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With
tax time passing, it may be time for some to evaluate their
finances. Like many people, I am interested in retirement, and what
my finances will look like when I retire. Or, put another way, when
my finances will allow me to retire. I've done a fair bit of study
on the subject, reading books such as The Wealthy
Barber, The
Millionaire Next Door, and Rich Dad, Poor
Dad, among other
publications on debt, saving, and investing.
 One common theme, especially for
those without huge incomes, is to consistently save. A common figure
for saving is 10%, although The Millionaire Next Door is a bit more
aggressive. The idea is that if you save 10% of your earnings over
the course of your working years, investing fairly conservatively,
you will end up with enough for a comfortable retirement. It's a
good idea, but requires some adaptation for practical application.
 There are some difficult questions
for someone trying to adopt the 10% rule. For instance, if you've
already worked for 10 years, how are you supposed to know how much
you should already have saved? If your house increases in value, how
should that be counted? Is the 10% supposed to be invested in cash,
or are non-financial assets OK too?
 Some books attempt to address such
questions with simple formulas for the amount you should have saved
based on your age and income level. Such calculations do not take
into account your employment history, so the result is often
disappointing. The only way to properly figure it out is to account
for relevant work history, including breaks for career-related
education. That may sound difficult, but it is actually quite easy
given the proper tools.
Using the concepts from various
publications, I've created a simple spreadsheet that helps plan how
much you should have already saved, based on a saving percentage, as
well as figure out how much you will have saved by retirement if you
employ a percentage saving plan. The forecasts are only estimates,
but they are helpful in figuring out how much you should save in
order to reach a certain retirement goal. I've included some nifty
features, such as the ability to account for inflation, change the
saving %, change the retirement age, and track actual savings versus
suggested savings. All the computations are automatic - you just
fill in a couple fields such as starting salary, and the
personalized forecasts instantly appear.
Forecasts and goals are great, but
how do you measure your progress in the real world? That can be a
bit more complicated, but well worth the effort. The main idea is
that you should measure your Net Worth when evaluating your
financial position. Your Net Worth is the total, single amount that
best represents your financial condition - the total of all your
assets (cash, investments and saleable possessions) and liabilities
(mortgage, credit cards, personal loans, etc.). Some people use only
their cash savings and investments when planning for retirement, but
responsible planning includes everything - including debt.
Especially debt. If you already have a method for figuring out your 
Net Worth, great. If not, contact me for a copy of my "Master
Financial" worksheet, which includes a very accurate Net Worth
page.
With accurate, personalized planning
tools - primarily spreadsheets - you can achieve a high level of
knowledge about your own personal finances. Future financial
performance is never guaranteed, but when you know where you stand,
and you plan for the future, you greatly improve your financial
awareness and the likelihood that you will retire in comfort and
security.
One last note regarding percentage
savings plans such as "The 10% Solution" - perhaps the
easiest way to do this is to take the top 10% off your paycheck.
Either a 401K, which uses pre-tax dollars, or an IRA using payroll
deduction can make saving 10% a snap. With that done, you'll be
better set for retirement while hardly noticing any difference in
your monthly spending money.
Happy planning.
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