This is the final installment in a series of six articles detailing information every person who wants to take control of their financial future should know.
No two ways about it—the sooner you start to take control of your financial future, the better off you will be. The sooner you come up with a plan and actively implement your plan, the better off you will be. Many people who don’t have a plan in their 20s still don’t have a plan in their late 50s. And now, those 30 productive years are behind them. A few steps can determine your future.
Step One-Get Your Life Plan Together
Make a plan. Plan your strategy for getting a job and earning a living. Often, the only planning that takes place is graduating. As mentioned before, successful people make education a means to an end, not an end in itself.
Next, give careful consideration to your life partner. Your life partner is also your financial partner. Your commitment to a retirement plan which results in over $1 million is only surpassed by marrying a person who is also committed to reaching a similar financial goal and the result can be a over $2 million you both can enjoy. A great life/financial partner can result in a monetary windfall. A bad choice, a.k.a. divorce, can wipe out half of your life savings. Another important factor is your family. Children are a huge financial and emotional decision, and happier families are those that just don’t happen by chance or mistake.
Step Two-Get Your Budget Together
A viable budget includes the constant monitoring of expenses and a line item for savings. The sooner you take control of your income and spending, the sooner you can get on the financial superhighway to success. The more you borrow, the more likely you are to drive off the proverbial financial cliff.
Step Three-Don’t Forget About Taxes
Those who know about taxes know that the government makes retirement saving a priority by deferring yearly investment gains and/or allowing tax free withdrawals at the end of the road. Find out about all government designated retirement plans and their particular characteristics.
Step Four-Jump in the Pool and Jump the Shark
You have to start. Make your financial commitment and stick your toe in the shallow end. $5,500 invested at 7% for 40 years means $1.2 million. $5,500 invested at 2% for 37 years means only $339,000. Auto Pilot is not a smart financial plan.
Take the long term view, because you have the long term. Look at dips as buying opportunities.
Worried about losing your investment? Financial consultants can advise you of strategies for placing automatic sell orders on your portfolio and limiting losses. In this way you can reduce your risk.
Step Five-Enjoy Your Life
If you can’t enjoy your life by making a viable plan, living within your means, and being content with your life, then you will never be financially successful. When you take the steps to direct your own future, you will have a better chance of achieving success in the end. A wise person once said, “If you don’t know where you are going, any road will take you there.”
And, how does it feel when you’ve made the necessary sacrifices and reached the top of the financial mountain? Having used compounding to your advantage, monitored your spending over the years, and learned about investing feels, in a word, GREAT. You have reached that plateau, that mental place of Shangri-la that only money can buy, where you have freedom and options. You are now in the enviable position of being able to tell the rest of the world to go to heck. Your time is yours. The feeling is actually better than great.
Normal, everyday people can actually reach this goal with normal, everyday jobs; it does happen in the real world all the time. One couple, he was a hotel valet and she was a waitress, made investing their priority for 40 years. They went fishing instead of cruising. They learned to cook instead of dining out. And, she went to garage sales instead of boutiques. Both are 56, and they have a brokerage account of over $700,000 and a 401K account of over $400,000. At a time when many people are reaching the end of their working lives with only a minimal amount in savings, this couple has a wonderful future to look forward to together.
Another couple used to take one day a year to go skiing. They ambled up to the resort in their old paid off sedan and parked alongside the new model SUVs and large trucks. These vehicles were mostly leased or bought on credit. The couple paid for their lift tickets in cash instead of on credit cards, and skied on equipment from the thrift stores. Today, they show up in a free-and-clear paid-off newer model truck, hold season passes, and can afford, but still don’t buy, the latest equipment. On the off-season they travel to Fiji, New Zealand, or wherever the dart hits the wall map. They have no debt. $5,500 a year compounded can go a long way.
Still don’t believe this all works? Check out the clubhouse at the local golf course or the ski slopes on a Wednesday morning in February. This is where you will find a few trust funders, a few instant millionaires, and many, many individuals who worked hard, lived a reasonably normal life and can now enjoy years of recreating. It’s the ultimate payoff. These are the people who were not slaves to mass consumption and instant gratification masters. These are the people who have conquered their financial future.
(Illustration by David Darchicourt)