In this series we are working our way around the DIAL. First we talked about debt, then about income, and last week, assets. Now we are onto the fourth component of the DIAL. Lifestyle.
We measure debt by adding up the balances of what you owe. We measure income by what you have coming in. We measure assets by totaling everything you have of value. So, how do we measure lifestyle? We measure lifestyle by your monthly budget; your normal expected ongoing expenses each month.
When you retire, certain expenses will be reduced. You’ll be able to save on that daily stop to the coffee shop. You’ll save on gas, clothes, lunches and other expenses that relate to your working life. However, retiring might create other expenses. Dramatic changes to how you live your life in retirement, create dramatic changes to your budget. You have (hopefully) budgeted for years so you know exactly where every dollar is going now… but as you change your lifestyle you need to know where your dollars will need to go. While some expenses will decrease or go away, others will increase and be added.
Lifestyle often dictates whether you can retire early or not. Think about that and let it soak in. Dictates is a wrong word. But it’s logical. You could have the other three parts of your DIAL in order and then choose a lifestyle that is not in sync and the whole thing sinks.
Many people who land on my book on Amazon or my blog assume they are looking at a “when I get a million dollars banked I can retire” pipe dream. And that’s not it. You see, you set the rules. Youdetermine your lifestyle. If you have to have the new car every two years, the country club membership and the extravagant home then you’re going to need the income and assets to support that lifestyle to retire early. More often than not, when you find someone planning to retire early, they are cutting back on their lifestyle in order to afford retiring early and seizing their freedom. And just a personal observation; they always seem happier for having gone the freedom route.
Before retiring early, you need to have an idea of how much income you will need to support your new lifestyle. Whether you are staying put or hitting the open seas on your boat, you need to know how much your new lifestyle is going to cost. For example, right now you have a home, a car, and brokerage and retirement accounts. You have budgeted for you current lifestyle and feel financially comfortable. Take the time to research the initial costs, future expenditures and the what if’s. Then go through it all again to make sure your plan is solid. You don’t want your retirement plan to be adrift at sea without a compass. You want to plan, set a course, and set sail for a successful retirement.
I once knew a guy who was in his late 60’s, still working 40 to 50 hours a week because of his lifestyle. You see he and his wife had to have the country club, the big house and be picked up by a stretch limo every time he went to the airport. He wasn’t particularly fond of his job, but he was trapped by the lifestyle he chose. He ended up dying at age 71 and never got the opportunity to experience any sort of retirement.
We all have a choice in the way we choose to live. The way you structure your lifestyle can either be very freeing or make you feel like you are trapped. However, what is important is that your lifestyle fits within the rest of your DIAL. If you have an expensive lifestyle, that’s okay, but you need to make sure that your income and assets can afford that lifestyle.
Investment Advisory Services offered through Shankland Financial Advisors, LLC, Registered Investment Advisor