Many professions have a bad habit of making what they do far more complicated than it has to be. When I write “bad” habit, I mean bad for you. Lawyers, doctors, accountants, real estate agents, teachers, financial planners all benefit because you are not an expert and will need them to help navigate their domain.
Unless you are willing to take the time to learn about the task at hand, you are forced to pay for guidance. Almost always, this is expensive for you and sometimes, you can be given advice that is not in your best interest. The solution, of course, is education. The focus here is saving for retirement. It is actually not that complicated, but you have to be willing to listen to a few people who will not profit from giving you good advice. Let’s get started!
Let’s start by considering rule #1.
RULE #1: Pay off all your debts (except mortgage debt).
In our quest to simplify, we are going to avoid the often debated, never resolved question about whether you should pay off your debts before your start saving for retirement. Instead of one or the other, let’s take a middle of the road approach:
Pay off all debts (student loans, credit card, line of credit) but not mortgage debt before you start. This ensures that you have paid off the high interest debt AND you are still young enough to build up a nest egg before retirement sneaks up on you.
Of course there is an exception. If your employer provides you will matching retirement contributions, usually in a R.R.S.P., take it even if you have lots of debt. This is free money that should never be refused. The return of this money will always be greater than the interest you are paying on your debt.
At some point in your life, you are going to have to put yourself in a position where you are no longer in debt. The longer your prolong this date, the less time and money you will have to save for retirement. Collectively, we spend too much money and therefore save too little. But how much spending is too much?
If you don’t know how much you need to save, it’s sort of impossible to figure out whether you are on target or not. Before we look at that, make sure you have set up an emergency fund.
I’m a department head for a high school in Toronto. I graduated from the Ivey School of Business at Western University and have been a DIY investor for over 20 years.