Previously posted March 2, 2015
TD Ameritrade recently published a survey stating that two thirds of Americans had suffered some sort of financial disruption in their lives, which translates into $2.5 trillion in lost savings. While the numbers seem outlandish (158 million people, trillions in lost capital) the premise of the “financial disruption” and the opportunity costs associated got my attention. These disruptions to retirement savings include unemployment, divorce, health issues and buying a home to name a few. Over the past several years, I have gone through two of those four and I can say that my savings have been impacted.
The two questions that come up after reading these statistics are 1) how do I plan for something like this and 2) what do I do if it happens to me? As someone who has gone through it, the best answer is to reassess everything you are spending money on and make sure any money going out the door supports what you value most. If you must reduce saving, do it for as short of a time as possible.
So, how to plan for a disruption? Once again, start by looking at all expenditures and confirm everything lines up with what you value most. Doing this will allow you to confirm that you are only spending money on things that are important to you…or it will give you a chance to reduce the outflow. Another TD Ameritrade survey reveals how baby boomers successfully planned for their retirement years, and the top answers were saving early and consistently, in addition to living within their means.
So the three step process to prepare for a possible disruption is to save consistently, live within your means, and get your spending in line with your values. This simple, but not easy, process is what I’ve been doing for the past several years and why this site exists. I have used something called The Perpetual Wealth Code, which promotes saving at least 10% of your income while living on no more than 70%. The remaining 20% (in the beginning), is allocated to paying down creditors.
Even though I have suffered through a few disruptions in my savings, I can say that this process has made my future more secure and my life less dependent on explosive market growth. It can do the same for you.