The Ghosts of Money Present. How improve your financial decision making?
Your Money SCROOGED--Money's value are based on our emotions. How do your emotions and past experiences affect your view of money and decision making?
Yes, I invoke the Simple Minds song at the end of the John Hughes classic, The Breakfast Club, considered one of the best movies of the 1980s for our next topic. One of the things I mention when speaking with people is making sure that you don’t forget about yourself, when it comes to your money. When you are caring for a family, your needs and wants can get lost in a shuffle, particularly if you don’t plan for it in advance. Let me show you with an example from my own life that happened on a recent family vacation.
We all love to plan for vacations. We think about what we’ll do, what we’ll need, and where we’ll eat. On my family’s recent vacation to Cape Cod, we thought about all the things we might need for our condo rental: Linens, laundry detergent, activities for our son, food to buy for the condo, soap. Then there were the golf clubs, the clothes, and the beach accessories. All in all, we probably started thinking about all the things we’d need about a month before we left on vacation. I knew that I wanted to play golf twice, so I planned and booked tee times in advance. We signed my son up for the resort’s golf and tennis camp. We signed up for the whale watching excursion. It was a lot of planning of activities for the week.
But at the end of the day, someone got left out—my wife. No one knew what she wanted to do. In some ways we found out what it is like to be suburban parents as we ran from activity to activity, from golf to lunch to the beach to more golf to dinner to bed. Since what my wife wanted to do was relax and read, not run around from activity to activity for our son. With all the running around, we only got to eat at our favorite fried seafood place once. At the end of the vacation, she was more tired and stressed than when we arrived a week before.
Well, why did this happen? The answer is simple, we were so busy trying to make my son happy with his activities during the week, that we didn’t take the time to relax for ourselves. For example, my wife could have taken a morning and gotten a massage. By the time we thought of it, the opportunity had passed. Similarly, when we get caught up in caring for others, particularly day-to-day, or moment-to-moment we often let our own longer–term needs, like financial needs, slip through the cracks.
So if you’re busy taking care of kids and/or parents day-to-day, you are likely missing out on an opportunity. An opportunity to make sure that your financial needs are taken care of so that you can truly enjoy all that time you spend with your family. It takes an investment of a few hours of time so that you can move forward and alleviate the stress and worry you have about your long-term financial future. Enjoy your life more. Contact us today for an appointment to get yourself on your way to a happier, more fulfilling life.
We hear it everywhere--save for retirement, save for college, save for . . . what? So often we go through the process of putting money in 401(k) plans, 403(b) plans, or IRAs that the activity becomes rote. At the end of the day, we forget to ask ourselves the key question: What am I going to do with this money I'm saving?
Many people never ask themselves this question. However, the simplest answer for most is: I am saving this moey so that when I am no longer working, I will be able to have the lifestyle I want.
Great. Now what does that mean? Do you want to stay where you currently live? Do you want to travel? Leave money to other family members or charity? All in all, how much wll that cost?
Ask yourself these questions, then figure out your current expenses. Will the way you want to live be more or less expensive? By how much? And how much will you need to pay for it all?
It is our job to help people figure out exactly what it is they are saving and planning for. If you don't have all the answers today, that's perfectly fine. But if you want to begin a conversation about how to figure out what your goals are or how to get there, sign up for a "Where am I?" assessment or call us for more information at 646-630-0980.
Famed economist John Maynard Keynes popularized the term "paradox of thrift" referring to the fact that the more people save, the slower the economy grows because everyone is saving. While there is some debate as to whether or not this theory holds true, the point is that while it may make sense for us to save more individually while the economy is slow, if we all saved more, it would likely do the economy more harm than good. It turns out that I have found a similar paradox in saving for retirement. The truth is:
The more you earn, the more you have to save for retirement.
You must be thinking, "What?!?! I thought that doing well when I was young gave me the opportunity to spend more now and save later!"
"Who cares about retirement? It is 30 years in the future! I am worried about taking care of my children and saving for college."
There are so many factors involved in the calculations, but the facts are the same across almost all scenarios. As you earn more, in order to maintain your standard of living in retirement, you must save a greater percentage of your income. There are many reasons for this.
First, we have no idea where our lives will lead us. We may earn more as we get older or we may earn less. Second, you can borrow for college, but you cannot borrow for retirement. This is why so many advisors suggest saving as much money as you can in retirement plans like IRAs or 401(k)sas soon as you can. It then has the power to grow and work for you when you are ready to retire. Thanks to the power of compounding, $5,000 when you are 25 with a 7% growth rate, will become about $80,000 at age 65. Waiting until later in life takes away from this growth potential--so if your income increases as you get more experience, you must save a greater percentage of that income to have the same money to spend later. Finally, market volatility can change your likelihood of reaching goals. The longer you have, the more likely you are to reach your financial goals despite market volatility. The longer you wait, the more you will need to save.
This blog might scare you, but it shouldn't. However, it should teach you something, and it is nothing different than you have heard before. If you have not started saving, start saving yesterday. Save as much as you can. Don't let company matches in retirement plans go by. It's free money. Secondarily, if you hit a windfall or sudden increase in earnings, think hard before drastically increasing your spending.
It is our job to help people make the best decision so they can get where they want to go in life. If you are having difficulty figuring out your road to get where you want to go, request a "Where am I?" assessment so that you can get started on taking control of your financial journey.
In our first blog, I wrote a story about the parent of a child wondering whether a Kindergarten curriculum is likely to have greater success getting their child into Harvard or Dartmouth. While the question was fairly ridiculous, in some ways it showed a thought process. The parent has a goal and wants to take the necessary steps to attain that goal. So while the parent has done things incorrectly in understanding the measures needed to attain that goal, what have they done right?
First, let me welcome you to our blog. We will periodically write about topics of interest including investing and financial planning as well as other topics which may be on our minds like economics, education, and sports.