Here's a provocative headline: "Why saving money isn't the secret to retirement."
I like the simple solution to living a good life now while still looking forward to a comfortable retirement devised by Tracy Piercy, founder of Money Minding and an author, speaker and financial educator.
Instead of saving/sacrificing now or investing too aggressively, Piercy says, people should "find ways to earn more than they spend."
When people fear they have to sacrifice day-to-day spending to put enough aside for retirement, they are more likely to borrow to avoid missing out. And/or if they focus on investments to produce the money they will need, they might make high-risk choices.
"For example, if you like eating out and that costs about $400 a month or $4,800 a year, think how you could earn the money to pay for this expense - rather than cutting back or adopting lottery-type behaviour with investments," Piercy said.
She advised one couple to start a blog with restaurant reviews and advertising to pay for their eating out - and deduct the expense. They ended up writing a book for tourists who visited the area and then licensed the whole system to sell to others.
The point is to change your attitude, to think in entrepreneurial or other income-boosting ways like renting, leasing or licensing - even something as simple as "renting out yard equipment, games or books to neighbours," Piercy said.
She suggested three simple steps: n Calculate the real cost of your ideal lifestyle. n Come up with ideas to fund it. What expertise, experience, interests or hobbies do you have? n How could some or all of these be turned into a profitable sideline? This approach would definitely be better than borrowing or investing too aggressively to pay for the ideal lifestyle both now and in retirement. And you could also enjoy tax benefits like claiming deductions and splitting income (shifting income into the hands of family members in lower tax brackets).
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected]
