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If you’re working and able to contribute to a retirement plan, are you investing in the plan? Who should manage your money? You may be eager to identify the most talented fund manager so you can invest in that fund. That’s an understandable search.
But if the most you contribute to a retirement plan is 15% of your income, then 85% of your money is in your control. Yes, some of your money pays taxes. Let’s guess that’s 30%. That would leave you in control of 55% of your money (100 -15 – 30 = 55%).
If you’re making decisions on 55% of your money and the professional fund manager is only handling 15%, then you should be as talented or more talented than the fund manager. Are you?
Here are seven questions to test your talent in handling the 55%:
- When you buy a piece of clothing (i.e. slacks, a suit, a coat), are you able to evaluate how well the price reflects the workmanship?
- Do you buy something that is on sale because you need it?
- Do you pay your bills, taxes, licenses on time?
- Can you explain how 95% of what you spend advances your goals?
- Do you have an emergency cash reserve to cover a car or house repair or some other unforeseen event?
- Do you think it is essential for you to give gifts and give to charities?
- Do you save for short and long-term goals?
The more “Yeses” you have the better, and the more talented you are in managing your money. You are your most valuable money manager.
Here’s what the yeses indicate:
- There are plenty of reviews for you to read before you buy electronics and machines of all sorts, but rarely any when you’re buying slacks. An informed shopper can identify workmanship in a suit, a dessert or anything else. If you are buying designer labels, you may not be getting quality in the workmanship. Take the time to learn from someone what to look for in a well-made garment.
- If you are attracted to and give in to the temptation to buy items with a deep discount sales price, you may buy things you don’t really need. You may justify the purchase by saying that it may come in handy later on. Do you have clothes or shoes that you bought and don’t wear? Have you bought a tool or gizmo for the garden or workshop or kitchen that isn’t used? The thing would have been a bargain if the thing were used. Alas, temptation in any area of life can lead us in the wrong direction.
- Paying bills, taxes and licenses on time takes organization and discipline and saves you money on fines and late fees. If your cash flow is uneven because of your job, then you need to be even more clever about juggling the bills so that you don’t waste money on fees and fines.
- Buying an air conditioner for the bedroom so that you can get a good night’s sleep and get up refreshed is in line with a goal for health. A less expensive item like toothpaste definitely advances the goals of good dental hygiene and being more socially acceptable. Buying a quart of your very favorite ice cream when you have decided to concentrate on losing a little weight is undermining your goal.
- Though credit cards may cover an unexpected repair, for every month that the balance is not paid off you are paying 2% a month more for that repair if the interest on your card is 24%. Building up a substantial cash reserve is ideal.
- Gifting is one way we say to others, “I see you; I care about you. I want to do something that makes you smile.” Each of us is complex, partially known and closed in with our own perceptions, pains, and joys. We break out of our isolation, aloneness, and fragility when we connect to someone we care about, and causes we care about. Gifting is one creative way we make a connection of heart and mind. We are not focusing on the function of that person in our lives but on the unique person. We are empathizing with that charity and see how it is contributing to a more humane community. We enrich our lives and those around us with gifts. Those gifts may be things, or money, or listening or lending a hand, or giving enthusiastic appreciation and support.
- Goals are often on a timeline: within this year, 3-5 years out, 10 or more years away. Fewer dollars can be committed to the later goals since the investment has time to grow. Saving toward each at the same time is a satisfying system because it helps us dream about the future we want and gives us a concrete plan for reaching those goals.
You are your most valuable money manager. Your wise daily choices can allocate money to your top priorities, keep you from wasting money, create community, and advance you to your goals and dreams. What is in your control is critically important. Isn’t it satisfying to know that the skills that you need are skills you have? You don’t need superpowers, just daily wise choices. These can lead to your success.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Penelope S. Tzougros, PhD, ChFC, CLU. Financial Planner, Author, National Speaker. Wealthy Choices.com. 51 Sawyer Road, Suite 340, Waltham, MA 02453. Direct to Penelope 781 577 2311.
[email protected]. Fax 781 893 3565. In all 50 states, Penelope S. Tzougros is registered with, and securities and advisory services are offered through, LPL Financial, Member FINRA/SIPC. She is affiliated with Bay Financial Associates, LLC. Financial Planning is offered through Wealthy Choices® and Bay Financial Advisors, Inc. Both are registered investment advisors. Neither is a broker-dealer nor affiliated with LPL Financial.
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