and they recognise that their financial condition is a huge part of that future life, second only to health issues. The fact is that discovering that their future cash position (income less expenses) will fall short of their expectations is worrisome for many people. Unfortunately, they often take the attitude that if they don’t know what their financial future looks like they don’t have to be concerned about it. Not a good strategy.
Part of the hesitancy can also be compounded by an inability to use a spreadsheet – a fact only too common even in today’s technology world. They may be on Facebook, but they may never have used Word or Excel. Moreover, even those who have used spreadsheets may feel that for something as important as their own financial projections, their expertise is lacking, so they won’t use the spreadsheet.
The outcome therefore for many people is to ignore the entire exercise. Thus, should their future cash flows be negative (expenses greater than income) they will never know – until it is too late to fix. This is not a good position to be in.
The solution is simple. Pen and paper. Ideally kept in a safe place to allow reviews and revisions later.
Personal and/or family circumstances change as we progress through life in a variety of ways, but financial issues can swing wildly and unexpectedly. So, at the very least we should review our retirement forecasting every year, and if we have no material updates, we at least can take comfort that we looked.
For those of us smart enough to start the exercise of forecasting there is the “golden rule” of budgeting — don’t cheat.
The underlying point is that if we do cheat, we are only cheating ourselves. It doesn’t matter to anyone else whether we forecast good or bad projections. Cheating can consist of over-estimating income in the future — we may believe we will get a better job or a promotion, or maybe win the lottery, but none of those should be included just to make the numbers look good if there is any chance of that not happening.
Under-estimating is a serious problem if we forecast that our future expenses will be less than they will actually be. Expecting our car to last for the rest of our lives is unrealistic. We may think our house will not require painting or roof repairs but again our forecasts are nothing more than convenient dreams.
In other words, many of us know that we will “fudge” the projections in advance, so why bother starting?
So, whatever your reason to not get started or keep putting it off, the solution is to make a first attempt, think about whether you have cheated (yourself), then review it a week from now and revise as necessary – perhaps by then your trepidation about never starting will have subsided.
In any event the importance of projecting your financial numbers is critical – perhaps not today, or even tomorrow, but in your later years you will be grateful you did get started. Just do it.
Bill Storie is CEO of The Olderhood Group Ltd, a Bermudian company and exclusive Bermuda partner of Career Partners International, with more than 350 offices worldwide. He is also producer and host of The Ozone a weekly radio show on Magic 102.7FM. He can be reached at www.olderhoodgroup.com or Bill@olderhood.com