In today's video,
we are talking about why is
financial planning critically
important for retirement?
So why is financial planning
critically important for
retirement and why do we need
to focus on it right now?
I am going to share some
pretty outstanding numbers
with you that is going to
motivate you to focus on your
financial plan so that you can
retire one day.
All right,
part one,
the importance of retirement
planning.
Retirement planning is
critical because we need to
create that foundation for a
secure future.
Without proper planning,
you may find yourself
struggling to make ends meet
in retirement,
and we definitely don't want
that.
Retirement planning includes
setting up a savings plan for
yourself and setting up an
investment plan for yourself,
determining how much money
you'll need in retirement,
and creating that plan to
manage your money during
retirement so that you do not
run out of money.
I remember when I was trying
to figure out how much I would
need in order to become
financially free,
I kept running my numbers
different ways and I thought,
okay,
if I invest more in the stock
market,
I would need X amount,
and if I was to invest even
more in real estate,
I would need this amount.
And I just wrote everything
out on my marker board.
I wrote out the amounts in all
of my different accounts,
so I have a Roth ira,
a traditional ira,
different brokerage accounts,
and then I also have real
estate properties.
So I wrote down the value of
those real estate properties
and the cash flow that I was
receiving.
So I knew my income,
my rental income for each
property and the expenses for
each property.
So I deducted out those
expenses so I could see the
exact cash flow that I was
really receiving,
and not just the total revenue
or the total rental income
that was coming in.
I deducted out my expenses and
I also took a look at my
everyday expenses,
just my normal expenses,
so I would know exactly how
much I was spending.
And once I had it all written
out on the marker board,
after I put all of my income
from my different sources and
the balances in my investment
accounts,
all of my expenses,
everything financial,
I could just see it all on my
marker board.
And then I determined,
okay,
this is going to be my
financial freedom number,
and if you want to know how to
determine that,
I have a video that breaks
that down even further.
I'll leave a link above.
You can check that out later
on.
But essentially you want to
take your annual expenses and
multiply it by the number 25,
and that is going to give you
your financial freedom number.
That would be the expenses you
would be spending in
retirement,
which could be different than
they are right now.
So once I figured out my own
financial freedom number,
I had determined that if I
purchased just one more
property,
then I would become
financially free.
And I ran the numbers on that
property.
It needed to be a four bedroom
place.
Since I rent to singles,
I rent out the rooms
individually,
so I knew exactly how much I
would need to be making,
and I knew that was possible
by purchasing one more four
bedroom place.
So determine what your
financial freedom number would
be and comment below and tell
me if you already know what
your financial freedom number
is.
And then part two of our
financial planning process and
why it is critically important
is starting as early as
possible.
One of the biggest benefits of
retirement planning is
starting as soon as you can.
That way you can take
advantage of the eighth wonder
of the world compound
interest.
So even if you are just
starting with a very small
amount in the beginning,
it is going to grow
exponentially because of
compound interest.
And I want to show you exactly
what I'm talking about.
So let's take a look at this
graph.
Let's say we are investing for
10 years and getting a 10%
return on our money,
which is pretty average for
the US stock market,
and we are contributing a
thousand dollars a month.
You can see after 10 years,
we are going to have a balance
of just over $231,000,
which is a pretty fair amount.
But let's see if we were able
to do this over 30 years
instead of just that 10 years.
So if we are still getting
that 10% rate of return and we
are contributing that thousand
dollars every single month,
then at the end of 30 years we
are going to have over
$2.4 million
in our investment account.
You can see in this chart all
of that green is compound
interest that is money you did
not contribute,
you can see that blue part is
the amount that you
contributed,
which is a lot smaller than
the green part because we had
that 30 years to grow our
money.
So you can see the earlier we
start,
the less we will have to
contribute.
But I don't want you to get
discouraged if you feel like
you are starting late because
as a saying,
go,
the best time to plant a tree
was five years ago.
The next best time is today.
We know that if we would've
invested five years ago,
our money would already be
growing.
But the next best time to
start is today because once we
do start,
we can start taking advantage
of compound interests.
The third part that I want to
talk about is the different
risks that are associated with
not setting up your financial
plan.
Not creating a financial plan
for retirement can lead to a
lot of challenges in the
future.
