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# How much will I need to retire (part 3)

## How much will I need to retire (part 3)

In the first 2 parts of this series, I explained why we will need to have at least as much annual income when we retire as we need prior to retirement. The figure that I established was $50,000 per year. I also established that in order to have $50,000 per year in retirement, you would need to have 1.05 million dollars invested.

Now we are going to see how to get in position to get that 1.05 million dollars. **The key to financial freedom is to be debt free and stay debt free**. You need to be willing to make the commitment of getting out of debt and staying out of debt. This may mean that you will have to make some sacrifices along the way, but remember the long term goal is to have a comfortable retirement.

## Saving money for retirement

## Have money when you retire

I am going to use an example of a married family of 4. The husband and wife are each 31 years old. The have 2 kids in school ages 8 and 10. They have a combined net income of $50,000 per year which is $4,166 per month. They have no savings or investments. They have 4 credit cards with balances of $500, $1,000, $1,500 and $2,000. The minimum payment on each card is $50 per month. They have 2 cars with balances of $5,000 and $10,000. The monthly payment is $300 per car. They have a $15,000 Home Equity Loan and the monthly payment is $100. Their house payment is $1,000 which includes principal, interest, insurance and taxes. It costs $1,200 for insurance on their cars and $600 to put license plates on them.

Before I go any farther, I am going to tell you that this article is very strongly influenced by Dave Ramsey's Financial Peace University. I encourage anyone, no matter what your financial situation is, to go through Financial Peace University. Churches all over the United States are offering this class. There is 1 class a week for 13 weeks and it usually costs around $100. You can also take the class online. You will learn how to get out of debt, stay out of debt, how much and what kind of insurance you need, what are good investments and much more. It is well worth your time and you will easily get your money back...and more. Go to www.daveramsey.com and check it out.

Now back to our example. The first thing to do is make a list of your debts. Some people say pay the largest debt first, some say the largest payment and some say the highest interest rate. I agree with Dave Ramsey, pay the smallest balance first. This way you will get something paid off quickly and have a feeling of accomplishment.

Next you need to make a budget every month and STICK TO IT. Here is the budget for this family. They start with $4,166 and give $250 to a church or charity. They now have $3,916. Next they want to buy food, this does not mean eating out all of the time or eating steaks. They should be buying inexpensive food and maybe buying in bulk. They budgeted $500 for food so now they have $3,416 left. Next they make their house payment of $1,000 so they are now down to $2,416. They pay their utilities and that means they may have to cut back on the cable and cell phones. They are paying $500 for utilities so now they have $1,916 left. Next in the budget are the 2 car payments of $300 each so they are now down to $1,316. They then set money back for car insurance and license plates $150, they have $1,166 left. The budget $100 per car for gas so that leaves $966.

They now have all of the basic necessities covered. Since they have 2 school aged kids that are going to be growing, they set aside $75 a month for clothes. These kids are not going to be getting name brand clothes. They will get clothes from rummage sales or Good Will. They also set aside $75 for school supplies and activities so subtract $150 from the $966 and they are down to $816. The parents are each getting $10 a week to do with what they want, I know this isn't much but you have to make sacrifices. The kids are each getting $5 a week for allowance. That a total of $120 per month from the $816 balance so you are now down to $696.

Now they budget the minimum payments on the 4 credit cards which was $50 each. Subtract $200 from the $696 and they are down to $496. They pay their Home Equity Loan of $100 and they are now at $396. Even though the husband has health insurance at work they will still have some deductible to pay so they set aside $100 per month for that. They now have $296 left. They also set aside $46 a month for car maintenance, the husband is not a mechanic so he takes it in for oil changes and routine maintenance. They have $250 left.

Someone now needs to TEMPORARILY get a part time job. It could be mowing yards, baby sitting, flipping hamburgers or in our case we are going to say the husband delivers newspapers each day before work. He nets $300 per month. Combine that with the $250 they have left over and they have $550 extra money each month.

In the next article, which will be the next to last in the series, I will show you what they did with that extra $500 per month.

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