Cash Flow for Life

The key to setting yourself up for a comfortable retirement is to devote some time to thinking about what your expenses are now and what they are going to be in the future.

You can only do this if you take the time to track your current expenses. Only then will you have the information to make a projection about what they are likely to be in the future. The vast majority of people never bother to examine or summarize where their money is going. That means a lot of personal financial planning is done “on the back of a napkin,” using easy and simplistic rules of thumb, which is extremely dangerous.

For example, there is a rough rule of thumb that you'll need approximately 70% of your pre-retirement earnings after you retire to maintain your standard of living.

I made the case in my first book, Smoke and Mirrors: Financial Myths that Will Ruin Your Retirement Dreams, that if you retire debt-free with a paid-off home, you could get by on as little as 40% of your pre-retirement earnings. That conclusion was based on a process I call “Personal Financial Tracking.” I used it for a sample family that I made up using reasonable figures and assumptions about their incomes, tax rates, housing purchase and maintenance costs, etc.

But it was all based on tracking the spending of the people involved.

Ever watched Gail Vaz-Oxlade's TV show called Til Debt Do Us Part? I love that show because it is based on detailed personal financial tracking. They always take the time ...

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