More on Money Attitudes
I had dinner Saturday with a 35 year old friend. She, like most of us, came from a family with poor money attitudes. Mom was not a saver and Dad was in credit card debt when she was a child. We got talking about her finances because she mentioned that when she did a budget for the foster care program it looked like she should have $900 left over every month.
Did you add in your vacation, I asked? Her eyes widened a bit. No, she said, I forgot that. Then for the next quarter hour she outlined things she had forgotten to put on her budget.
How much of an emergency fund do you have, I asked? Very little right now, she said. I had some major expenses with my rentals and the tenants are not paying on time. If I sell the place, should I invest the money or pay down my home mortgage? You need 3-6 months of expenses put away for emergency, I said. She looked concerned. If I put it in my savings account I may spend it. What about your credit union, I asked? She said, Oh yeah. I could put it there. I can’t really get at that money very easily.
Are you in a pension plan? Are you a state employee? No. I have a 403b! How much is in there? And what is it invested in. No clue. She asked, How much should I have at my age to be doing OK. About three times your income – about $150,000. Now you’ve burst my bubble, she laughed. I’m not even close. Are you saving 10% of your pay? No, she said incredulously. The thought had never occurred to her. If you don’t start saving 10% in your 30’s you’ll have to save 15% or 20% or more later on. For every $1000 you put in your 403b, it costs $700 from your take home and the rest comes from Uncle Sam. You could put $15000 away each year. Shock. How much could you save right now? I don’t know, she said – right, I said, you have to work on your budget first. Start with what you can do, save your raises, and do that budget!
It’s the same for all of us. Without a blueprint, you’ll never know how much those little spending decisions are really costing you!
Tens of millions of Americans are seriously under-prepared to meet their financial needs in retirement. So said Ben Stein of the National Retirement Planning Coalition.
The only thing between many Americans and total poverty is Social Security. Company pensions are disappearing and savings is a foreign concept to many.
It’s a shame that our schools don’t teach the time/value of money. It would only take one lesson to motivate young people to wise up and not follow their parents’ poor savings ways.
The way money works is simple and quite beautiful – if it is working for you. If is working against you – as in credit cards – it is one of the scariest things out there.
If young people could see how incredible a small amount of savings now would be in their future, maybe they would totally revamp the future of social security and pension – and increase their own mobility and independence. If.
Unfortunately, the practical, motivational and inspiring side of finances rarely makes it into the public eye. Usually we hear about the dire, boring part. Maybe because that’s what sells the newspapers and magazines?
It’s time for you to take on a contrarian attitude. Go against the poor lessons you learned. Ignore the press. Understand the 3 basic financial principles and just do them.
If you only had to know four things about your finances, what would they be?
Spend less than you make (save 10% or more annually)
Select quality investments
Consider tax reduction
Cover your biggest risks
And maybe there’s a 4th? Get a good comprehensive advisor. Whether you are a business owner, a busy professional person or a mom trying to hold the household together, a good advisors can help you gain the knowledge you need to get ahead.
You can run for a long time on numbers 1- 4 before you start to realize that you are not getting to your goal.
How do you start spending less than you make? Say no. To yourself. Not an easy thing to do. You have to transition from a spender to a saver. That means someone who saves, not to spend later but to just save. If you are able to do this, eventually you will get to the point that your investments will pay you an income as well as your work paying you an income. If you never make this transition, someday you WILL be poor. That will be the day you can no longer make an income. If you are thinking that day will never come – do a little survey of people who are 60+ and see what they experienced as they got older – what they thought about having to continue to work.
Selecting quality investments – at least go to Morningstar.com and take a look at what they think of the investment choices in your employers pension plan – your 401k. As a captive investor, you have to make the best of what there is. A little diligence here could net you several hundred thousand dollars more in retirement capital over 20 years or so.
Taxes are one of the 4 basic things you need to understand about your finances to get ahead.
Facts and emotions. We can set up any kind of a plan to make our life better – finances, health, spirituality, relationships – but if we don’t have a strong – and healthy – emotional attachment to the outcome of the plan it just fizzles away. That’s what happens to most New Year’s resolutions.
This a time of year when we all want to pay less taxes. Will you set the time aside to discover how to make next April better tax-wise than this one?
We make resolutions because we recognize a gap between what we have and what we want. We may even buy something to help us organize – a weight loss system or a financial plan or a new study Bible. Then what happens?
I find I am very much motivated by externals. The problem with that is most external motivation its not always there. That’s when my bad habits and attitude problems creep back in. I’ve mentioned before that I put my good financial habits on automatic pilot. That way, my tendency to buy toys does not have a devastating effect on my current and future financial security.
But there are other habits I can’t put on automatic pilot. Eating for example. Exercise. That’s when my tendency to place more value on enjoying the moment conflict with my health values. Just as most American’s desire to buy whatever they want whenever they want it conflicts with their future finances.
What’s the answer? If you figure that out email me!
I’m trying self examination right now. Looking back on the lessons I learned as a child and their impact on me today. Of course the challenge there is that what I remember isn’t necessarily what went on, although I suppose if it’s what I thought was going on, it still was internalized. Does that make any sense?
Number 4 of the 4 basic things you have to know about your finances is covering your risks.
If you care about your family or your business you buy life insurance and make a will and buy out agreement.
If you care about your assets you buy umbrella liability coverage – for lawsuit protection and long-term care insurance and health insurance.
If you care about your income you buy disability insurance.
If you care about retirement, you max out your 401k plan.
This is probably the most important thing you can do. Get in touch with your values and take the steps you need to to make them happen.
Do you have to do these things? No. You can walk around thinking that you won’t die young. Fact is there is a 1 of 5 chance you will. That’s the death before 65 stats. From social security. Then there are all the people who become uninsurable or sick. Their entire future is left to chance because the only kind of insurance they can get is self-insurance. That is, if they get sued, they pay, if they get sick, they pay.
People complain about being insurance poor. What about being lawsuit poor, or medical expenses poor or long-term care expenses poor.
Plan to give away your biggest liabilities. The little ones we can self-insure. It’s that million dollar lawsuit or $50,000 health expense we don’t want to be on the hook for – not the $500 damage to your car or the cost of a throat culture for the kids. Those are affordable or budgetable. Just cover the big stuff.