Last week we wrote an article for investors with a longer time horizon than us old fogies. While we were not discussing the reasons to buy or sell Apple (AAPL), or the reasons that Annaly Capital (NLY) could be a bargain right now, we did present a cogent argument on why saving is the most important part of retirement planning for those who have a 20 or 30 year time horizon (or more).
In keeping my promise to the younger generation that reads Seeking Alpha, we are now in part 2 of this series, and it has just as much importance in retirement planning as savings does.
Reducing Expenses And Eliminating Debt
Look, this may sound very academic for many of my readers; I am aware of that. However, it still needs to be gone over again and again, for just about everyone who cares about having a productive life, let alone retirement.
Anyone in extreme debt can testify to the stress and helplessness one feels when faced with a never ending list of "payment due" notices. I have been there, and I know first hand.
Briefly, when I was in my mid-twenties, I had a great job, a wife and 2 kids. I also had an enormous house that I could barely afford, a car that had 3 more years of payments on it, 6 maxed out credit cards, and a "home improvement" loan to put an in-ground swimming pool in my backyard.
I was living the American Dream of the 1970s. I had it all, yet I had absolutely nothing. To make a very long story short, I then got divorced and was back living with my folks at the ripe old age of 29.
It was 1978 and all I had was my career, and bills, and now child support payments on top of everything else.
OK, enough of me, can anyone else see themselves in at least portions of this picture? I was young enough to be "alert" enough to just throw caution to the wind and continue investing in my company's stock. I was lucky, but I was stupid also. I wish there was a Seeking Alpha back then, because I could have avoided a whole truckload of stress and anxiety, that is for sure.
Let me be perfectly blunt; if you do not live below your means at every step in your life, you will fail. You will fail miserably, and all of those wonderful savings will just have to eventually go towards paying off your debts and expenses rather than to enjoy. Of course, you might be able to file bankruptcy, but that is not as easy as it might have been years ago. (I never did so.) If I can impart any of my experience-based knowledge on the younger folks it would be to eliminate debt, and reduce expenses.
How Can We Eliminate Debt And Reduce Expenses?
There really are no hard and fast rules of the road, but there have been plenty of books written as well as articles on the internet that all have the same goal as we do here. Get rid of debt and reduce expenses.
Take this article from Key Bank, of all places. It states:
All it takes to fall behind on credit card payments is one month of expenses that exceed your ability to pay. Suddenly, you're in debt. Many people feel overwhelmed at the first sign of trouble. After all, how do you pay bills with money you don't have?
The article then goes on to list 10 ways to help. Now take a peek at this article from thenest.com, as it says:
The only way not to incur debt is not to spend. The strategy might sound simple enough, but it is not quite so easy to put into practice. Eliminating debt and acquiring wealth is a multi-step process that requires planning, persistence and a lot of effort. Improving your financial situation may require patience and making some lifestyle changes in order to get positive results.
The article then goes on to give everyone 8 more ways to achieve our goal here. I urge you to read it.
My favorite article is from doughroller.net. The author, Robert Berger tells it like it is:
Here is one of the most frequently asked questions in all of personal finance: "How do I get out of debt?" At one level, eliminating debt is simply about following a few steps:
1. Stop going into more debt
2. Spend less than you make
3. Pay off debt with the difference
If you follow these steps, eventually you'll be debt free. The problem is that following these steps isn't always so easy. And to make matters worse, there is a lot of "help" out there that can make matters worse. From debt consolidation companies to books like Kevin Trudeau's "Debt Cures" that I wouldn't recommend to my worst enemy, there are a lot of promises being made that getting out of debt is easy. It's not.
Berger goes on to list a step by step, common sense approach to achieving our debt and expense "alpha." 23 steps in all, broken down into bite sized pieces easy to swallow.
Read it. Then read it again. Then print it out. Then mark the site as a "favorite" and visit it all the time.
If you follow the actions that I have put links to here, you will succeed at this phase of our planning, and we can move on to our next phase: Investing.
Disclosure: I am long NLY.