Paul...my husband, Andrew and I make good money – nearly $80,000 jointly, yet we both feel very insecure about our finances. With the war and everything else that is going on right now, that insecurity is growing. We feel lost. On a day-to-day basis, we do okay; we pay our bills and put food on the table. However, we can’t seem to get ahead. We are in our late thirties, have two children and a large mortgage. We spend a lot of money on the house and kids.
We have just finished paying off last year’s Christmas expenses. Neither of us puts very much money into our 401(k) plans and we have little emergency money set aside. As far as preparing for college expenses, we haven’t even started. We feel like our finances are out of control, but we are at a loss on how to get them under control. Any advice you can offer would sure be appreciated.
My advice on your concerns about the war is to turn off the T.V. Anyone who is financially independent today because they saved and invested during their working lives, wasn’t influenced by the tragic events of the past. They saved and invested through the assassination of JFK, the Vietnam War, Nixon’s Watergate, Clinton’s “problems” and other foreign and domestic troubles. Yes, it is bad, but so are a lot of other things. Take care of yourself and your family first. As they say in the airline dialogue, “put your air mask on first.”
Kim, anything worthwhile takes effort. The way to get control of your finances is to consciously and aggressively take control of your budget. It is simply a conscious decision. If you are like most people, you do not work from a hard and fast budget. The lack of real, hard-fast budget control is a common thread for unsuccessful families. On the other hand, most successful financial couples have excellent budget practices and know their financial priorities.
The key to getting control of your finances is the setting of financial goals and prioritizing them. Once you have done that, the day-to-day financial decisions become clearer. If you have “fuzzy” goals, you allow yourself too much latitude when it comes to making a decision to spend a dollar or to save it.
Like most people, you probably have long-term dreams, (a financially independent retirement), intermediate goals, (your children’s education), and short-term goals, (paying off last year’s Christmas presents before buying this year’s presents). All of these goals need immediate attention, but a degree of importance, or prioritization, can add some clarity to your decision-making process.
Once you establish your priorities, you must devise a strategy to accomplish your goals. You and Mark must work together and come to a complete understanding and have your priorities set in concrete in order for them to work effectively.
If you see a financial planner, he/she will tell you to pay yourself first. You must fund your short-term, intermediate-term and long-term goals first and run your lives on whatever is left. In order to do this, you must have faith that you are doing the right thing. Often a financial planner is nothing more than a coach or cheerleader, encouraging you to stick to your decisions so that your money has time to work for you. The earlier you start making these decisions, the better. As the commercial says, “Just do it.”
A lot of people can’t see the advantage of planting acorns to grow oak trees. Many excellent investment options can show you that if one had invested as little as $100 a month for the last 35 years, today they would have $1,000,000 or more. Unfortunately, some people start such a program, but after a few years, take out the money for something - like a new car. This interrupts the compounding feature of wealth accumulation and completely destroys their chance at financial freedom. The new car purchase, (in this example) cannot come out of the long-term retirement money. It must come from a different part of the budget.
It is very important to understand the purpose of each investment account and make sure that one doesn’t raid a long-term account for a short-term need. Yes, this takes discipline and commitment, but anything worthwhile does.
Either on your own or with the help of a professional, you need to understand how money compounds and how big, strong, financial trees grow from a little “seed money.”
At the risk of sounding redundant, I’ll say it again. A good financial strategy, disciplined saving and time is the key to financial freedom. Best of luck as you endeavor to “take control” of your finances.
Paul D. Reasoner CFP, CIMA
These are the opinions of Paul Reasoner and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Compass Wealth Advisors, LLC is an advisor owned independent Registered Investment Advisory Firm. Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, FINRA/SIPC. Cambridge and Compass Wealth Advisors, LLC are not affiliated.