LBYM: Live Below Your Means

In the absence of generous, reliable pension benefits, all successful retirement plans depend on your ability to develop a portfolio of investments that will fund your retirement lifestyle. For most affluent technical professionals, this means that successful retirement planning begins with learning to live below your means (LBYM). If you get this component of retirement planning correct, the rest will fall into place. If not, no advice will help you. Exceptions to this rule are lottery winners and recipients of large inheritances. Unfortunately, I know of no way to guarantee you win the lottery or are born into wealth. The critical impact of LBYM principles on retirement planning is easy to understand. You will never have any money to invest if you spend it as fast as or faster than you earn it. So the LBYM principle is required before any investing can take place. If you do live by this principle, then you are either investing regularly or burying money in jelly jars in your back yard. Be sure to practice the former and your retirement plan will stay on track. You might be concerned about exactly how you allocate your investments, but these issues are neither as complex nor as critical to the ultimate goal as many inexperienced investors believe. Instead, the optimum investment portfolio is as much a matter of personal comfort as it is a specific set of investments. As long as you've learned the LBYM principle and make regular investments, you are likely to find efficient investment vehicles that will insure a safe and successful retirement.

There are two major components of LBYM: 1) maximizing means and 2) living frugally relative to those means. The first component is related to career path and job choices while the second is related to spending and living habits. Both are important. Even more important, however, is the realization that the LBYM principle is only a means to an end. If the achievement of an LBYM lifestyle and comfortable retirement requires that you become a miserly curmudgeon, you have missed the point. It is possible to put too much emphasis on either of the components above. Ruthlessly driving your career to ever-higher salaries may not be satisfying or comfortable for you. Similarly, an obsession with the cost of every luxury or comfort item may keep you from enjoying life. Balance is the key to an LBYM lifestyle and a happy and successful retirement.

Although the LBYM principle is simple and obvious, violation of it appears to be the major cause of failed retirement plans. It is not always as easy to apply as it appears. For many, it seems impossible. In a consumer-oriented world with advertisers encouraging us to buy something at every turn, it is not surprising that many become materially focused.

For more information on LBYM practices, visit http://www.golio.net/Chapter3.html

Many of the urls listed on this page provide articles, tips and web tools to help you develop an LBYM plan.
Visit my site: http://www.golio.net/