Pensions is kind of a funny word.
It is defined as – A sum of money paid regularly as a retirement benefit or by way of patronage.
A sum of money is always good and a regular sum is even better.
I think we can all agree that a regular sum of money coming to you on a regular basis is what you need to survive.
We start off getting this regular sum with our paychecks from our jobs. We may branch out into businesses of various kinds and quickly find out that we may get a large sum one month and nothing the next. It is hardly regular. This is why business people have to be so good with money. They never know how much is coming in. It is all educated guesswork. A business either needs a line of credit (a big credit card) or excess cash to pay the bills even if there is not much money coming in.
It would be better if you run your personal finances like a well-run business. You would keep a large excess amount of cash available for expenses when you have limited income. You would have credit cards with a lot of credit available.
Most of us do the exact opposite of this. You spend all you make every paycheck expecting a similar amount in 2 weeks and instead of barely using your credit cards and keeping lots of credit available, you max out your cards.
The more you want to retire with your pensions intact, the more you will run your life like a business.
You can start this process by basing your lifestyle around the 2 checks you get a month rather than what you make in a year divided by twelve.
The 2-week pay cycle has wreaked havoc on people.
When you go in for car loans, house mortgages, revolving loans, and credit cards, the calculations are made using what you make in a year.
Most of us get paid 2 times per month. So we get paid 26 times per year. This means that on each normal payday, we are actually getting 92% of our pay each month for 10 months and then we get 2 large months of pay.
If you start doing the math you will see that you get farther and farther behind for the 5 months with 2 paydays before you get a chance to catch up on the 6th month.
It is an ingenious way to extract money from us without us even knowing how they are doing it.
All our rents, mortgages, loans, and credit is all too high relative to our income. In order to be closer to even everything we buy loans and credit should really cost 92% of what we would expect to pay based on the projections of those who would be giving us the loans.
The easy way to think of this is to get pre-approved for a loan and immediately shop for that item (such as a car or house) for 90% of what they will loan against it.
Basing your calculations on what you can afford from your yearly income divided by 12 months does not work.
If you really get this and re-work your expenses not figuring in those extra 2 paychecks a year the increase in your savings, your pensions and your peace of mind will be dramatic. You will have a huge increase each and every year forever.
It will take some getting used to because you will not be able to afford as much as you thought you could. But spending too much money on your housing and any credit-purchased items will wreck your finances.
Give this idea some thought. It will really help your pensions because you will free up otherwise allocated funds for saving and investing. The more you cut out expenses both necessary and unnecessary the easier your life will become. You will be able to live on your social security benefits. You will be able to live from your modest savings, small investments, state pensions, municipal pension, 401k’s, and whatever else you can come up with.
