Looking at last weeks stats, the blog post about planning for your retirement was the most popular one by far. It's no surprise that this is a subject that visual effects artists are concerned about. I think most people in general are concerned about it, but people working on a contract basis are particularly vulnerable to having problems with stable retirement funding.
The good news is that visual effects artists are a hard working, intelligent group of people. If you've worked hard enough to make a living at VFX in Toronto, you're definitely capable of planning your retirement. No matter your age, there is still time to take positive steps towards saving for a better retirement.
In the first part of this article, we looked at your total wealth. We took stock of how much money are you actually worth, minus your debts. In the second part of the article we'll work on the next step, examining how much you're currently saving.
Some people will read this and think, how can I save? I have mortgage payments, my kids have lessons I need to pay for and I just had a month gap between projects. The bottom line, as tough as it is to hear this, is that you simply have to save money. We'll get into the 'how' part in a later article. Today we just want to figure out what you're doing.
To start , look back at your bank accounts for the last three months. This includes credit cards, line of credits, etc. It's important to look at the whole picture and not to fool yourself by not counting credit cards.
A note about credit cards: In general, you should only use credit cards to purchase things that you have the money to pay for. It can be very tempting to just pay the minimum balance, but if you do that you end up paying so much more than the original price. You should only go into debt for purchases that will go up in value like your house hopefully will.
Add up all of your deposits for the last six months. We're going back six months so that you can average things out.
Next, add up all of your spending for the last six months. Include credit cards and lines of credit.
Subtract your spending from your income. Divide your totals by six so you get a monthly average.
Now we're going to determine the rate you're saving.
Take the amount you're saving and divide it by the amount you earn, then multiply by 100.
So, let's say on average you deposit 4000 a month, and you spend 3800.
4000 - 3800 = 200.
200 / 4000 = .05
.05 * 100 = 5%
In this example, this person's saving rate is 5%
Let's say someone else deposits 4000 and spends 4500
4000 - 4500 = -500
-500 / 4000 = -.125
-.125 * 100 = -12.5%
So, in our examples we see that person A is saving 5% while person B is spending more than they earn by 12.5 percent.
There will be some people who are scared to do this exercise because they don't want to know the answer. Those are exactly the people who should be doing this. It is always better to know than not to know. I think this applies to everything in life, but it applies especially to your finances.
If you have a positive saving rate, this is great. You are already in the habit of not spending more than you have, which is a great base to start from. This is something we'll be building on in future posts.
If you are spending more than you are earning, this is trouble. You have to stop doing this, it's a very bad habit to get into that will negatively affect your retirement, and also your life in general. In future posts we'll be looking at ideas on how to save to help you through this.
I want to end today's post with the idea that even if your finances are a mess, it's not too late to change things, but you have to want to change. You are the one who will have to do the difficult work, but it can be done. Anyone reading this is surviving in a tough industry, you are more than capable of planning your retirement.