Have you ever wondered what the retirement of your dreams would be like?
Presumptively, your retirement would be less stressful, and you would be free to do all the things you didn’t have time to do while working. But most people don’t know how to achieve this goal. The closer you get to retirement, the more detailed your vision needs to be.
But many of us neglect our dream retirement when our income increases, the sense of self-reward for hard work causes our expenses to increase in the same way.
We end up in the same position as we were before the raise, the bonus, or the new higher-paying job.
Self-rewarding hard work or saving for our future?
When receiving a raise, starting a new job, or receiving a bonus, it is very natural to reward yourself.
If you start spending all the new money, you aren’t earning. Unfortunately, you will end up in the same situation you were in before, unable to save to show it.
There is a term for this “earn more – spend more” mentality; it is “Lifestyle inflation.”
The culprit: Advertising
Our society is based on consumption, but it is not the fault of just advertising. Here are a few associated factors:
– Lack of financial education.
– Influence of other people in our environment.
– Commercial strategies with shopping facilities, discount vouchers, or benefits.
These lead us to make poor decisions when it comes to thinking about what to do with our new increase in income.
Will contributing the minimum for my retirement, without voluntary savings, give me the peace of mind I want in the future?
The pension that a worker will achieve in retirement depends on different factors: age, years of employment, salary evolution of the worker, permanence of the contributor, income generated by the accumulated balance in the individual account, commissions charged by the fund, and level of savings and percentage of the contribution.
Results from the National Household Income Expenditure Survey (ENIGH) for the year 2018 show that at least 26% of adults in Mexico over 65 do not have any type of pension. Those who do have one receive an average of $ 5,128 for women and $6,602 for men, which means that most of us are not saving enough.
Sure, some people are way above that average, but many of us just don’t see saving for retirement as a priority.
Silent Trap: “Lifestyle Inflation”
Most of us have fallen into this trap at some point in our lives.
Due to a raise or a higher paying job, you can finally afford Caribbean vacations, a big screen TV, or the purchase of a new house that is more difficult to maintain than the old one. And before you know it, you will be trapped in expenses much higher than you can afford, and you will have lost the opportunity to save for retirement.
Are we influenced to fall for it? Being fashionable and wanting to pretend
Many Americans are victims of lifestyle inflation because they feel pressured to keep up appearances and keep up with fashion or trends of all kinds, especially now in the age of social media.
According to a study by Kaspersky Lab, a computer security firm headquartered in Moscow, Russia, it says:
¨ 59% of the people who use these social platforms are saddened after seeing the positive publications of their friends, even 37% of the sample say they feel the same when seeing their publications, because they feel nostalgic when they remember the moments in which they were happy with the new cell phone they bought or the trip they made to Europe. ”
How does this affect your retirement savings? It just influences you to want to achieve the same, seeing your friends traveling, driving the latest model car, or dining in the most exclusive restaurants in the city.
We know the danger, but we do not prevent it
There is that danger that – if you don’t start saving for retirement as you earn more – it’s very easy to get left behind, and you may never have a chance to make up for lost time or money.
And not only that, but you also lose the compound interest that the additional savings would have earned.
After an increase in income, it is tempting to pamper yourself, but try to increase your contributions to AFORE, agree to an additional contribution with a Private Retirement Plan or start with your own Personal Retirement Plan.
And, if it is possible, have it automatically deducted from your salary since many of us have trouble making voluntary contributions.
That way, you won’t get used to the bigger paycheck and extra spending power it possesses.
Investing in your future is fun.
In addition to increasing your contributions, start investing. And indeed, with sound financial advice, you will be able to find instruments that suit your interests and objectives.
Remember that if you start planning your retirement, this will help you not fall into temptations since you will have a long-term vision, which you can maintain if you think about how you want to live your retirement.
Talking about a dream retirement sounds nice. But where do I start?
To start planning your retirement, you must know your current economic situation. This will help you lay the foundations and identify how much you should save for your retirement. You must have clear long-term objectives, which will allow you to see a broader horizon and then know what you should focus on.
A straightforward exercise to start this process:
Grab a sheet of paper and write what you would do with your largest paycheck, as this will help you make yourself more responsible for your finances.
Avoiding the silent trap is easy: Don’t go over your budget
Wanting to have what your neighbors, friends, or family have is a normal reaction of the “consumerist” human being when they finally have more money in their account.
Having a personal talk with your partner, friend, or, failing that, a financial advisor about their lifestyle inflation will help you realize how much you are spending and compare it with your savings for your retirement.
Maybe this way you can regain control of your finances.
After all, the quickest and easiest way to take control of your finances without falling into this deadly trap is to stay within a budget that you can create now.