Without the proper planning,
you may not be able to have
enough money to live off of
during your retirement years,
and you may be hoping to rely
on social security or on other
people to fund your lifestyle,
to fund just your living
expenses.
And this could be really hard
just trying to make ends meet.
And if there are unexpected
expenses that come up,
for example,
a health expense,
which is definitely not
unheard of for those in their
older retirement years,
but if something like that
happens and you don't have
money to cover it,
you are going to have a real
financial challenge in your
life.
You may deplete all of your
savings and the majority of
your investment accounts,
and that is going to leave you
very vulnerable in those
retirement years.
And just to share a personal
example,
when I had my nine to five
job,
I had a coworker and she was
in her seventies and she was
continuing to work because she
didn't have a retirement set
up.
There were some unfortunate
circumstances that happened in
her past,
but she still had to work.
She could not retire in her
seventies because she didn't
have a retirement fund.
And unfortunately,
the job she was trying to
perform at the company,
she just wasn't able to pick
up on the skills quick enough.
So they ended up letting her
go and she had to find another
job somewhere.
So we really want to make sure
that we are planning now for
retirement because we don't
know what will happen in the
future.
Even if we're saying,
oh,
I love working,
I'm never going to quit
working,
that may be your thought,
but in actuality,
you may not be able to keep a
job or be able to find a job
just because you may be
lacking skills later in life.
The earlier we can work on our
financial planning for
retirement,
the better off we are going to
be.
Not only that,
we are not going to be a
burden on someone else.
We aren't going to have to
rely on someone else to take
care of our finances for us or
pay for our expenses.
Wouldn't it be nice if we were
so well set that we had extra
to help other people out?
And then part four of why is
financial planning for
retirement critically
important is about
diversification.
Diversification is spreading
our investments across
different asset classes.
For example,
we could be investing in real
estate like I like to do and
the stock market,
or we can do just the stock
market,
but not just have one single
type of investment in our
investment accounts.
This is going to minimize our
risk,
especially as we are getting
closer to retirement,
we want to take a closer look
at what we are invested in,
in case we want to diversify
even more.
For example,
with my real estate
investments,
I have more than one property
that I own.
And then with my stock market
investments,
I don't just have one single
company that I own that I have
all of my money in.
I have an index fund and then
a few different individual
stocks.
So I don't just place all of
my money on one single
company.
And if you're curious to know
which index fund I like,
I have another video for you.
I will leave a link above.
And then part five of our
financial planning for
retirement is social security.
I want to bring this up even
though it is not a guarantee,
we can actually see what our
estimated social security
benefits could be on the
social security website.
So it's kind of fun to look at
that and see what they could
be,
but I would not rely on
receiving that income just in
case.
And then part six of financial
planning is to review your
plan over time.
Retirement planning is not
just a one time single event.
We want to review our plan
because things can definitely
change over time.
Our expenses can change,
our income can change,
the investments can change.
There are a number of
different factors,
and we want to keep our eye on
those different factors.
That way we can make
adjustments as we go along
instead of just getting to
retirement and thinking,
oh,
I should have switched over to
a little bit safer investment
a couple years ago,
or something like that.
We want to know what our plan
is and make sure we are
adjusting along the way.
And then part seven of
financial planning for
retirement is to seek guidance
if you need to.
I know when I was getting
started investing,
I was really nervous about it
and I wasn't sure how to go
about investing in real estate
or in the stock market.
So I found a couple of
different mentors and I asked
them a lot of questions and
they really helped me set up a
good financial plan for
myself.
And I continue to do research
over time and get better and
better at investing.
So if you are looking for some
guidance on retirement
planning and you want some
help with it,
I have a free masterclass that
talks about investing in the
stock market and how you can
work with me.
And I want to share what one
of my clients had said after
going through the program with
me.
He said it's very
eye-opening because you're
saying,
let's look at our finances.
What are we doing with them?
What should we be doing with
them?
Because this is where we want
to be.
He just had an eye-opening
experience that,
yes,
we can go along in life and
spend money here and there and
get a raise and then buy a new
boat or whatever.
But he was thinking,
oh,
I need to make a plan.
What can I do with my money
right now that is going to
help me to get to where I
really want to be?
So if you are interested in
getting some help from me,
some guidance,
make sure and click the link
below to watch the free
masterclass.
And if you found this video
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Thanks so much for watching.
I'll see you in the next
video.