Discussions of personal finance usually end up in one of two ways, with drooping eyelids, yawns and repeated glances at a watch or in raised voices and some variation of “None of this applies to me I know what I’m doing.” Yet every day more and more people find themselves in financial hot water without much of a clue about how to get out or how they got there in the first place.
There are things that you, and by you I mean everyone, can and should do to get their financial house in order.
I’m Young and healthy
We’ll start at the end with estate planning. Yes, even if you are just starting out in life the best place to start is where you are going to finish. Even without much of an estate to worry about there are a few documents that everyone should have prepared. They are a will, a living will and a durable power of attorney.
People often ask is why do I need a will or a living will if I’m young and healthy and will be around for decades to come. The short and uncomfortable answer is because bad things sometimes happen to young healthy people and those who love you will have enough to deal with without having to wonder if they are honoring your wishes.
Plan on living
There is an old expression that my grandmother used to say to me in Italian that went, “Live like you are going to die tomorrow and plan like you are going to live forever.” Regardless of how near or far off retirement appears at the moment you can be assured of one thing, it will be here faster than you can imagine. Life progresses at that speed of, well, life and failing to plan for retirement is the same as planning to fail at retirement.
Start stashing cash away as soon as you start working. If you’ve been working for years or decades and haven’t put away a dime yet, start today. Do it first, before you buy a new hat or car or shoes or whatever it is you think you can’t live without right now put away some money for retirement. Lock it away and forget it exists.
Just in case
Since we began the last section with your planning on living a long life culminating with a lengthy well funded retirement it’s only fair that I point out that no one lives forever. Which is why no matter how old you are your personal finance future must include taking care of things when you’re gone and that means life insurance.
Why life insurance? For the same reason you insure your car and your home because they have value that you wish to protect. Life insurance protects the value of your most precious asset, your life. A regular review, every year or two of your life insurance coverage ensures that your coverage will always be adequate to protect your loved ones from the loss of the irreplaceable you.
Make it a habit
Saving for retirement or a new car or a beach house (when I get the beach house you’re all invited) is best done as a habit. Percentages work better than flat dollar amounts because they work like a raise in reverse, you’ll quickly get used to living on what’s left after saving and won’t notice the difference.
The reason we all don’t have beach houses is the same reason many of us don’t have enough to retire on comfortably, we’re too busy living in the moment and not considering the next moment or the rest of our lives. Saving is like getting paid by your employer. You have a reasonable expectation that you deserve to be compensated for your work. Why not consider saving to be paying yourself for being the best ‘you’ in the world!
Seriously, taxes take a real bite out of whatever we earn regardless of how we earn it but you can always bite back. In between just paying according to the tax charts and doing serious time in a federal prison lays the sweet spot where you keep as much as possible while paying as little as possible.
Depending on personal circumstances, such as your ability and desire to study and learn tax code and your income and expenses consider hiring a professional to help you prepare your tax return and if your income is high enough do tax planning. Professionals like CPAs actually like preparing taxes and love reading tax code and rules so why not take advantage of their misguided infatuation to reduce your tax bill.
Bill sent me
Shakespeare, that great financial guru said “Neither a Borrower nor Lender Be”. Bill knew a thing or two about banks it seems. Credit and debt are two faces of same beast and both should be treated like the monster they are. Establishing maintaining good credit are vital to a sound personal finance plan. Good credit is also the greatest carrier of the disease known as debt. In many cases the better the credit the worse the debt.
Manage both your credit worthiness and indebtedness as repulsive rather than attractive forces. By this I mean do your best to keep your credit score high and your debt low. This will provide the unique advantage of providing you with the ability to borrow when you need it and the greater asset of not needing to borrow as much.
Money and shoes
My wife assures me that shopping for shoes is not an obsession that can not be satisfied but really a noble quest for the intersection of style and substance. She also says the same things about banks and I agree with her about banks and not so much about shoes. Banks are in business to make money for themselves. Your objective when dealing with banks should be making money for you.
Shop for your banking needs with the same zeal that you shop for shoes or tools or whatever your obsession is and remember just like shoe styles the interest and fees banks charge change often so stay on top of them and do business with whoever gives you the best deal.
You Think You Paid A Lot!
Got kids? Plan on having kids? They’re expensive and getting more expensive by the day. This is particularly true of college educations. Of all the segments of the economy the only one that has never, ever gone down is higher education. Some people will tell you to start saving on your child’s first birthday or at birth, my thought is start at conception and you should be okay. The sad thing is I’m not joking.
I’ll finish where we began by mixing some metaphors for you enjoy while you sit by the pool or fire, depending on when and where you read this. Take the bull by the horns and be the master of your own financial destiny because a fool and his money should avoid a lender or borrower being.