“Starting salaries are not always large, and these days people are often well aware of how their salaries compare with those of their colleagues. This contributes to the feeling that when you’re struggling to afford the basic necessities, saving for later is impossible.”

This is really important to remember. When you’re making $40k a year it is very easy to dismiss saving/investing/retirement options altogether, because you’re barely scraping by.

Then when you’re making twice that, maybe you upgrade to a slightly less dire apartment, or lease a new car, and then you can make the same argument about barely scraping by…

Unless you slash your costs at some point (preferably very early on so it becomes habit) you could conceivably be one of those sad people who makes $500k per year and has nothing to show for it.

Like the former i-bankers who now work at Starbucks. They should have been saving, at some point, before their luck turned. Almost as sad as lottery winners who go back to quiet poverty after 18 months of reckless spending.

John DeFlumeri Jr

And he didn’t say to ignore the future. He said don’t focus on it at the expense of your present. And I fully agree.

This doesn’t mean you should only focus on today. OR only on retirement. It means you should weigh the opportunity cost of every dollar and every action. Saving has a cost. So does spending. And each has risks.

The reason I rail on traditional “retirement plannning” is because in it’s typically recommended form it violates extremely important tenets of personal finance.

Most recommendations, yours above included, espouse a variation of enrolling in the company retirement plan, or an individual IRA plan of some type. Slam 10-15% automatically…”you won’t even notice” type advice and set it and forget it.

Crock pot investing.

Here is the problem. The number one rule in personal finance is to pay attention.

IT applies to ALL parts of finance. Pay attention. To what you are doing, how you are doing it, when you are doing it and why.

Wealthy people, successfull people pay attention to their money. It isn’t automated and it isn’t on autopilot. We check on it. Watch it. Control it. Move it. Adjust it. All the time.

But traditional retirement planning encourages you to not pay attention. Forget about it instead. And it also violates the second most important item in personal finance.

Control.

Put your money where you can control it. Where you understand what is going on. What you understand.

Mutual Funds are the opposite of contol and knowledge. Most people don’t have a clue what their fund invests in, and have zero control over those investments. And they pay a nice fee for that lack of contol and knowledge. Isn’t that great.

Buying individual stocks at lest affords control. But most investors still don’t know what they are doing. They don’t understand the stock. And they get creamed.

Investing is a zero sum game. For every buyer ther is a seller. For every winner there is a loser. Guess who the losers are. Joe average and his retirement portfolio. Same with casino’s. They didn’t get built off the winners.

Why not put your money in something you know. Something you control. Something like
Your own business, or classic cars, or antiques, or rental property, or land, or commercial investments or a myriad of other things.

Example. Parents want to buy a lake home in 5 years when they retire. They are saving fervishly in their IRA’s for the place. Putting in $1000 per month plus heavy 401(K) contributions. They plan to take it all out in 5 years and buy their dream. Typical PF advice would be on the allocation of mutual funds for thaose 401(k)s and IRA’s for the next 5 years.

Here is the advice they should get. Forget Mutual funds. Stop contributing to your retirement plans.

Buy the lake home now. Get a loan with a $1000+ payment. The interest is tax deductible, just like the IRA/401(k). You get to buy at cheaper prices now, and enjoy using it for 5 years. The appreciation on the home is non-taxable, and there is no lump sum withdrawal tax like there would be on your retirement plan.

Now they understand where their money is going. And they control it. They control the upgrades. And they get to enjoy their present.

Remember what outlaw already knows. Your present is guaranteed. Your future is not. But that future is dependent on your guaranteed present, so don’t sell it out for your future self. You might be real surprised what your future self thinks.