Published: 2023-11-17 00:00:00
"Save 10% of every paycheck, and you will be set for life" - or some variation of this - is probably familiar advice when it comes to saving for retirement. But why is saving for later so important, yet so challenging for many of us? Wouldn't you want your future self to be able to thank your current self when you are retired on a Caribbean island? We're not advocating living on pennies to retire as early as possible. We're talking about enjoying your life now and later because it's much shorter than you think. And, thanks to the power of compounding interest, there is still time.
In Tim Urban's Wait But Why post, "The Tail End," he discusses the finality of life in terms we can all appreciate. Once your children are 18 years old, you will have potentially spent 90% of the time you will ever spend with them. Depending on your and your child's ages (or your parents' ages), you may only have a few hundred days left with them. If you go to the beach once yearly, you may only have so many beach visits left. Trips with your college friends? If you see them only once every other year, your trips might just be numbered to 30. So, what is the point of Tim's analysis in his blog post? It's that mapping out your priorities and the quality of how you spend your time matters. (Read more on Tim's blog post for an exact breakdown; it is very insightful.)
So, how does this relate to financial savviness? Financial savviness is your ability to make sound decisions about your financial matters. When you make financial decisions now, you are also shaping your future financial situation. Do you want to buy a new car this year, or could you wait, invest that money, and secure future vacations with your children? Do you want to remodel your kitchen, or would you prefer to retire three years earlier? With every decision, we face an opportunity cost in the future. There is no free lunch when it comes to money.
Now that you understand why financial savviness is important, remember that while saving money for the future is essential, you still have a life to live now. As Confucius said, "Every man has two lives, and the second starts when he realizes he has just one." There are five aspects that need to be addressed when surveying your personal financial situation: income, spending, savings, investments, and protection.
For your income and spending, simply spend less than you earn and aim to save 10-25% of your earnings. First, save 6-12 months of your monthly income as a safety net. Then, start investing the rest in your brokerage and retirement accounts. After that, purchase insurance to secure your family's future in case something happens. The hardest part about developing your financial savviness is battling human psychology and building an investment portfolio. You can learn more about creating good habits to battle human psychology from James Clear's book, "Atomic Habits."
Here at Arbitrage, we can help you build a bulletproof investment portfolio that can not only help you save for retirement but also secure your current financial situation. We recently released an updated version of our AI trading system that allows investors to have Arbitrage trade autonomously for them and increase their returns. Investors have the potential to see returns of up to 120% in one year. This differs from your traditional retirement account since there is no penalty or fee for withdrawing before you are 65. An Arbitrage investing strategy, coupled with traditional investing and savings accounts, can be the foundational building blocks for you in developing financial savviness and the financial future you want.
You can learn more about Arbitrage Trade at https://arbitragetrade.com
This is not investment advice.