Let’s Start with a Vacation!

If you’re someone living across the northern tier of the continental US, February can be miserable. Read these comments from Keith Ecker, a blogger who lives in Chicago:

T.S. Eliot got it wrong. February is the cruelest month. It is cold. It is gray. It is four months into Chicago’s winter with no jubilant holidays like Christmas or New Years to look forward to. It’s just a month of depression and death and bone-chilling awfulness, icy tears and frosty beards made frostier by my icy tears.

Even if you’re living in a warmer clime, February can be a grind. For many of us, it would be the perfect time for a vacation. So why not start planning one? No kidding…

You know what? This might an ideal “starter project” for you and a financial professional.

The Perils of Long-Term Planning

Planning for any future event can be daunting, but especially when it’s in an area where you don’t have much knowledge or experience. If you know almost nothing about physical training, are 20 pounds overweight, and don’t run any further than the distance from your couch to your kitchen to keep a pot of nacho cheese from burning on the stove, is it a good idea to a start a fitness plan by completing an entry form for a triathlon scheduled five years from now?

Maybe. For some, the magnitude of the goal, and their current lack of fitness, could be a sufficient motivator. But it might, just as likely, lead to discouragement and defeat if the goal is too big, too distant, and without enough psychological reinforcement to maintain training.

Sometimes it’s better to progress through a series of smaller projects. Each little achievement builds experience and confidence, and lays the foundation for more ambitious efforts.

A Fun Financial Idea?

There’s a parallel in the experience many households, particularly young ones, have with personal financial planning services. When they first meet with a financial professional, one of the first topics for discussion is usually retirement. Which, if you think about it, is sort of a triathlon-level personal finance project.

Here’s the all-too familiar scenario: You’re in your thirties, just getting established in your career, finally making a little more than your expenses, perhaps with a young family, but still dealing with student loans, weighing whether to make a 30-year commitment for a home of your own, and someone says, “You ought to meet with ___________; he/she is helping me plan for retirement.”

Retirement? You mean that thing that happens when you’re about 70? The thing you have to save so much money for because inflation will make everything so much more expensive 40 years from now? Do you know how discouraging it is to reach this point of finally getting your head above water, only to be told you need to start swimming upstream in order to have any chance of reaching the dry ground where you can finally enjoy life?

Whole bunch of metaphors there. But seriously:

What if your first “project” with a financial professional was a little less daunting? Wouldn’t it be fun (who uses that word when discussing personal finance?) to earn some sort of short-term reward for successful completion?

And whether the objective is an ideal retirement or a dream vacation, successfully accomplishing your goals is going to look pretty much the same, and require many of the same actions. You’re going to want to know you have enough money to spend freely, instead of doing without, skimping on the experience, or borrowing to make it happen. That will mean putting together a savings plan and finding the money, either by committing to delayed gratification or by eliminating the inefficiency and waste in your transactions.

The difference with planning for a vacation is the payoff could occur in one, two or three years instead of thirty. Not to diminish the necessity of saving for a long time to produce a comfortable retirement, but there’s significant psychological value in experiencing regular pre-retirement financial rewards from your management plans.

Planning for a dream vacation might seem disconnected from “long-term” and “important” financial objectives, but maybe not.

  Suppose the dream vacation is a 10-day river cruise in Europe. Estimated price for two, including airfare: easily $7,000, probably closer to $10,000.

  If you’ve saved that much money in the past two years, you probably have a true appreciation for what it took to accumulate it. It might even prompt you to consider what it would feel like if things changed – like your job, or your health – and you couldn’t continue to save – for vacations or retirement. Having begun to master your personal finances, you might place a higher value on those instruments of income protection, like disability and life insurance, to ensure you can keep on saving to provide great experiences in the future, including retirement.

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Posted in General Information, Retirement Planning