Over the next 20 years, baby boomers will be making one of the biggest transitions in life which is why retirement is a really hot topic these days. In my retirement workshops, it is very common to see baby boomers who are really concerned about retirement because they feel like they do not have enough for retirement. This is not an uncommon theme given that the stock markets have not worked in our favour over the last 10 years. Many portfolios have either been hit hard or just stagnant with all the ups and downs of the market.
Another big issue hitting baby boomers on the chin is the debt crunch. Baby boomers are dealing with a myriad of issues:
- putting their kids through school,
- kids staying at home longer,
- keeping up with the Jones in a spending culture,
- bigger mortgages because of rising real estate values
- and the burdens of line of credits which have allowed people to live beyond their means.
Debt has become such a big part of our society and is one of the big reasons why people have not saved enough money for retirement. The debt statistics are scary.
- Credit Card Balances up 458% in 11 years to $55 Billion
- Residential mortgages up 242% to $965 billion
- Personal lines of Credit up 820% to $205 Billion
- Total household debt is over $1.5 Trillion
- Debt to disposable income is over 155%
It’s time for baby boomers to focus on getting rid of debt
Baby boomers who are getting ready for retirement need to get serious about planning for the best years of their lives. Part of getting serious is addressing debt head on and taking the necessary steps to develop good habits around debt.
Here are some of my tips on how boomers can deal with the debt epidemic:
1. Stop overspending
Here is the prime example of something that is simple, not easy. How many people know this but do not necessarily do it. Let’s face it, spending is fun and financial institutions are making it easier than ever to overspend. Look at it this way, we live in an era of delayed consequence as opposed to delayed gratification. So here comes the dreaded “B-word”. If you are a classic overspender, you need to start tracking your expenses and cutting back on spending.
2. Increase your income
The basics of personal finance comes in managing the bank account – money in and money out. If you have more money coming in than going out, you are what we call “Living within your means”. If you are experiencing the opposite where more money is going out than coming in, then this is the simple reason why you are in debt. You can do one of two things – cut your spending or increase your income. I’m not saying making more money can happen with the snap of your fingers but it can be done. Get a part time job, work harder to get promoted, or look for a new job. There are options, you just have to explore them.
3. Get support
I believe everything we accomplish, we accomplish with the help of others. I am a big believer of surrounding yourself with great people. Weight Watchers is a great example of an organization that helps people do what they already know – watch what you eat and exercise more. The difference is you are doing it with others that have common goals. When it comes to getting financial help, look to debt counsellors, financial advisors, friends, mentors or family. They can all play a role in helping you if you need help.
4. Focus on you before your kids
Kids can be a real financial drain. I know I have 4 of them. Many people use their kids as a reason why they are in debt especially when it comes to funding their education. I see so many parents who will sacrifice their own retirement plans to help their adult children. People have often heard me use the advice RRSPs before RESPs. The point behind that saying is it is important to take care of your financial future first. I meet lots of parents who feel obligated to put their kids through school. I am not opposed to helping kids get through school financially but also recognize there can be great benefits in making sure they become accountable financially. How else will they learn to fly independently and that money does not grow on trees in their parents’ back yard?
5. Take one step at a time
When it comes to financial planning, I always say that planning sooner is better than later and it’s never too late to start. If you are feeling financially tight because of the debt crunch, then you need to address it head on because it is not going to just take care of itself. Take baby steps and set small realistic goals. Every step if you head in the right direction will feel good and you will be on your way to retirement. Just remember paying down debts can be one of the best investments you make especially in a low interest environment.
In the end, remember, debt makes others rich, not you. Debt is big business and the financial institutions figured this out. When you overspend, there is a consequence to that overspending and someone else is going to profit from your indulgence.