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How to build your lifetime money or retirement plan Written by CHRISTIAN GAYA Friday, 11 May 2012 09:31 How to build your lifetime money or retirement plan First, you need to balance your bills. To build your lifetime money plan, start with what’s most important your basic necessities. These are the “must have” bills those you need to pay month in and month out, no matter what. This includes your rent or mortgage payment, utilities, insurance, car payment, regular medical bills, and any legal obligations (such as student loans). If you pay for daycare so that you can go to work, it goes with your must-have bills. The list also includes a basic food allowance (just the bare essentials. T-bone steaks and restaurant meals don’t qualify as “must-have” bills). Add all these regular expenses up, and call the list your “Monthly Must-Have Expenses.” Generally, you should be able to cover your monthly must-have expenses on 50 percent of your take-home income. That’s right-half your money can go to must-haves. If you keep your must-haves to 50 percent of your income, you will have plenty left over to spend for fun, and enough left over to save for your future. Keeping the must-have expenses in balance will give you a solid foundation for your lifetime money plan. What if you can't manage your bills on 50 percent of your income? Then this is a strong sign that it is time to cut back. Maybe you should send back the rent-to-own television. Maybe it is time to move to a smaller apartment or to trade in the car for something cheaper. Maybe you need to share expenses with a roommate or a family member. Do whatever you can to get your basic expenses down to half of your income. These can be tough choices, but in the long run you'll live happier and rest easier if you start to get your budget straight now. Take a closer look at your expenses with the help of a worksheet What if you just can’t get it to 50 percent right now? Then get as close as you can. If you are spending 65 percent of your income on must-haves, maybe you can bring it down to 55 percent. It’s not perfect, but it would be a big step toward building a more secure future. And once you’ve done your best, set a goal for getting your must-haves into balance. Maybe it will be in a year, once you finish paying off your car. Maybe it will be in two years, once the youngest child starts kindergarten and your daycare bills go down. The point here is to keep your eye on the big picture your long-term financial health. It may take a while until you get everything under control, but every step you take in this direction makes your life better today and tomorrow. Second, pay off the debt. The medical bills from last year’s visit to the emergency room. The money you borrowed from cousin Chris that has been hanging out there for over a year. The credit card balance that has bounced around for more than a decade. You don’t need a scrapbook. Your bills tell your history. Every debt, every monthly payment, every dollar you owe is a claim against your future. Tanzanians from all walks of life are carrying more debt. Kids still in college, married couples with kids, single men and women, rich people and poor people, debt is everywhere. And yet, when most people think about planning for retirement, debt is nowhere in the picture. (And when experts talk about retirement, many seem to assume that no one has any debt.) But the reality is that the over-50 crowd is carrying more debt than ever before in history. They have credit cards and car loans, and many are responsible for student loans they took on to help their children through kindergarten, primary schools, secondary schools and college. The average social security payment is about TZS 600,000 a year not even enough to live safely in many places, let alone comfortably and certainly not enough to cover extra debt payments. And that debt is taking its toll: The elderly are now the fastest growing group in bankruptcy. Debt can be tough on anyone, but hitting your retirement years dragging along a pile of I Owe You (IUOs) is a recipe for disaster. So how do you do it? Getting rid of your debt is a two-part process. The first part is to stop taking on new debt. This is the moment to look yourself in the mirror and say out loud: “No more debt” sawa. If you are ready to get really serious, then it is time to give your credit cards a rest, and stop making new purchases for non-essential items. Once you have made the commitment not to take on any new debt, it is time to start tackling the old debt. We wish there were some magic secrets to quick and painless debt repayment, but there isn’t. Getting out of debt is basically just a matter of paying off your old bills, one at a time, until they’re gone. Start by adding up all your debts the credit cards, doctor bills, past-due bills, everything down to the money you borrowed from your cousin or aunt. Include all your debts except your mortgage, student loans, and car loans. Write them down, whip out the calculator, and add them up. Then start paying them off, one at a time. Meanwhile, keep right on making your minimum monthly payments on the other debts. Once the first debt is paid off, pick another debt, and get that one paid off. Go through your debts one at a time until you are debt-free.