Friday, November 30, 2007

The What If Game

I really enjoy playing The What If Game with my finances. The game basically involves thinking up some scenario that could happen, and determining how that would affect my life and my finances. It often goes as far as using Excel to calculate the exact costs or benefits of the scenario.

Case in point: Debt Reduction
I play The What If Game on this one at least twice a week. I’m constantly thinking of new scenarios that would affect my income, and therefore affect my debt payoff. If I get a raise, how long will it take to become debt free? If I change jobs, how long will it take to become debt free? If I get a second job, how long will it take to become debt free? If I win the lottery, how long will it take to become debt free? The list goes on.

Case in point: Retirement
Right now I’m working on getting out of debt, so I haven’t started contributing to retirement yet, but I wanted to make sure that waiting till I was debt free to start contributing wasn’t going to keep me from saving as much as I’ll need. I whipped out an Excel spreadsheet, assumed a few things like starting contributions at age 30, getting a small employer match, getting a 9% rate of return, and starting to use the money at age 65, and then did some calculations. I was relieved to find out that this will give me plenty of time to build up a nest egg of over 3 million dollars. Even with inflation, this will be more than enough to get by on, and if my income gets better than assumed, I could even retire early.

The What If Game is a fun way for me to look toward the future and contemplate how little things that happen now could affect my future in a big way. The plan I have in place will get me where I want to go in a reasonable amount of time, but it’s nice to think that things could get even better with one little change.

How about you? Do you ever play The What If Game? What sorts of scenarios do you play with?

1 comment:

Matt and Carol said...

I 'what if' all the time! Currently, my 'what if's are things like 'what if none of us were sick and C didn't have to be fed every three hours - could I actually get a full night's sleep on my own bed?' [instead of on the couch with both of us sleeping through that every three hour alarm].

We're looking at starting retirement at 32-33 are delighted to see that - if we didn't touch the 9G or so we already have [with employer match that will be fully vested in April], and a 9-12% return, we should be able to retire comfortably at 65 or so. That's without putting any additional funds in. With additional funds, we should be able to easily lower that age if we choose.

My big 'what if' is 'what if I could quit my job and just stay home with the kids instead of working adding stress to my already stressful life [what if I hadn't had school to worry about on top of C being in the hospital etc. - at least I'm not worrying about finances on top of all of that!]

What if I won the lottery... Man, it would be so much better now than it would have been a few years ago. I think we would have done okay with it, but now... whole different story!