Cash Flow is Number One
Even as I work on my net worth, I am aware that I am still missing the boat...
Having a nice little pot of money sitting somewhere is nice.
Watching it grow is nice too.
But knowing that I have money in my bank account to pay for my groceries
tomorrow is nicer.And knowing that I will have money each week for as long as I live to buy groceries is the nicest yet!
The real reason we all need money is to pay for our lives every day, week and month. There is no single point where you get to make a lump sum payment and live for free for the rest of your life. Although it would be much easier if there were. Can you imagine if "the rest of your life" had a price tag?
Pay $1 million now and never think about money again!!
WHERE DO I SIGN UP???
Okay, all joking aside, we know that life isn't like that. So the real goal is to figure out how to turn a little pot of money into a series of regular payments that can be relied on, just like a paycheque or a pension.
And no matter how much I think about this, it's like a code I can't crack. Here are the ways that I know of to get regular income without working:
- rental property, with a mangement company to take care of it
- renting out your money through loans and bonds
- dividend paying stocks (very low yield)
- purchase an annuity (not practical for young people)
- income trusts (scary phrase in Canada these days)
- royalties - if only I had written a great book!
- own a company that you don't have to run and collect the profits
The short story is that this is not an easy task and it requires much preparation to make this work. For me, I feel like this is the "next level" in my personal finances that I need to break through. I think I understand how to grow my net worth, and that seems to be on track so now it is time to start puzzling over this next riddle...
5 comments:
Diva,
With regards to dividend paying stocks, although they generally have low yields, the "good" ones increase their dividends at least once / year. If you hold onto these stocks for the long term, these low yield stocks turn into high yield stocks. This is the primary source of income that young retiree Derek Foster depends on. In addition to that, Canadian based dividends offer significant tax breaks to other types of income, so you get to "keep" a lot more of the income.
Hope this helps,
FT
FT,
Thanks for the comment! Dividend stocks are on my radar screen more now than before but I still have some hesitations because of my own financial structures. I will post on this today because it is a longer topic and one that I would welcome feedback on.
MD
I think, along with our 'pots of money' (what a great phrase and image), we also need to learn to develop our ability to navigate through thick and thin, without losing our inner sense of equilibrium.
Example:
I have had extensive conversations with a man in the states, nearly retirement, who has (or had) all his ducks in a row. Sweet house. Over $1 million in stock options of the (high tech) company he worked for. And an equally solid portfolio beyond this.
He's now at retirement age, and is really sweating (if you can believe it). Here's why:
1. His stock options fell significantly (and no, it wasn't one of the bubble-2000 companies) but more importantly...
2. Most of his investments are in the U.S. He is extremely concerned about the US economy in the coming years, and currency issues, and is completely at a loss on where to put his portfolio where it will feel secure to him. Europe? Asia? I'm sure all kinds of financial advisors will give him all kinds of answers, but the point is, there IS no truly, truly secure answer. This, as he is a couple years away from retirement. After having done 'all the right things'.
So, pots of gold are wonderful. So is the ability to have a gritty confidence that we can be all right, even when things aren't as straight-forward or assured as we all wish it were.
Nancy,
You are so right! The quest for financial security is in some ways impossible because security is really a state of mind not a number in the bank. Even more difficult, what feels secure one day may not feel remotely close the next. Your "gritty confidence" or psychological factors in general may turn out to be the most important thing in a "secure" retirement.
MD
Great comment Nancy, well said.
I've been doing quite a bit of planning/thinking about retirement and income etc etc and although I've learned a lot, there's going to be a lot of uncertainty in retirement no matter how you are set up...which isn't necessarily any different than when you are working since bad financial things can happen then too.
I think one of the biggest tools you need in retirement is flexibility.
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