When it comes to finances, the questions clients ask usually are along the lines of “can I afford this?” or “should I buy that?” Those seem innocent enough, but then it occurred to me that the focus with money is almost always on acquisitions and affordability – NOT the big picture. There are far more important questions to ask and they all relate to saving, NOT spending.
Shifting your focus
Your focus should be on your monthly/quarterly/annual savings objectives. Most tend to ignore this aspect completely. Remember, the most important part of any successful long-term plan is to start saving right away and make it a long-term habit. It’s easy to get caught up in managing your investments or making changes given the market conditions and then forgetting the basic element of following through with a savings plan. You check your portfolio to see if you’re gaining or losing ground with each subsequent investment account statement, read tweets, talk about the market roller coaster, etc. We spend a great deal of our financial tolerance on paying attention to the noise rather than the items that matter most. It’s time to change this dynamic and make saving a priority.
Developing a saving plan
There are only two key elements to consider. The first is understanding your income. You will want to know and think about how your income acts as fuel to help drive you to your destination. No income – no fuel and no destination. With more income, you will have more choice and with choice comes the ability to decide about further savings or investment plans while helping shore up your finances.
We often recommend spending money and investing heavily in yourself first. Figure out educationally what you can do to make yourself more valuable to your company or give you the skill set to go out there and start your own business. No matter what, spend time really considering your income growth for the future and then follow through with an action plan to make that a reality.
Of course, the next step is getting ahold of your expenses. This is an entirely different thought process, but one that must be done to understand what money actually goes out the door each month, quarter and year. We will spend more time with subsequent blogs to discuss the myths and realities of your personal expenses; for now, let’s leave it at this – you need to know what your expenses are to figure out how much will be left to help meet your savings goals.
Get started today
Remember, it’s income first. Talk more about how much you can and will bring in the door in the future. Start with this important step rather than worrying about spending. We understand spending money and quality of life are key elements to any fulfilling life. Yet from a financial standpoint, your financial happiness will begin in earnest once you start to ask more questions about income.
Michael Carlin, AIF®