Katy recently told me that her company had completed a tender for new cleaning services. She was working late the other day, and she met them. The tender “winners” are an older couple in their sixties who can’t afford to retire, so they have started an office cleaning business. Instead of the happy retirement life of sun-seeking travel, relaxation, and comfort they had fondly imagined.
Now, I have mentioned before how little I like cleaning house, so I can’t imagine anything worse than cleaning offices at night. Especially some of the of offices I’ve worked in! A while back, I talked a little about the importance of keeping up with technological developments, though that was from the point of view of comfort and communications. That prosperity is more than money, and that planning for wealth includes elements of income as well as expenditure.
But back to our working retirees. There are two things I find disturbing about their situation:
- Their expenditure, debt burden, or both are so large that they have to continue working to support it.
- The only income producing option they could come up with was physical labour. With their poor, tired, old bodies.
Actually, there’s three; without conscious wealth management, we can all end up there.
Managing Expenditure
Can you imagine what it would feel like to be at compulsory retirement age knowing that you can’t afford to retire?
You’ve worked hard all your life, so you feel entitled to the luxury lifestyle you are living. You don’t want to sell your home and move somewhere cheaper (though the cost of doing so may not make this a feasible option anyway). You are accustomed to eating a rich and varied diet, buying clothes and household decorations on a whim, and upgrading your phones and cars when newer models come out. But you’re probably funding it all on credit cards thinking you will pay it off later (though you haven’t figured that bit out yet).
During my research for Holistic Personal Finance, I came across a frightening statistic. Given the power of compounding interest, if your credit card debt reaches your annual salary, you might NEVER pay it off. Or if you do, it will most likely be through extending your mortgage, which isn’t paying it off, just transferring it somewhere else.
Managing Income
When it comes to income, most people don’t think further than what they get from working.
And these days, you can quite easily set up or use an internet based business. You still need something to sell whether it’s a physical product you make (like cakes, art, or knitted scarves), an in-person service (like dressmaking, cleaning or child minding) or something online (like writing, marketing, or consulting). As long as it’s something that people are willing to pay for. And who amongst us isn’t willing to pay someone to get a little time back.
Aside from second jobs, you can generate income from making better investment decisions, like putting your money in a high-interest savings account while you wait for the bills to come in rather than leaving it in your low (or no) interest everyday account.
And you can generate income by not spending money, for example from growing and harvesting your own vegetables instead of buying them.
Managing Wealth
Ultimately managing your wealth comes from keeping your expenditure less than your income, whether you spend less, earn more or both.
Now don’t get me wrong, after five years of unhappy unemployment, I know it is hard to downsize your life. I know you keep thinking that it’s just a matter of time before the next pay rise comes through and everything is going to be ok. The “trick” is to upsize your savings and not your lifestyle when those pay rises finally arrive. To not let your lifestyle get so big you can’t afford it.
Living within your income is scalable; if you learn to live on a moderate income, you can easily live on a larger one. It takes a little discipline, but you can scale down to a tiny income too. The secret is choosing to manage your expenditure so that it doesn’t exceed your income