Money Rehab with Nicole Lapin - Before Saving for Retirement, Do This

Episode Date: April 12, 2022

If you’ve been listening to Money Rehab, you know that you need to be saving for retirement ASAP. But that said, there’s actually a few things that you need to do before you start saving for retirement. Today, Nicole explains. See omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. When you're mapping out your plot to take over the retirement world,

you can't keep this plan in a vacuum. I see this happen all the time. People create specific budgets for saving for retirement and note how much they'll need to save monthly to reach that goal. Great. But then they don't add in the expenses they need to upkeep while they're saving, like a mortgage, a car note, student loans, or cell phone bills. Hello? Don't forget all of the other financial obligations you have. If you drain your savings account for the sake of filling your retirement account, how the heck are you going to pay for groceries? As you know, retirement accounts involve tying

up your savings with big incentives to not touch the money in that account until you retire. That could mean that you might not touch that money for 30 years, depending on how old you are and when you want to retire. In that way, retirement accounts are pretty damn similar to mortgages. A big chunk of money is tied up for 30 years. See the similarities? Houses are illiquid assets, meaning they're notoriously hard to melt into cash when you need it most. You should think of retirement accounts the same way. Is now the best time to tuck that money away? Here are the two things you should be able to say hell yes to before putting a big chunk of your money into a retirement account. Number one,

is your emergency fund in check? The pandemic is a perfect example of how unpredictable life can be. For these unexpected challenges that life inevitably throws our way, we need some cash squirreled away. A doomsday fund, a treasure chest, an oh crap fund, a breaking case of emergency fund. Whatever you want to call it, you need one. Now, my recommendation for how much you should put in your emergency fund differs depending on your job situation and which industry you work in. But generally, I suggest you have enough reserves to cover your monthly expenses in a bare-bones budget for six to nine months. Number two, have you paid off high interest-bearing debt?

If you have outstanding debt, you'll want to crunch the numbers to see whether it makes more financial sense for you to wait to make big retirement contributions until after you've paid off the entirety of your debt. If you have credit card debt with, let's say, an interest rate of 15% and you're making 5% on your retirement accounts, you're accumulating debt faster than you're earning returns in that retirement account. So in that scenario, you'd want to pay off your debt before going ham with your retirement accounts. Once your emergency fund is in good shape and that debt monkey is off your back, you're ready to go all out for retirement. Now, all of that said, when it comes to retirement,

it's not all about the money. I know this will come as a shock to you because I always have my mind on my money and money on my mind. But planning for retirement has become synonymous with saving for retirement. And don't get me wrong, I love that because setting up your retirement finances is a very important, if not the most important part of retirement planning. But it's not everything. And I think we need to bring back the other elements of retirement too. When you outlined your retirement goals, and if you haven't, you should, you should think about what you want your retirement to look like. Just having the capital required for your retirement road trip doesn't ensure that you're going to get there. You should be thinking about the other things that you want

for retirement that money can't buy. Do you plan on retiring with your wrinkly soulmate? Have you met them yet? If not, it may be time to whip out that dating app, bud. Do you have dreams of directing the local fifth grade school play? If so, you might want to start getting involved with your local middle school. Or do you want to retire in Paris and eat a croissant every day? Well, then now might be a good time to crank up the Rosetta Stone. I know this might sound a little bit hippy-dippy kumbaya, but how do you want to feel in retirement? Fulfilled? Energized? Happy? If so, you'll want to make sure

you're working toward those goals now too. Is there a certain level of seniority that you want to reach in your company before you retire? Do you want to write the great American novel? Ask yourself, what career successes do you want to be able to look back on when you retire? Then do them. If you want to feel happy and peaceful during retirement, that inner calm won't just switch when you walk out of your office on the last day of work. High levels of stress in your younger years can lead to long-term cardiovascular and mental health issues. Get into self-care practices now, whatever that is for you. It could be taking a free class at your local library. It could be meditation, riding a bike, reading, whatever does it for you. Taking care of your mental health now will lay the foundation for a zen retirement later.

Money is important. Don't get me wrong. This show is called Money Rehab, not Happy Rehab. But money in and of itself probably isn't your goal. Am I right? I'm guessing you're probably not saying, I want $600,000 in my bank account just because I think that number looks cool. You want that $600,000 in your bank account so that you can

use that $600,000. Money is only the means to make more choices available to you. But just because those choices are available doesn't guarantee what you choose. I mean, think of it this way. The average cost of medical school is around $200,000. But just because you have $200,000 doesn't mean you could be a doctor, right? That's typically the way these retirement goals work, too. If we picture your retirement dreams floating around in the puffy white clouds of dreamland, we need to get you a ladder to get there. Money will help you buy materials for that ladder. Wood, nails, glue. I don't know how to build a ladder, but whatever the heck you need to build said ladder. But then you need to actually build it. Your dreams have price tags, but they'll be on layaway until you take the action to achieve

them. For today's tip, you can take straight to the bank. If you haven't started an emergency fund yet, I would highly, highly recommend swirling away your stash in a sub-savings account. Creating a sub-savings account is very simple to do. Your bank likely has a shortcut on their web portal. And if not, you can always play it old school and give your bank a call. By labeling that specific pool of money as your emergency fund, you'll be less likely to take money out of that account for anything else. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin.

Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.