By Frank Randall
It’s time to conclude our four-part series into common financial pitfalls that exist and how to tackle them. Previously, we explored the common pitfalls of financial disorganization, lack of prioritization, and focusing on a rate of return over rate of savings (along with some solutions to combat to be sure to check those out!)
Today the pitfall we are going to discuss is guessing the need. Often times, financial decisions in the financial planning industry are based on guess work – not based on facts. I might be dating myself a bit, but I remember a commercial from the mid 2000’s basically asking the viewer to call in and find out ‘what their retirement number is’. They would then build a financial plan off of this “number” and somehow identify what that number should be 30 years from now.
That may be a question someone has asked you before; “How much money do you want to have when you retire?” I think that is an unanswerable question – most people have no idea what is for dinner next Thursday night, or how much their vacation will cost next year. Not only is it unanswerable, but it’s actually lazy for today’s generation. 30,40,50 years ago when many people had a pension, and there wasn’t a high cost of living, student loans were not out of control, or we weren’t dealing with a once in a generate crisis every 5 years, then sure it might have made sense.
A far better approach, in my opinion, would be to focus on what you can control today. If we are only focused on some mystical retirement date down the road we may miss opportunities to live and enjoy life today. Now that doesn’t mean to simply ignore saving for the future, but lets start with what we can control today.
We do this by following four key steps; protection first, becoming a world class saver, saving in the right places for liquidity, and being debt free. These next four we will review over the coming months but instead of guessing the financial need for the future, lets quickly review what we can control:
- Protection First. You are your most valuable asset. The ability to work and produce income over the next 20,30,40 years is more important than any rate of return an investment can yield. Next time we will go a little deeper in the things like, understanding employee benefits, disability/life insurances, car insurance, and the importance of LLC’s/wills.
- Become a world class saver. According to the US Census Bureau the average American saves about 5-7% of their income. World Class Savers consistently put away 15-20% of their income. That may take 6 months or 6 years but it can be done with the right habits.
- Saving in the right places. This is called liquidity. Saving 15-20% of your income is the goal, but the next question is where to save. If it is all in a retirement account you really put the short term expected and unexpected events at risk. This is why we want to balance where we are saving!
- Lastly, being debt free. There are good and bad types of debt, and debt can be a powerful tool if used correctly. We will break these down at a later date but understanding how to use debt to your advantage can be a powerful skill.
Today’s world is unpredictable, chaotic, and fast. A financial plan needs to be rooted in data, disciple, and direction. These four rules help eliminate the guessing and hoping that everything will workout okay.
I look forward to discussing these four rules in the coming months. As always you can find me at https://www.linkedin.com/in/frandall/
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 600 DELAWARE AVENUE, BUFFALO NY, 14202, 716-8177109. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Alliance Advisory Group, Inc is not an affiliate or subsidiary of PAS or Guardian. Alliance Advisory Group, Inc is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. CA Insurance License Number – 4128184. 2022-142003 Exp 08/24