If you're late to the retirement-savings game, it can seem daunting to try and catch up and build a well-funded portfolio. The Reverse 4% Rule can help you adjust spending in the present to meet the reality of your future portfolio.
Photo by evobrain.
At the financial blog FreeMoneyFinance, they've shared some mind hacks to help you lower your current expenses. Their first mind hack focuses on shifting your perspective on today's spending to better mesh with tomorrow's retirement portfolio with a focus on surviving with a smaller nest egg.
For every $US10,000 less you spend each year, is $US250,000 less you need to accumulate to retire. If you can manage to get your expenses down to $US40,000 a year, you only need $US1,000,000 in a retirement portfolio. Could you live on $US30,000 a year? Then you only need to save $US750,000.
If you know your annual expenses, try doing a simple calculation. Take your annual expenses and divide them by .04. This is roughly (a lot more goes into this calculation) the number you will need to accumulate in your retirement portfolio, to maintain your current standard of living.
For example, if your annual expenses are currently $US50,000 a year, divide 50,000 by .04, which equals $US1,250,000.
The next step is to see the difference between the amount you need to accumulate now and the amount you would need to accumulate in the future, if you were to cut your expenses.
The focus of the exercise is to shift the way you think of your current expenses. The more frugally you live now, the lower your current expenses, the lower your future expenses and the less time you have to spend working towards retirement. Have your own financial mind hacks to share? Let's hear about it in the comments.
Two Mind Hacks to Lower Your Expenses [FreeMoneyFinance]