A survey made by HSBC Financial Fitness Index shows that many are not ready for retirement. The common cited reasons reported by Straits Times are unexpected expenses, unexpected medical expenses, drop in income and unable to have a good retirement due to overspending and lack of investments.
As a professional financial practitioner, I have often seen clients who may have very similar financial and family profiles as each other and yet some were having money problems while others have no issue with money at all. Why is this so?
I believe it has to do with how one’s approach life in general. There are two kind of people in this world. Those who live for the moment while the other is to live for the future.
Live for the moment
Also known as YOLO (You Only Live Once) are those who subscribe to the lifestyle of making use of the present moment without worrying about the future.
Those who live for the moment tends to focus at the present. They want to enjoy now. They spend money on travelling, cars, designer clothes and property often in the name of “investments.” Yet, their balance sheets and cash flows are often awful. Very low in cash, high debts and negative cash flow. Obviously uninsured and that is when unexpected medical expenses come into the picture to make things worse. Besides medical expenses, other “unexpected expenses” are results of lack of planning and budgeting because the mindset is to enjoy now!
Live for the future
Also known as FIRE (Financial Independence, Retire Early), these are a category of individuals who are like are like robots. They work hard 18 hours a day, saved lots of money aiming to reach a destination. To them, the default destination is too far away (65 years old?). Hence, they seeks to accelerate the retirement age to be many years earlier so that they can be freed from life misery.
If you check their hard drives, you will find spreadsheets of sophisticated financial models. They eat at hawkers and only buy clothes during the new year. Unsurprisingly, their balance sheets look great – typically diversified asset classes and reasonable debt level (sometimes no debt at all). Their cash flows excellent. Some even have sufficient passive income. However, they are still working very hard as they want to be sure of financial freedom when they are old.
Same objectives, same failures
From what I see, both have the same objectives. Both seek to enjoy life. However, both are in error in their assumptions.
Those who are YOLO have no idea whether they have sufficient money for the future. In fact, it is almost for certain that they would not have any money for the future since money cannot be created unless it is planned and saved. Hence, those who live for the moment is planning for a future disaster. The lack of planning is planning to fail.
On the other hand, those who only focus future early retirement may not even enjoy fruits of their labour. I am not trying to be pessimistic but life is indeed not predictable. Life expectancy may turn out to be shorter than our expectations. Besides, if you worked for 30 years, you may only have 1 year of retirement. Even if you have 50 years of retirement, you are unlikely to have the same level of health for the entire 50 years.
What I advocate is to have both
So, why don’t we have the best of both worlds? Which is - enjoy life to the fullness and yet planning for the future?
In my next article, I will discuss three things that must happen to enjoy life and yet having the assurance of a secured future.
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