A Few Simple Principles Can Help You Make More Informed Financial Decisions
See your money clearly.
Save For Later
Most of the time, we spend money in small, seemingly innocent increments: diapers, groceries, movie tickets. As a result, our financial outlook can often get narrow, and we miss out on the wider view. But that context should always be informing our financial decision-making. As we make everyday choices, try to stay focused on the bigger picture. To help with that, consider keeping these five principles in mind:
"We need to know where our money goes, so we can gauge whether we’re getting what we truly want from our hard-earned money."
- Know your value. Quickly answer this: What's your most valuable asset? Did you say, "Me"? For many of us, our top asset is our human capital - our ability to earn a paycheck - and that is a powerful reminder that our financial lives are bigger than we often realize. Our value as income-generators has big implications for what investments and insurance we buy, and whether we should take on debt or pay it down. With that in mind, we all should take time to assess our long-term earning potential, based on factors such as career field, location, and level of education.
- Your obligations go beyond debts. When we consider our financial commitments, we should think about more than just our debts. Those also include the cost of retirement and other goals, our promises to our children, and the financial help we might need to provide to our elderly parents.
- Save for goals, not wealth. We save and invest now so we (or our children) can spend later. The objective isn't to earn the highest possible investment return or amass as much wealth as possible. Rather, it's about meeting our goals with a reasonable degree of certainty - and that should drive the financial choices we make.
- Take comfort in a strong safety net. Our finances should be able to withstand tough times. That means having the right insurance, a well-organized estate, and access to cash and credit lines in case of financial emergencies.
- Make purposeful trade-offs. If we buy the big house or luxurious car, we may not be able to retire early. Such a tradeoff can occur with everyday spending, as well. We need to know where our money goes, so we can gauge whether we're getting what we truly want from our hard-earned money. Purchases made today should bring a positive impact to our current lives on par with the sacrifice that that expense makes against reaching our long-term goals.
As you strive to make better financial decisions, small oversights are bound to happen.
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