Making Sure You Can Afford Your Dreams

If you've got dreams, you've got to have the means to fund them.

Whether your dreams include a vacation home, a brand-new home, or being able to leave a substantial legacy for your children, you must be sure that your financial situation can ensure them.

If you're not sure whether you're where you should be, financially, schedule yourself an appointment with a financial advisor. Have him or her review all aspects of your finances with you, and listen carefully to the advice he or she dispenses.

It's a good idea, at this point in your life, to prioritize your future plans. Consider all of the necessities first, and then add on your wants and wishes. Remember that experts say many people run into trouble during retirement because they underestimate the number of years they'll spend there. If you're planning to retire when you're 65, don't assume that you'll only reach the average life expectancy of 76.7 or 79.5.

We all know lots of folks—probably some in your own family—who are well into their 80s or even 90s. You shouldn't assume that you'll die at the same ages that your parents or grandparents did. Read Misconceptions About Aging if you're not convinced.

If you haven't adequately saved for retirement at this point, don't give up because you think it's too late. Saving only $45 a week between the time you're 40 and 65 will add up to $50,000 if you average a nine percent rate of return. Take a minute to think of how you could save $45 a week. How hard could it be? Forty-five dollars is one or two meals a week in a restaurant. It's the blouse on sale in the department store that you like, but really don't need. It's that overnight getaway you were thinking about taking, or the fancy wheel covers for your car, or those fabulous new fingernails the technician was talking about.

And if you need to start saving more seriously than $45 a week, think about going credit free. Studies show that more and more Americans are loading up their credit cards while saving less and less. If you have trouble keeping your credit card in your wallet when you go shopping, leave it at home.

Decide that you'll only use cash unless it's a real emergency (a good sale in the Ralph Lauren department doesn't count as an emergency), and stick to your plan. If you must, use a debit card, which is just like using cash. For some reason, though, many people find it more difficult to part with actual money than they do to hand over a credit card for a purchase.

Other methods of boosting your retirement account could include the following:

• Postpone a major purchase, such as a car. Sure, you've been thinking about buying a new car for two years now, and there are some terrific buys these days down on the Acura lot. Just because your car is now five years old and pushing the 60,000-mile mark, however, doesn't mean it's a smart idea for you to run out and buy a new one. There's no rule that says Americans shall only keep the same car for four, or five, or six years. Find a good mechanic and hang on to the vehicle you've got.

• Trade in your large vehicle for a smaller one. A two-, three-, or four-person family, unless there are special circumstances, simply doesn't need a Suburban or an Expedition. The SUV-craze has cost Americans millions and millions of dollars in gas and insurance costs, not to mention the initial prices of these huge vehicles. If you're driving an SUV or a very large car for no good reason, consider trading it in on a smaller one. You'll save money, and have a lot easier time in tight parking spaces, as well.

• Take a good look at your job. If you're badly underpaid in your job, consider looking for another one. Just because you're in your 40s or 50s doesn't mean that you're tied to a job. Many people stay in jobs they don't like or that don't pay as well as they should, simply because they're comfortable and reluctant to make a change. That's not a good idea for either your career or your retirement savings account.

• Stop supplementing your kids' incomes. If your kids are on their own and working, don't be tempted to continue handing over cash like they were still teenagers. Your primary financial responsibility at this point is to get your retirement account up to speed, not to be sure your 25-year-old can get that great new Jetta she's been longing for. Review Your Grown Child: How Much Should You Help? for more advice.

• Downsize your living space. If your kids are in college or moved out of the house, maybe it's time to think about boosting your retirement account by moving to a smaller house or apartment. It's a fact that one or two people require less space than four or five people. Just be sure, if you decide to downsize, that you really end up saving money. If your goal is to pump up your retirement accounts, don't be sucked into buying a place that's smaller, but actually more expensive than your current house or apartment.

When consulting with a financial advisor, be sure to share your hopes and plans for the future. It's important that an advisor understands your goals in order to be able to help you figure out how to fund them.

Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

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