What are your priorities in life? Do you spend much time really thinking about them? Sure, we all think in terms of generalities. We want to be happy. We want to be successful. Maybe you want to be married and raise a family. But do you think below the surface to the specifics and how those priorities will be carried out in your life?
We make decisions every day, from the mundane such as what you will wear or eat for breakfast to making decisions on careers, schools, etc. Unfortunately, many of us postpone decisions for long periods of our lives and we don’t very often consider the consequences of all the decisions we make. During the course of your life you will need to make decisions about education, housing, transportation, career, whether or not to buy insurance and if so what kind and how much, whether to get married an have children, your children’s education, retirement, making a will, where you will live, what your lifestyle will be, and more. Somehow, we think things are going to work out.
With every decision we make there are consequences. They might be delayed which tends to lead us into not letting ourselves think of the impact they will have. And if we make enough decisions that have a delayed impact, before too long we find ourselves overwhelmed with debt and wondering how to get out from under this heavy burden. Even those decisions will have consequences. Do we declare bankruptcy and have it negatively effect our credit for years to come? Do we default on loans and have repossessions and more bad credit? Do we come up with a plan that involves sacrifice and re-prioritizing our life, so things make more sense to us and life is more easily managed?
I recently read an article about a family of four that was lamenting over how they could not live on a salary of something like $350,000 a year. How many of us would like to have that “problem?” The family was two adults and two young children. On the surface this looks crazy and to some extent it was crazy, because the author of the article seemed to sympathize with this family. But when you looked at the specifics of their lives- where they lived, how they spent their money, etc. they were in fact doing better than most people in this country, even though I would argue that some of their decisions were poor ones, especially if you think you are just getting by with that kind of money.
Ideally you should start planning for your whole financial life from the time you leave high school. That’s right. Plan for retirement starting at age 18. Ask yourself hard questions. What do I REALLY need? If you make the decision to live in NYC or San Francisco that will force you to pay excessively high amount for housing, taxes, etc. You can make that choice if you want but do so with your eyes wide open. The family above lives in San Francisco. Their house cost 1.8 million dollars and just the property taxes are another $22,320 a year and their mortgage payments are $46,800 a year. They have a two- year old and a four-year-old, yet they state they spend $70.00/day on food. My wife and I spend a little more than that a week. What if you are in an occupation that pays $60,000/year. Do you really think you can afford to live in San Francisco, Boston, NYC ?
What about education? Your first decision needs to be about what you really want to do for your living. Forget about what websites are telling you about where the big money is. Many people go to work miserable every day because they are chasing someone else’s dream and not their own. Make sure your dreams are reality based. What if what you really enjoy doing doesn’t require a traditional four-year degree? Why spend the money on that and burden yourself with the debt that follows on something you don’t really need? And if you do need a traditional four-year degree, do you really need to spend $40,000+ per year plus living expenses to attend a higher tier school so you can tell everyone “I went to…?”
I encourage you to take a hard look at life and how you fit in. I can almost promise you that the things you feel are critically important at 18 are going to seem much less important in your 50’s and as you get older many of those things are not going to be important at all. Learn from those who have gone before you. Many people are struggling financially. Some is due to circumstances beyond their control. Maybe they lost a job, a spouse died, they became disabled, etc. But many more are struggling due to a history of poor financial planning and poor decisions. Let’s avoid these. Each time you consider a financial decision, ask yourself a few questions: “Do I really need this?” If it something I do need, “Do I really need to get the top model or the most expensive one?” “Are there other ways I can accomplish what this is going to accomplish without going heavily in debt?” “Is this going to have a negative effect on my retirement?” Remember, money cannot go in two different directions at the same time. Money you spend in one direction cannot be put into retirement. Compounded interest is your best friend. Plan for the future NOW.
Do you ever tell yourself that “It’s just a couple of hundred dollars? “That it’s not going to make much of a difference? What if you dropped a couple of hundred dollars a month on things you want but don’t really need, like fast food, coffees, lottery tickets (some think this is a retirement “plan”), something that you found on sale, etc.? If you started with no money in your account but put that $200 a month in an investment that earned 6% annually, at the end of 10 years with compounded interest, you would now have $34,494.00 and would have earned almost $8,500 in interest! If you did this for 30 years, you would now have $194,902.59 in your account and would have earned $122,902.59 in interest! Just by avoiding $200/month of needless spending and investing this money for your retirement you can make a significant impact on the amount of money you will have to live on as you get older. Remember: Nickels and dimes matter.
Today is a new day. Onward and upward!