Having engaged in the financial arena for over 30 years, I have developed 10 economic principles that can bring financial peace at most any age. While some of these may be familiar, others may be new to you. Notwithstanding, power lies in their application. I have learned this personally as well. I have spent hours with many whose economic lives would have been so much better had they adhered to these basic concepts. Conversely, I have seen the positive results of those who have diligently applied these principles. Consider the following:
#1 – Give back. Much could be said regarding this principle. Paying an honest tithe or giving to a selected cause is a meaningful pursuit. I believe in this principle and do not shy away from recommending it to others. No matter your faith, consider this habit in your life. Ponder Malachi 3:10-12 in the Old Testament. There is power in giving back.
#2 – Have an emergency fund. Everyone knows, “stuff happens.” Establishing an emergency fund is essential. Who in their life has not experienced an unexpected job loss, surprise medical bill, unanticipated repair cost or even a true family emergency. Holding 3-6 months of income in a liquid emergency fund can help turn lemons into lemonade.
#3 – Live on less than you earn. Heber J. Grant once said: “If there is any one thing that will bring peace and contentment into the human heart, and into the family, it is to live within our means. And if there is any one thing that is grinding and discouraging and disheartening, it is to have debts and obligations that one cannot meet.” Those who establish a standard of living to allow a little surplus, control their circumstances. Those who spend more than they earn are controlled by their circumstances.
#4 – Distinguish between needs and wants. The notion of delayed gratification has all but evaporated in our culture. The “get it now” philosophy is alive and well. Attractive offers such as “90 days same as cash” or “zero money down” coupled with historically low interest rates create a retail atmosphere that entices the undisciplined. Full disclosure – I’ve been there! A helpful suggestion is to simply pause. Take some time as a family to prioritize needs and wants.
#5 – Develop and live within a budget. Many agree with the old adage, “Plan your work and work your plan.” Moreover, write down your goals and share them with someone you trust, creating a relationship of accountability. While uttering the “B” word is a quick way to dampen a good party, successful people know that executing a budget is important to achieve economic freedom.
#6 – Invest in your future. With less than 10% of the private work force participating in defined benefit pension plans, millions of American do not have this advantage. We each must realize we are responsible for our own retirement. As a general rule, save 15% of pre-tax income. Realize that this portion of your monthly income belongs to the future.
#7 – Align financial strategies to mitigate risks. Both pre- and post-retirees face a variety of financial risks: market, inflation, capital preservation, long-term care, longevity, survivorship and legacy comprise just a few. Each risk presents unique problems and challenges. First, be honest to identify the risks in your life. Second, quantify each one. Third, construct effective financial strategies to mitigate them.
#8 – Take a comprehensive view of your financial life. As we begin to formulate meaningful strategies, we must understand and view our financial lives in a comprehensive way. Like the game of chess, when one piece on the board is moved, the whole board changes! We should look at our financial lives much the same way. If not, we inevitably run the risk over time of creating, what I refer to as, a “financial junk drawer.” We get calls to fix these all the time.
#9 – Take ownership for where you are. Be honest about whether you live in the accumulation or distribution phase of life. Those in their 20s, 30s or 40s face different risks and need different financial strategies than those in their 60s, 70s or 80s. While we know this is true, few are honest with themselves about this reality and thereby pursue strategies that are incongruent with their economic stage of life.
#10 – Seek professional advice. We live in a complicated world. Many will live 25-30 years in retirement. Having competent professional advice along the way is essential for financial peace. Engage someone who takes a comprehensive view, has the heart of a teacher, seeks first to understand and is willing to stay connected with you over time. At McKell Partners, we pride ourselves in such an approach.
Begin to apply each of these principles. One by one, you will begin to experience the wisdom of their application. Then, through their application, you will begin to have a credible claim on financial peace. Happy Trails!