Mind the Gap

How many people do you know who want to retire early, or leave their job for one reason or another? At first glance it seems like it would be awesome – plenty of free time, nobody telling you what to do, it’s like moving out of your parent’s house all over again! And I’m all for this, although I’ll be the first to admit early retirement just isn’t for me – at least not in the traditional sense. But I’m not discussing the pros/cons of early retirement – in the next few paragraphs I’d like to identify some things I think many of us overlook in our race to the finish.

First, and this is a biggie, health insurance. You are eligible for Medicare three months before your 65th birthday to 3 months after. There are some additional opportunities for those with disabilities, but let’s stick to this. If you retire before age 65, and you had been relying on your employer’s healthcare plan take a look to see what you’ll do when you leave. Does your spouse have a plan? Will it affect any of your children who may still be on your plan (under age 26 or disabled)?

I encourage everyone to make sure they (1) have identified what they’ll do and (2) are sure they can afford the option(s) chosen. It would be horrible to work off the premise you’ll use COBRA and then find out you can’t afford the premiums, or that it doesn’t cover you until you’re Medicare eligible. If leaving the work force before 65 is on your radar, healthcare should be one of the first things you consider.

Next – what are you going to do with all that time? For most of us work accounts for at least (8) hours, 5 days each week. Not counting travel time or other jobs (side-hustles) you may have. This time is occupied, even if only with “busy work”, not requiring much on your part to entertain yourself. What would 52 weeks of vacation be like for you? Could you afford it?

I urge you to consider this seriously, because I’ve heard several “rules” of thumb when it comes to retirement and I’m not fond of any of them. For example – the rule you only need 80% of what you’re currently making. This is a great rule IF, and only IF, you are in the minority of the population who is saving at least 20% of their income. If you’re not, why would you spend less when you have more free time? Sure, you may fill some of this time volunteering and with hobbies, but rather than just jumping right in try taking mini-retirements first – vacations without trips planned, because in most cases it’s not realistic in most cases you’ll be able to take trips each week – while spending what you’re spending now. 

Last, and not in any way least, understand your why. Are you doing this because it’s the “thing” to do, because you have a bigger vision you need time for, or because you want to relax and enjoy your later years? There’s no right or wrong reason, but the more connected to your why you are the more likely you’ll do whatever it takes to make it happen.

And that’s the point I want to stress – no matter what you want to do, or why; if it’s important to you treat it that way. If you want 40+ years to yourself in retirement, make sure you have enough money to fund it – even if it means making sacrifices now. Only, if it’s what you really want they won’t be sacrifices; they’ll be steps on your journey to your ideal state.

If you’re retiring before Medicare eligibility, consider investing into a side account, at least equal to your current insurance premiums, to be drawn from later. If you want to live on a beach or in the middle of the woods, would it help to pay off your current mortgage to maximize the money available to purchase these cottages? Just food for thought, and don’t feel bad if you don’t have all the answers. Talk to your advisor(s), friends and family – use them as sounding boards (but not final decision makers). Look for those with similar goals and see what they did to accomplish their goal; or have done to put themselves on track. And learn from their mistakes – not reinventing the wheel goes for the bad as well as the good.

 

Side Hustle, What?!

When I was younger if you had a second job, it was just that – a job. It wasn’t anything to celebrate, because often you were working to help pay your bills. I’m not sure what’s changed, and I fully admit I’m not 100% in touch with current lingo – but as I understand what I’ve been hearing, a “side hustle” is something people SHOULD have.

I can think of many instances when this is a good idea; for example if you have a hobby  you’re trying to become better at, in the hopes you can make it into a career (i.e. wood carver). After all, assuming the following:

1) Malcolm Gladwell’s theory it takes 10,000 hours to master a skill is accurate

2) We work and sleep on average (8) hours per day

3) We can spend (4) hours of each day (Monday – Sunday) working on our skill

It would still take us almost (7) years to become a “master” (6.85 years). That’s a long time to work on something for no reward (other than the satisfaction of becoming better). So getting paid to practice could be a great way to both stay motivated to learning and put a little extra cash in your pocket.

However, I question if this is why most people have a side hustle – I think for many it’s a way to increase their income. Nothing wrong with this, if you’re honest with yourself and you know what you want the money for. If it’s being used to cover monthly expenses, then I encourage you to revisit your spending habits. On the other hand, if you’re using it to save for a specific goal; just to have some extra cash; or as I postulated above, to get better at a skill more power to you!

Here’s where I become an old fuddy duddy (as proven by using the words “fuddy duddy”). When you consider a side hustle, and are determining how much money you’re going to make – please consider the associated expenses. This means if you’re driving for one of the ride share apps consider the increased frequency of required maintenance (oil changes, detailing, brakes, etc); the same goes if you’re renting a room or your house – typically there are additional expenses, including insurance, that often go overlooked.

If you’re “earning” $500 per month, but spending an extra $300/mth doing so evaluate if it’s really worth it. Many of the side hustles I’ve seen people do have the potential to be very lucrative; but like anything if you don’t know what it’s costing you you cannot be sure you’re really making a profit.

If you’re not sure how much you’re really making, track your cash flow. This is nothing more than the money coming in vs the money going out. You can set up a tracker in basic tracker in excel or talk to a financial advisor.  I like to see my clients saving at least 20% of money coming in for goals (not just retirement, things like trips to Disney & new cars as well). If you can’t, even with the side hustle, I would encourage you to evaluate where your money is going – and not just take on something else. And remember, although I’ve only talked about money; there’s another cost to be considered – time. Use it wisely, I don’t know of anyone who died wishing they’d spent more time working.

Walk before you Run

I don’t think very many of us step foot into the gym after a prolonged absence and decide to push yourself as hard and as fast as you can – at least not more than once, especially if you’re older than 40. We know, or at least have a fair idea, if we did it would not be pleasant (to put it mildly). Yet many of us are so quick to think other aspects of our lives, specifically financial, would be any different.

I get it, I hear many of the same “experts” telling us we need to save more and spend less – and we do! But, and this is a very big but, you should not think you can suddenly do a complete shift and sustain it. You need to train yourself, just as you would if you were going to run a marathon.

Saving/spending are just as much habits as smoking or making coffee every morning (my personal vice). Yes, in a perfect world all of us would be saving at least 20% of every check towards clearly defined goals (retirement being just one of them); but this isn’t a perfect world – we all have other “stuff” going on that can distract us. So rather than try to make a drastic change, and then quit because it’s too hard, start smaller.

Although transportation and housing make up a significant portion of our spending, many of you reading this are probably not in the market at this time – so there probably isn’t much opportunity to reduce your spending here. However, if you are in the market, or if you haven’t looked into refinancing and you’re mortgage rate is over 5%; here are a few things you can do to help yourself.

Aim at keeping the house and auto payment down. If you have to finance a car for 60 or 72 months, consider a less expensive option. Cars are depreciating assets – meaning you will never get the money you put into it back. Refinancing your mortgage could free up some cash – and since you’re used to not having it go ahead and put it directly into a savings/investment account; don’t spend it.

For the rest of us, track how often you buy something every day/week. For now, don’t worry about how much you’re spending, this is to determine your purchasing habits. For everything you buy make a note of “need” or “want”. What drives your purchases? Are there certain times of the day you are buying more frequently, is it just super easy because your card info is saved on the website? These are the types of questions you should be asking yourself.

From here, pick one thing to change and commit. Maybe it’s deleting your card info from Amazon Prime, or you don’t hop on the computer right after work because it leads to retail therapy. Whatever it is, just make (1) small change and stick with it for at least (3) months. Easy way to track – Federal holidays. If you start something around the 4th of July, next step is reevaluate around Labor Day or Thanksgiving. No reason to make it super complicated, the easier it is the more likely you’ll follow through.

What you shouldn’t do: don’t suddenly increase your 401(k) from 2% to 15%; that’s too much of a shock to your system. Don’t tell yourself “I’m just not going to shop anymore”. That’s a punishment, not a constructive realignment of your attitude and behaviors (fancy talk for making yourself miserable). If you’re in a committed relationship with joint finances – don’t make any changes on your own. Have an open dialogue, and if necessary, use an impartial 3rd party to help steer it. Pick a pace that leaves you a little uncomfortable and get started. There’s no better time than now.

 

Don’t Let the Tail Wag the Dog

I enjoy coaching business owners, helping them determine where they can increase efficiency and dial in their focus running the business – as opposed to the business running them. Over the years I’ve found some very common themes – “not enough time” and “too much to do”; both of which can be addressed by stepping outside the business and looking at it as a perspective buyer, rather than the owner. Buyers look for opportunities and weaknesses (so they can bid the price down), they’re not emotionally invested in the company and won’t make excuses about why something is happening.

Unfortunately, many of us get so wrapped up in the day-to-day operations we lose sight of the bigger picture – where we want our company to be in 5, 10 or 20 years; and what is the core service or product our business provides. If you don’t have a vision for your company, or if you can’t put your finger on the core service/product, then ask yourself why you’re a business owner. Sure, there’s a lot of hype right now encouraging people to be entrepreneurs and chase their passion; but that passion may be met through hobbies or volunteering at much less cost than starting a business.

Same goes for “side hustles”. Unless you’re working part-time for someone else, you should be treating your hustle like a business. If you’re an Uber or Lyft driver, or you rent room(s) on Airbnb, then understand what your expenses are – please don’t delude yourself into thinking what you earn is “all profit”. I would also like to encourage those of you with side hustles to ask yourself “why”. Why do you have the hustle, what is the money going to help you do? Take this answer and make sure you’re taking the steps necessary to follow through.

Perhaps you’re saying “sure, this all sounds like a great idea; but you just don’t understand how busy I am”. Again, I challenge you to think as a buyer. Do you care how busy someone is, do you let them off the hook for a poorly delivered service or product? No, of course you don’t – so why are you treating yourself any different?

Make the time. Set at least one day each month aside for your business. Instead of arguing how much business  you’re going to lose (cost); think of it as an investment which will increase your profits by improving efficiency and honing your focus. Create an agenda for your day, and follow it. It’s going to feel weird at first, and maybe you’re not super productive right away – it’s a new skill and it’s going to take time to get good at it. Don’t give up, push through. If you’re not sure how to start find a mentor or hire a coach.

I need to stay busy, but I don’t like to waste my time. Think back to why you started your business or side-hustle; I’m willing to bet it wasn’t so you filled your every waking moment with work. Be honest with yourself, do you really want to run a business? Be okay with the answer, whatever it is, and take the necessary steps to be successful. Just do something.